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Building Climate Coalitions on Preferential Free Trade Agreements

Author

Listed:
  • Thomas Kuhn

    (Chemnitz University of Technology)

  • Radomir Pestow

    (Chemnitz University of Technology)

  • Anja Zenker

    (Chemnitz University of Technology)

Abstract

In this paper we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose a preferential free trade agreement on which a climate coalition should be built. The basic idea is that the gains of free trade can provide strong incentives for countries to join the coalition. As a framework, a multi-stage strategic trade model is employed in which each country may set an emission cap being effective on a permit market. In addition, a discriminatory import tariff may be imposed on dirty goods. However, at the heart of our approach is a preferential free trade arrangement among the members of a climate coalition leading to a favourable shift in the terms of trade. As a main result, trade liberalisation is found as an institution highly effective in building climate coalitions. In particular, the parametrical simulation of the model shows that participation in joint emission reduction is higher, consumption patterns are more environmentally friendly, and coalitional welfare is much more improved than in case of a single-issue environmental agreement.

Suggested Citation

  • Thomas Kuhn & Radomir Pestow & Anja Zenker, 2019. "Building Climate Coalitions on Preferential Free Trade Agreements," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 539-569, October.
    • Handle: RePEc:kap:enreec:v:74:y:2019:i:2:d:10.1007_s10640-019-00331-0
    DOI: 10.1007/s10640-019-00331-0
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    Cited by:

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    2. Thomas Kuhn & Radomir Pestow & Anja Zenker, 2022. "Formation of Climate Coalitions and Preferential Free Trade - The Case for Participation Linkage," Chemnitz Economic Papers 057, Department of Economics, Chemnitz University of Technology, revised Nov 2022.
    3. Tibor Besedeš & Erik P. Johnson & Xinping Tian, 2020. "Economic determinants of multilateral environmental agreements," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(4), pages 832-864, August.
    4. Jeremiás Máté Balogh & Tamás Mizik, 2021. "Trade–Climate Nexus: A Systematic Review of the Literature," Economies, MDPI, vol. 9(3), pages 1-19, June.
    5. Balogh, Jeremiás Máté, 2021. "A kereskedelmi megállapodások szerepe a klímaváltozásban. Szakirodalmi áttekintés [The role of trade agreements in climate change. Systematic literature review]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 540-563.

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    More about this item

    Keywords

    Climate change; International environmental agreements; Free trade; Issue linkage; Tradable permits; Strategic trade policy;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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