| Summary: | Subglobal climate policies induce changes in international competitiveness and favor a
relocation of carbon-emitting activities. We argue that many energy-intensive activities are
also capital-intensive, so that carbon policies could affect rents rather than abatement or
location. Taking copper as an example, we formulate a plant-level spatial equilibrium model
of the industry, and we estimate a set of elasticities to calibrate the behavioral parameters of
the model. Given 2007 market conditions, Monte Carlo simulations suggest that a $50/tCO2
tax in industrialized countries induces emissions reductions of less than one percent in the
copper industry, with a mean emission leakage rate of 25%. Our results conform with empirical
findings on the pollution haven effect but challenge projections from computable general
equilibrium models.
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