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 InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2375.
Date of creation: 2008
Date of revision:
capital accumulation; emission permits; terms of trade; overlapping generations; welfare;
Other versions of this item:
- Birgit Bednar-Friedl & Karl Farmer & Andreas Rainer, 2010. "Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 47(4), pages 495-520, December.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household 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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