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Climate Cooperation and Spatial Industrial Relocation: Stability, Emissions, and Regional Policy Incentives

Abstract

Climate policy changes production costs and can reshape the geography of production. We study this spatial channel in a focused model where mobile industrial activity responds to local attractiveness, agglomeration strengthens attractiveness, and carbon policy lowers the profitability of emissions-intensive locations. The model yields an explicit carbon-policy threshold separating spatial instability from stability. When emissions intensity rises with local industrial density, spatial concentration raises aggregate emissions even with unchanged total industrial activity. Embedding these dynamics in a two-jurisdiction policy game creates a wedge between regional and collective incentives: each government values the industrial activity located within its own territory, while aggregate welfare internalizes the effect of policy on economy-wide concentration. With transferable utility, cooperation can select a policy on the stable side of the threshold while the non-cooperative policy lies on the unstable side. A numerical exercise illustrates this regime change. European regional evidence, based on industrial emissions and gross value added at NUTS2 level, documents a positive emissions-activity association and identifies the empirical quantities needed to measure relocation and concentration effects. The analysis links climate cooperation to the spatial organization of production and establishes a benchmark for policy-induced industrial relocation.

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BibTeX
@misc{martiradonna2026climate,
  title = {{Climate Cooperation and Spatial Industrial Relocation: Stability, Emissions, and Regional Policy Incentives}},
  author = {Angela Martiradonna},
  howpublished = {arXiv},
  year = {2026},
  month = oct,
  doi = {10.48550/arxiv.2610.10939},
  eprint = {2610.10939},
  archivePrefix = {arXiv},
  url = {https://arxiv.org/abs/2610.10939},
}
RIS
TY  - UNPB
TI  - Climate Cooperation and Spatial Industrial Relocation: Stability, Emissions, and Regional Policy Incentives
AU  - Angela Martiradonna
PY  - 2026
DA  - 2026/10/07
PB  - arXiv
DO  - 10.48550/arxiv.2610.10939
UR  - https://arxiv.org/abs/2610.10939
AB  - Climate policy changes production costs and can reshape the geography of production. We study this spatial channel in a focused model where mobile industrial activity responds to local attractiveness, agglomeration strengthens attractiveness, and carbon policy lowers the profitability of emissions-intensive locations. The model yields an explicit carbon-policy threshold separating spatial instability from stability. When emissions intensity rises with local industrial density, spatial concentration raises aggregate emissions even with unchanged total industrial activity. Embedding these dynamics in a two-jurisdiction policy game creates a wedge between regional and collective incentives: each government values the industrial activity located within its own territory, while aggregate welfare internalizes the effect of policy on economy-wide concentration. With transferable utility, cooperation can select a policy on the stable side of the threshold while the non-cooperative policy lies on the unstable side. A numerical exercise illustrates this regime change. European regional evidence, based on industrial emissions and gross value added at NUTS2 level, documents a positive emissions-activity association and identifies the empirical quantities needed to measure relocation and concentration effects. The analysis links climate cooperation to the spatial organization of production and establishes a benchmark for policy-induced industrial relocation.
ER  -