International Process Standards and North-South Trade

This paper examines the choice between alternative trade-based approaches to reducing global environmental damage, such as trade-related process standards and tariff-based approaches. Estimates of the effects of alternative policies are presented, using a calibrated global trade model with pollution externalities. Our findings are that both trade-related process standards and tariff-based policies are rather ineffective at reducing global emissions when compared with direct environmental policy instruments such as general process standards. The adoption of command and control policies such as general process standards, however, might be exceedingly costly to developing countries in comparison with first-best environmental policies, especially since cleaner technologies require use of inputs of that are comparatively more abundant in richer countries.