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Free-Riding, Carbon Treaties and Trade Wars: the Role of Domestic Environmental Policies

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  • Lisandro Abrego
  • Carlo Perroni

Abstract

This paper uses a calibrated general-equilibrium model of North-South trade with carbon emissions to explore the strategic, open-economy implications of price and quantity based instruments for CO2 emission reduction. We compute non-cooperative environmental and trade policy equilibria and Nash bargaining outcomes in environmental policies with side payments of cash. Results show that quotas can lead to higher internalization levels in a non- cooperative zero-tariff equilibrium in comparison with emission fees. If tariffs are also chosen non-cooperatively, the form of policy instrument used affects equilibrium tariffs, with quotas leading to lower trade barriers, particularly under a regional carbon treaty.

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Bibliographic Info

Paper provided by Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick in its series CSGR Working papers series with number 09/98.

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Date of creation: Jul 1998
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Handle: RePEc:wck:wckewp:09/98

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Postal: Centre for the Study of Globalisation and Regionalisation (CSGR) University of Warwick Coventry CV4 7AL, U.K.
Phone: +44 (0) 1203 572 533
Fax: +44 (0) 1203 572 548
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Web page: http://www.warwick.ac.uk/fac/soc/CSGR/
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Keywords: International Free-Riding; Carbon Treaties; Tariff Wars.;

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  1. Adar, Zvi & Griffin, James M., 1976. "Uncertainty and the choice of pollution control instruments," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 178-188, October.
  2. Mestelman, Stuart, 1989. "Taxes, Subsidies, Standards, and Social Choices," Public Finance = Finances publiques, , vol. 44(2), pages 268-84.
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  8. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  9. Perroni, Carlo & Rutherford, Thomas F, 1993. " International Trade in Carbon Emission Rights and Basic Materials: General Equilibrium Calculations for 2020," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(3), pages 257-78.
  10. Copeland, Brian R & Taylor, M Scott, 1995. "Trade and Transboundary Pollution," American Economic Review, American Economic Association, vol. 85(4), pages 716-37, September.
  11. Baumol, William J, 1972. "On Taxation and the Control of Externalities," American Economic Review, American Economic Association, vol. 62(3), pages 307-22, June.
  12. Ludema, R.D. & Wooton, I., 1992. "Cross-Border Externalities and trade Liberalization: The Strategic Control of Pollution," UWO Department of Economics Working Papers 9202, University of Western Ontario, Department of Economics.
  13. Wallace Oates & William Baumol, 1975. "The Instruments for Environmental Policy," NBER Chapters, in: Economic Analysis of Environmental Problems, pages 95-154 National Bureau of Economic Research, Inc.
  14. Fishelson, Gideon, 1976. "Emission control policies under uncertainty," Journal of Environmental Economics and Management, Elsevier, vol. 3(3), pages 189-197, October.
  15. Rodriguez, Carlos Alfredo, 1974. "The non-equivalence of tariffs and quotas under retaliation," Journal of International Economics, Elsevier, vol. 4(3), pages 295-298, August.
  16. Nash, John, 1953. "Two-Person Cooperative Games," Econometrica, Econometric Society, vol. 21(1), pages 128-140, April.
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