Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy
AbstractWe 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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Bibliographic InfoArticle provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.
Volume (Year): 47 (2010)
Issue (Month): 4 (December)
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Web page: http://www.springerlink.com/link.asp?id=100263
Capital accumulation; Emission permits; Overlapping generations; Terms of trade; Welfare;
Other versions of this item:
- Karl Farmer & Birgit Bednar-Friedl & Andreas Rainer, 2008. "Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy," CESifo Working Paper Series 2375, CESifo Group Munich.
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- F11 - International Economics - - Trade - - - Neoclassical Models of Trade
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
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