Capital Malleability and the Macroeconomic Costs of Climate Policy
Elisa Lanzi, Ian Sue Wing
C68, D58, H22, Q43
General Equilibrium, CGE Models, Climate Change Policy
Climate Change and Sustainable Development
This paper argues for introducing the role of capital malleability into the analysis of environmental policies. The issue is explored by means of a theoretical model, a numerical analysis and a computable general equilibrium (CGE) model. Considering the three approaches together is fundamental in obtaining theory-compatible policy-relevant results. The model outcomes reveal differences between results under separate assumptions regarding the malleability of capital. When capital is imperfectly malleable a carbon policy is less effective than under the assumption of perfect malleability of capital. Therefore, it is important that, especially for the analysis of short-term environmental regulations, the issue of capital malleability is taken into consideration.
Suggested citation: Elisa Lanzi, Ian Sue Wing, Capital Malleability, Emission Leakage and the Cost of Partial Climate Policies: General Equilibrium Analysis of the European Union Emission Trading System, Environmental and Resource Economics
June 2013, Volume 55, Issue 2, pp 257-289, http://rd.springer.com/article/10.1007%2Fs10640-012-9625-8