The pollution haven hypothesis suggests that unilateral domestic climate change mitigation policy
would impose significant economic costs on carbon-intensive industries, resulting in declining output
and increasing net imports. In order to evaluate this hypothesis, we undertake a two-step empirical
analysis. First, we use historic energy prices as a proxy for climate change mitigation policy. We estimate
how production and net imports change in response to energy prices using a 35-year panel of approximately
450 U.S. manufacturing industries. Second, we take these estimated relationships and use them to
simulate the impacts of changes in energy prices resulting from a domestic climate change mitigation
policy that effectively imposes a $15 per ton carbon price. We find that energy-intensive manufacturing
industries are more likely to experience decreases in production and increases in net imports than less-intensive
industries. Our best estimate is that competitiveness effects – measured by the increase in net imports
– are as large as 0.8 percent for the most energy-intensive industries and represent no more than about
one-sixth of the estimated decrease in production under a $15 per ton carbon price.
Aldy, Joseph, and William A. Pizer. "Competitiveness Impacts of Climate Change Mitigation Policies." Journal of the Association of Environmental and Resource Economists 2.4 (December 2015): 565-595.