Carbon leakage revisited: unilateral climate policy with directed technical change

Using a stylized theoretical model, we argue that current economic analyses of climate policy tend to over-estimate the degree of carbon leakage, as they abstract from the effects of induced technological change. We analyse carbon leakage in a two-country model with directed technical change, where only one of the countries enforces an exogenous cap on emissions. Climate policy induces changes in relative prices, that cause carbon leakage through a terms-of-trade effect. However, these changes in relative prices also affect the incentives to innovate in different sectors. This leads to a counterbalancing induced-technology effect, which always reduces carbon leakage. We therefore conclude that the leakage rates reported in the literature may be too high, as these estimates neglect the effect of price changes on the incentives to innovate.

Chironomid-inferred Late-Glacial Summer Air Temperatures From Lough Nadourcan, Co. Donegal, Ireland.

Western Ireland, located adjacent to the North Atlantic, and with a strongly oceanic climate, is potentially sensitive to rapid and extreme climate change. We present the first high-resolution chironomid-inferred mean July temperature reconstruction for Ireland, spanning the late-glacial and early Holocene (LGIT, 15-10 ka BP). The reconstruction suggests an initial rapid warming followed by a short cool phase early in the interstadial. During the interstadial there are oscillations in the inferred temperatures which may relate to Greenland Interstadial events GI-1a-e. The temperature decrease into the stadial occurs in two stages. This two-stage drop can also be seen in other late-glacial chironomid-inferred temperature records from the British Isles. A stepped rise in temperatures into the Holocene, consistent with present-day temperatures in Donegal, is inferred. The results show strong similarities with previously published LGIT chironomid-inferred temperature reconstructions, and with the NGRIP oxygen-isotope curve, which indicates that the oscillations observed in the NGRIP record are of hemispherical significance. The results also highlight the influence of the North Atlantic on the Irish climate throughout the LGIT.