The study of effect of carbon tax on the international competitiveness of energy-intensive industries: An empirical analysis of OECD 21 countries, 1992-2008

Carbon tax as a GHG-emission-reducing measure is strongly recommended by scholars and international organizations. But many countries are concerned about the potential negative impact of carbon tax on their international competitiveness of energy intensive industries. This paper analyzes this issue empirically. Based on the basic gravity model used by Harris, Kónya, and Mátyás (2002) and the World Bank report (2008), this paper improved the model by introducing a set of carbon tax p olicy variables to measure the impact of carbon tax on international competitiveness of energy-intensive industries using data of 21 OECD countries and 9 sample energyintensive industries. The result shows that carbon tax has a statistically negative impact on the international competitiveness of energy-intensive industries. This is particularly true when the focus is on the non-resource based industries, which is possibly because different levels of subsidies and exemptions are granted for different industries affected by the carbon tax.