Working Paper: NBER ID: w7657
Authors: Brian R. Copeland; M. Scott Taylor
Abstract: This paper demonstrates how three important results in environmental economics, true under mild conditions in closed economies, are false or need serious amendment in a world with international trade in goods. Since the three results we highlight have framed much of the ongoing discussion and research on the Kyoto protocol our viewpoint from trade theory suggests a re-examination may be in order. Specifically, we demonstrate that in an open trading world, but not in a closed economy setting: (1) unilateral emission reductions by the rich North can create self-interested emission reductions by the unconstrained poor South; (2) simple rules for allocating emission reductions across countries (such as uniform reductions) may well be efficient even if international trade in emission permits is not allowed; and (3) when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions.
Keywords: No keywords provided
JEL Codes: F10; H4
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Unilateral emission reductions by wealthy countries (F64) | self-interested emission reductions in poorer countries (F64) |
| Rigid emission reduction rules (Q52) | efficient allocations of abatement (D61) |
| International trade in emission permits (F10) | worse outcomes for both trading countries (F69) |
| Rigid emission reduction rules (Q52) | efficient outcomes under conditions of free trade (F10) |
| Emissions are strategic complements (C73) | self-interested emission reductions in poorer countries (F64) |
| Trade-induced substitutions across dirty and clean goods (F16) | marginal abatement costs (Q52) |
| Adverse terms of trade effects (F14) | increased global pollution (F64) |