Resource information
Most economic analyses of climate change
have focused on the aggregate impact on countries of
mitigation actions. The authors depart first in
disaggregating the impact by sector, focusing particularly
on manufacturing output and exports because of the potential
growth consequences. Second, they decompose the impact of an
agreement on emissions reductions into three components: the
change in the price of carbon due to each country s emission
cuts per se; the further change in this price due to
emissions tradability; and the changes due to any
international transfers (private and public). Manufacturing
output and exports in low carbon intensity countries such as
Brazil are not adversely affected. In contrast, in high
carbon intensity countries, such as China and India, even a
modest agreement depresses manufacturing output by 6-7
percent and manufacturing exports by 9-11 percent. The
increase in the carbon price induced by emissions
tradability hurts manufacturing output most while the Dutch
disease effects of transfers hurt exports most. If the
growth costs of these structural changes are judged to be
substantial, the current policy consensus, which favors
emissions tradability (on efficiency grounds) supplemented
with financial transfers (on equity grounds), needs re-consideration.
