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Is International Emissions Trading Always Beneficial?

Author

Listed:
  • Mustafa Babiker
  • John Reilly
  • Laurent Viguier

Abstract

Economic efficiency is a major argument for international emissions trading under the Kyoto Protocol. We show that permit trading can be welfare decreasing for countries, even though private trading parties benefit. The result is a case of “immiserizing†growth in the sense of Bhagwati where the negative terms of trade and tax interaction effects wipe out the gains from trading. Simulation and welfare decomposition results based on a CGE model of the global economy show that under EU-wide trading countries that are net permit sellers generally lose, due primarily to the existence of distortionary energy taxes.

Suggested Citation

  • Mustafa Babiker & John Reilly & Laurent Viguier, 2004. "Is International Emissions Trading Always Beneficial?," The Energy Journal, , vol. 25(2), pages 33-56, April.
    • Handle: RePEc:sae:enejou:v:25:y:2004:i:2:p:33-56
    DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No2-2
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    References listed on IDEAS

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    6. Lawrence H. Goulder & Ian W.H. Parry & Roberton C. Williams III & Dallas Burtraw, 2002. "The Cost-Effectiveness of Alternative Instruments for Environmental Protection in a Second-Best Setting," Chapters, in: Lawrence H. Goulder (ed.), Environmental Policy Making in Economies with Prior Tax Distortions, chapter 27, pages 523-554, Edward Elgar Publishing.
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    Cited by:

    1. Marc Vielle, 2020. "Navigating various flexibility mechanisms under European burden-sharing," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(2), pages 267-313, April.
    2. Xiangsheng Dou, 2017. "Low Carbon Technology Innovation, Carbon Emissions Trading and Relevant Policy Support for China s Low Carbon Economy Development," International Journal of Energy Economics and Policy, Econjournals, vol. 7(2), pages 172-184.
    3. Ru Li & Sigit Perdana & Marc Vielle, 2021. "Potential integration of Chinese and European emissions trading market: welfare distribution analysis," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 26(5), pages 1-28, June.

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