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Where-to-Abate and Where-to-Invest Flexibility: An Integrated Assessment Analysis of Climate Change

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  • Gunter Stephan
  • Georg Müller-Fürstenberger
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    Abstract

    Within the framework of a dynamic Computable General Equilibrium model this pa-per analyses the impact of trade restrictions on regional rates of return on capital, mar-ginal costs of abatement and optimal climate policy. It will be shown that regional dif-ferences both in marginal costs of abatement and in the marginal productivity of capi-tal are driven by market imperfection. With restrictions on international trade, the in-dustrialized countries of the North exhibit higher marginal costs of abatement and a lower marginal productivity of capital than the developing nations of the South. Free trade not only in carbon emission rights but also in capital increases conventional wel-fare but stimulates carbon dioxide emissions which are not completely offset by effi-ciency gains in abatement. Nevertheless, depending upon the choice of the discount rate some kind of an invariance result is observed.

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    File URL: http://www.vwl.unibe.ch/papers/dp/dp0001.pdf
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    Bibliographic Info

    Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0001.

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    Date of creation: Aug 2000
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    Handle: RePEc:ube:dpvwib:dp0001

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    Related research

    Keywords: Climate policy; carbon emission trade; rate-of-interest differential; marginal cost of abatement; capital mobility; international capital market imperfection;

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    1. Marianne Baxter & Urban J. Jermann, 1995. "The International Diversification Puzzle is Worse Than You Think," NBER Working Papers 5019, National Bureau of Economic Research, Inc.
    2. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
    3. Graciela Chichilnisky & Geoffrey Heal, 1993. "Who Should Abate Carbon Emissions? An International Viewpoint," NBER Working Papers 4425, National Bureau of Economic Research, Inc.
    4. Gordon, R.H. & Bovenberg, A.L., 1994. "Why Is Capital So Immobile Internationally?: Possible Explanations and Implications for Capital Income Taxation," Working Papers 358, Research Seminar in International Economics, University of Michigan.
    5. Manne, Alan S. & Stephan, Gunter, 1999. "Climate-change policies and international rate-of-return differentials," Energy Policy, Elsevier, vol. 27(6), pages 309-316, June.
    6. Stephan, Gunter & Muller-Furstenberger, Georg, 1998. "Discounting and the Economic Costs of Altruism in Greenhouse Gas Abatement," Kyklos, Wiley Blackwell, vol. 51(3), pages 321-38.
    7. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-65, September.
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