Trade in the greenhouse: efficient policy in a global model

A computable general equilibrium model of production and trade within and between rich and poor economies is developed in which the interaction between trade and environmental policies is analysed. The shape of iso-emissions curves, defined in tariff and emissions tax space, is evaluated both in the presence and in the absence of an environmental Kuznets curve. Gains in the income of developing countries are possible without compromising on emissions where there are inefficiencies in policy. However, where policy is efficient there may exist an important trade-off, evaluated and illustrated here, between emissions and developing country income.