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Is International Emissions Trading Always Beneficial?

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  • Mustafa Babiker, John Reilly and Laurent Viguier

Abstract

Economic efficiency is a major argument for international emissions trading under the Kyoto Protocol. We show that permit trading can be welfare decreasing for countries, even though private trading parties benefit. The result is a case of "immiserizing" growth in the sense of Bhagwati where the negative terms of trade and tax interaction effects wipe out the gains from trading. Simulation and welfare decomposition results based on a CGE model of the global economy show that under EU-wide trading countries that are net permit sellers generally lose, due primarily to the existence of distortionary energy taxes.

Suggested Citation

  • Mustafa Babiker, John Reilly and Laurent Viguier, 2004. "Is International Emissions Trading Always Beneficial?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 33-56.
    • Handle: RePEc:aen:journl:2004v25-02-a02
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    JEL classification:

    • F0 - International Economics - - General

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