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On the Efficiency of Green Trade Policy

  • Ottar MÆstad

    ()

The paper derives conditions for second best environmental policy when there are foreign countries which fail to implement appropriate environmental regulations. It is shown that in such cases, efficiency in the global economy will not be achieved unless domestic environmental regulations are supplemented by trade provisions. The result is independent of whether environmental problems are local or international. Furthermore, when trade provisions are implemented, efficiency requires that domestic environmental taxes are fixed at the Pigouvian tax rate. The results imply that there is an economic rationale for regulating the trade between signatories and non-signatories of international environmental agreements. Efficient trade regulations will either take the form of trade restrictions or trade promotions, depending on whether the environmental problem is created by production or consumption activities, and whether the net import of the relevant commodity is positive or negative. It is argued that an efficient climate agreement, signed by a group of fuel-importing countries (e.g., the OECD countries), should include a subsidy on the import of fossil fuels. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008283414254
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Article provided by European Association of Environmental and Resource Economists in its journal Environmental and Resource Economics.

Volume (Year): 11 (1998)
Issue (Month): 1 (January)
Pages: 1-18

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Handle: RePEc:kap:enreec:v:11:y:1998:i:1:p:1-18
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  1. Golombek, Rolf & Hagem, Cathrine & Hoel, Michael, 1995. "Efficient incomplete international climate agreements," Resource and Energy Economics, Elsevier, vol. 17(1), pages 25-46, May.
  2. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
  3. Hoel, M., 1993. "Efficient Climate Policy in the Presence of Free Riders," Memorandum 04/1993, Oslo University, Department of Economics.
  4. Markusen, James R., 1975. "International externalities and optimal tax structures," Journal of International Economics, Elsevier, vol. 5(1), pages 15-29, February.
  5. Carraro, Carlo & Siniscalco, Domenico, 1991. "Strategies for the International Protection of the Environment," CEPR Discussion Papers 568, C.E.P.R. Discussion Papers.
  6. Conrad Klaus, 1993. "Taxes and Subsidies for Pollution-Intensive Industries as Trade Policy," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 121-135, September.
  7. Barrett, Scott, 1990. "The Problem of Global Environmental Protection," Oxford Review of Economic Policy, Oxford University Press, vol. 6(1), pages 68-79, Spring.
  8. Willig, Robert D, 1976. "Consumer's Surplus without Apology," American Economic Review, American Economic Association, vol. 66(4), pages 589-97, September.
  9. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
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