Labor Market Distortions and Welfare-Decreasing International Emissions Trading

Abstract

Using a multi-region, multi-sector computable general equilibrium model, this paper analyzes the effects of international emissions trading (IET) with a focus on labor market distortions. We construct four separate models with several different labor market specifications: (1) a model without labor market distortions; (2) a model with taxinteraction effects in the labor market; (3) a model with a minimum wage; and (4) a model in which a wage curve determines wages. We use these models to analyze how the effects of IET change according to model specification. The main results from the analysis are as follows. First, we found that IET generates gains for all participants in the model without labor market distortions. Second, even in the models with labor market distortions, importers of emissions permits are highly likely to benefit. Conversely, we show that the possibility of a welfare loss from IET is not as small for exporters of permits. In particular, in the minimum wage and wage curve models, we found that the exporters of emissions permits are likely to be disadvantaged. However, this also depends on the region in question. For example, China is likely to suffer under IET, whereas Russia is likely to benefit. Finally, if we implement policies to alleviate labor market distortion simultaneously with emissions regulation, all regions receive benefit from IET.

GHG Emissions Mitigation in the European Union Based on Labor Market Changes

“…The main challenge is to find the main triggers and drivers of this impact, and exactly in this is the initial research question [3]. The diversity of the opinions spills over into intermediaries, such as the source of energy [4].…”

“…In its turn, the Granger causality test performed on the panel data shows the presence of a bilateral relationship between economic growth and energy use by biodiesel transport, and also between the economic growth and energy consumption of bioethanol transport [20][21][22]. The effects of international emissions trading (IET) were also assessed (i.e., Takeda et al (2019). Thus, Takeda et al (2019) have proven that there is a possibility of welfare losses from IET, and it is not small at all for the exporters of permits [4].…”

“…The effects of international emissions trading (IET) were also assessed (i.e., Takeda et al (2019). Thus, Takeda et al (2019) have proven that there is a possibility of welfare losses from IET, and it is not small at all for the exporters of permits [4]. More specifically, using the minimum wage and the wage curve models, the authors detected that exporters of emission permits might be disadvantaged, depending on the region.…”

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“…[ 27 ]. Takeda et al [ 28 ] found that if immigrants are in a perfectly competitive market in the immigrant region, the human capital level directly determines how much economic success immigrants can achieve. Social capital factors raise the level and angle of analysis to the level of social relations and social networks of individuals compared with human capital factors, and social capital factors include social relations, social networks, and social resources, etc.…”