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Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy

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  • Birgit Bednar-Friedl

    ()

  • Karl Farmer
  • Andreas Rainer

Abstract

We present a two-good, two-country overlapping generations model where emissions arise from production and each country has a domestic emission permit system. When one country unilaterally reduces her cap on emissions, her output available for domestic and foreign consumption diminishes more than in the other country. With unchanged consumption expenditure shares for both goods the terms of trade improve, while capital stocks decline in the reducing and less strongly in the non-reducing country. The net welfare effect of improving terms of trade and falling capital stocks is negative in both countries. However, if the country which unilaterally reduces her emission permits is a net creditor to the world economy, her own welfare loss remains below that of the non-reducing country.

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File URL: http://hdl.handle.net/10.1007/s10640-010-9390-5
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Bibliographic Info

Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 47 (2010)
Issue (Month): 4 (December)
Pages: 495-520

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Handle: RePEc:kap:enreec:v:47:y:2010:i:4:p:495-520

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Web page: http://www.springerlink.com/link.asp?id=100263

Related research

Keywords: Capital accumulation; Emission permits; Overlapping generations; Terms of trade; Welfare;

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References

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  1. Christoph Böhringer & Thomas Rutherford, 2002. "Carbon Abatement and International Spillovers," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 22(3), pages 391-417, July.
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Citations

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Cited by:
  1. McKibbin, Warwick J. & Morris, Adele C. & Wilcoxen, Peter J., 2014. "Pricing carbon in the U.S.: A model-based analysis of power-sector-only approaches," Resource and Energy Economics, Elsevier, vol. 36(1), pages 130-150.
  2. Birgit Bednar-Friedl & Karl Farmer, 2009. "Internationally Coordinated Emission Permit Policies: An Option for Withdrawers from the Kyoto Protocol?," CESifo Working Paper Series 2764, CESifo Group Munich.
  3. Bednar-Friedl, Birgit & Farmer, Karl, 2010. "External balance, dynamic efficiency, and the welfare effects of unilateral and multilateral permit policies in interdependent economies," Economic Modelling, Elsevier, vol. 27(5), pages 980-990, September.

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