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Exchanging Goods and Damages: The Role of Trade on the Distribution of Climate Change Costs

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  • Oliver Schenker

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Abstract

The impacts of climate change vary significantly across world regions. Whereas tropical and subtropical regions are expected to suffer severely from the effects of climate change, the impacts in northern latitudes should remain relatively moderate. However, regions are not self-sufficient, and the costs of climate change can spread across regions through international trade. I study the international spillover of climate impacts within a regionalised, climate-sensitive, dynamic computable general equilibrium model of the world economy. Using data from a global climate model shows that the world regions face welfare losses between 0.6 and 2.1 % due to climate change. I also show that climate change affects terms of trade and sectoral competitiveness. By means of a decomposition method, the extent of spillover impacts through international trade can be identified. Spillover impacts significantly affect, either positively or negatively, the total costs of climate change for a region. For regions with low exposure to climate change and high adaptive capacities, spillover effects are responsible for a 1/6 of the total cost of climate change. Copyright Springer Science+Business Media B.V. 2013

Suggested Citation

  • Oliver Schenker, 2013. "Exchanging Goods and Damages: The Role of Trade on the Distribution of Climate Change Costs," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 54(2), pages 261-282, February.
    • Handle: RePEc:kap:enreec:v:54:y:2013:i:2:p:261-282
    DOI: 10.1007/s10640-012-9593-z
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    References listed on IDEAS

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    1. Kose, M. Ayhan & Yi, Kei-Mu, 2006. "Can the standard international business cycle model explain the relation between trade and comovement?," Journal of International Economics, Elsevier, vol. 68(2), pages 267-295, March.
    2. Benjamin F. Jones & Benjamin A. Olken, 2010. "Climate Shocks and Exports," American Economic Review, American Economic Association, vol. 100(2), pages 454-459, May.
    3. W. Jill Harrison & J. Mark Horridge & K.R. Pearson, 2000. "Decomposing Simulation Results with Respect to Exogenous Shocks," Computational Economics, Springer;Society for Computational Economics, vol. 15(3), pages 227-249, June.
    4. Fankhauser, Samuel & S.J. Tol, Richard, 2005. "On climate change and economic growth," Resource and Energy Economics, Elsevier, vol. 27(1), pages 1-17, January.
    5. Baxter, Marianne & Kouparitsas, Michael A., 2005. "Determinants of business cycle comovement: a robust analysis," Journal of Monetary Economics, Elsevier, vol. 52(1), pages 113-157, January.
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    7. Richard S. J. Tol, 2009. "The Economic Effects of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 23(2), pages 29-51, Spring.
    8. Lau, Morten I. & Pahlke, Andreas & Rutherford, Thomas F., 2002. "Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 577-609, April.
    9. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    10. Roxana Julia & Faye Duchin, 2005. "World Trade as the Adjustment Mechanism of Agriculture to Climate Change," Rensselaer Working Papers in Economics 0507, Rensselaer Polytechnic Institute, Department of Economics.
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    Cited by:

    1. Yingying Lu & David I. Stern, 2016. "Substitutability and the Cost of Climate Mitigation Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(1), pages 81-107, May.
    2. Karine Constant & Marion Davin, 2018. "Unequal vulnerability to climate change and the transmission of adverse effects through international trade," Working Papers 2018.01, FAERE - French Association of Environmental and Resource Economists.
    3. Karine Constant & Marion Davin, 2018. "Unequal vulnerability to climate change and the transmission of adverse effects through international trade," CEE-M Working Papers 18-05, CEE-M, Universitiy of Montpellier, CNRS, INRA, Montpellier SupAgro.

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