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Carbon tariffs and cooperative outcomes


  • Eyland, Terry
  • Zaccour, Georges


In the absence of an international environmental agreement (IEA) on climate change, a country may be reluctant to unilaterally implement environmental actions, as this may lead to the relocation of firms to other, lax-on-pollution countries. To avoid this problem, while still taking care of the environment, a country may impose a carbon tariff that adjusts for the differences between its own carbon tax and the other country's tax. We consider two countries with a representative firm in each one, and characterize and contrast the equilibrium strategies and outcomes in three scenarios. In the first (benchmark) scenario, in a first stage the regulators in the two countries determine the carbon taxes noncooperatively, and in a second stage, the firms compete à la Cournot. In the second scenario, the regulators cooperate in determining the carbon taxes, while the firms still play a noncooperative Cournot game. In the third scenario, we add another player, e.g., the World Trade Organization, which announced a border tax in a prior stage; the game is then played as in the first scenario. Our two major results are (i) a border-tax adjustment (BTA) mimics quite well the cooperative solution in setting the carbon taxes as in scenario two. This means that a BTA may be a way around the lack of enthusiasm for an IEA. (ii) All of our simulations show that a partial correction of the difference in taxes is sufficient to maximize total welfare. In short, the conclusion is that a BTA may be used as a credible threat to achieve an outcome that is very close to the cooperative outcome.

Suggested Citation

  • Eyland, Terry & Zaccour, Georges, 2014. "Carbon tariffs and cooperative outcomes," Energy Policy, Elsevier, vol. 65(C), pages 718-728.
  • Handle: RePEc:eee:enepol:v:65:y:2014:i:c:p:718-728 DOI: 10.1016/j.enpol.2013.10.043

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    References listed on IDEAS

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    1. repec:gam:jsusta:v:9:y:2017:i:6:p:1028-:d:101610 is not listed on IDEAS
    2. Bréchet, Thierry & Hritonenko, Natali & Yatsenko, Yuri, 2016. "Domestic environmental policy and international cooperation for global commons," Resource and Energy Economics, Elsevier, vol. 44(C), pages 183-205.
    3. repec:wsi:apjorx:v:34:y:2017:i:01:n:s0217595917400048 is not listed on IDEAS
    4. Dai, Rui & Zhang, Jianxiong, 2017. "Green process innovation and differentiated pricing strategies with environmental concerns of South-North markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 98(C), pages 132-150.
    5. Steffen, Nico, 2016. "Optimal Tariffs and Firm Technology Choice: An Environmental Approach," Annual Conference 2016 (Augsburg): Demographic Change 145861, Verein für Socialpolitik / German Economic Association.


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