Subglobal Climate Agreements and the Copper Mining Industry
12:00 - 13:30
Refined copper production is energy intensive and involves significant international trade flows in refined and pre-refined commodities. Since these are homogeneous products, production location is sensitive to regional differences in production costs. This paper quantifies the efficiency and distributional consequences of subglobal carbon policies for the copper mining industry. We formulate a plant-level spatial equilibrium model, calibrated to 2007 market structure and panel data estimates of supply and demand elasticities. Counterfactual simulations with our model indicate that carbon leakage rates in this industry under a subglobal carbon tax could be around 30%, and as high as 50% for mining activities. While the efficiency gains from sectoral rather than regional emissions markets could be substantial, a compensation scheme to increase industry participation could not be self-financed. Border tax measures could avoid carbon leakage but would generate uneven incidence across constrained and unconstrained countries as well as among producers within these regions. Our results highlight the challenge for international climate policy presented by trade in energy-intensive intermediate inputs.