Dynamics and Global Implications of Subglobal Carbon-Restricting Regimes
The European Union and Australia have enacted comprehensive carbon-restricting reforms that will affect both domestic and foreign industries. After describing these reforms in detail, the article develops a microeconomic analytical model that explains the impact these regimes have on the dynamics of inter-firm competition in carbon-restricting nations and how they will also influence technology choices by certain industries in carbon-friendly nations. Specifically, exporters and producers operating in vertically-integrated industries in carbon-friendly nations will increasingly elect carbon-efficient technologies to minimize costs as they adjust to a changing international regulatory environment. The article hypothesizes that this shift in the carbon intensity of production will cause these industries to form coalitions with other pro-environment groups to pressure national governments for legislative and global carbon-restricting reforms that reduce carbon leakage and losses from trading with industries in carbon-laggard nations. Because these cumulative developments will eventually lead to a binding global emissions-stabilizing agreement, pursuant to which border measures will be taken, the article offers a few suggestions for reducing potential conflicts between the trade and climate change regimes.