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Domestic and foreign cap-and-trade regulations, carbon tariffs, and product tariffs during international trade conflicts: A multiproduct cost-efficiency analysis

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  • Zhao, Yonghong
  • Huang, Fu-Wei
  • Chang, Ching-Hui
  • Lin, Jyh-Jiuan

Abstract

This paper develops a down-and-out call option model with structural breaks to examine the effects of domestic environmental policies on carbon-intensive firms amid international trade conflicts. The findings reveal that stricter cap-and-trade regulations, carbon tariffs, and product tariffs exacerbate pollutant-specific diseconomies of scale, limit economies of scope, and reduce firm equity. The positive impact on pollutant-specific diseconomies of scale leads to higher pollution, hindering progress toward Sustainable Development Goal 7 (SDG 7: Affordable and Clean Energy) from a multiproduct cost-efficiency perspective. Meanwhile, the negative impact on economies of scope results in fewer products and pollutants, aligning with SDG 7 but conflicting with Sustainable Development Goal 8 (SDG 8: Decent Work and Economic Growth), as the scope measure accounts for efficiency in both products and pollutants. Additionally, the negative impact on firm equity discourages progress toward both SDGs, especially during trade conflicts. In summary, environmental policies distinctly affect firm multiproduct cost efficiency and equity, particularly under varying trade conflict conditions.

Suggested Citation

  • Zhao, Yonghong & Huang, Fu-Wei & Chang, Ching-Hui & Lin, Jyh-Jiuan, 2024. "Domestic and foreign cap-and-trade regulations, carbon tariffs, and product tariffs during international trade conflicts: A multiproduct cost-efficiency analysis," Energy Economics, Elsevier, vol. 140(C).
    • Handle: RePEc:eee:eneeco:v:140:y:2024:i:c:s0140988324007436
    DOI: 10.1016/j.eneco.2024.108034
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    Cited by:

    1. Zhao, Hengsong & Lin, Boqiang, 2025. "Rising inequality in the European Union under stringent climate policy: Internal challenges of carbon border adjustment mechanism," Energy Economics, Elsevier, vol. 142(C).

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    More about this item

    Keywords

    Cap-and-trade; Carbon tariff; International trade conflict; Multiproduct cost efficiency; Product tariff;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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