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Where-to-Abate' And 'Where-to-Invest' Flexibility - An Integrated Assessment Analysis of Climate Change


  • Georg Müller-Fürstenberg
  • Gunter Stephan


Within the framework of a dynamic Computable General Equilibrium (CGE) model this paper analyses the impact of trade restrictions on regional rates of return on capital, marginal costs of abatement and optimal climate policy. It will be shown that regional differences both in marginal costs of abatement and in marginal productivity of capital are driven by market imperfection. With restrictions on international trade, the industrialized countries of the North exhibit higher marginal costs of abatement and a lower marginal productivity of capital than the developing nations of the South. Free trade not only in carbon emission rights but also in capital increases conventional welfare but stimulates carbon dioxide emissions to grow, - an effect that is not completely offset by efficiency gains in abatement. Nevertheless, depending upon the choice of the discount rate some kind of an insensitivity result is observed.

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  • Georg Müller-Fürstenberg & Gunter Stephan, 2002. "Where-to-Abate' And 'Where-to-Invest' Flexibility - An Integrated Assessment Analysis of Climate Change," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 138(II), pages 191-213, June.
  • Handle: RePEc:ses:arsjes:2002-ii-5

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    References listed on IDEAS

    1. Gordon, Roger H & Bovenberg, A Lans, 1996. "Why Is Capital So Immobile Internationally? Possible Explanations and Implications for Capital Income Taxation," American Economic Review, American Economic Association, vol. 86(5), pages 1057-1075, December.
    2. Chichilnisky, Graciela & Heal, Geoffrey, 1994. "Who should abate carbon emissions? : An international viewpoint," Economics Letters, Elsevier, vol. 44(4), pages 443-449, April.
    3. Manne, Alan S. & Stephan, Gunter, 1999. "Climate-change policies and international rate-of-return differentials," Energy Policy, Elsevier, vol. 27(6), pages 309-316, June.
    4. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    5. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 205-234, March.
    6. Warwick J. McKibbin & Martin T. Ross & Robert Shackleton & Peter J. Wilcoxen, 1999. "Emissions Trading, Capital Flows and the Kyoto Protocol," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 287-333.
    7. Baxter, Marianne & Jermann, Urban J, 1997. "The International Diversification Puzzle Is Worse Than You Think," American Economic Review, American Economic Association, vol. 87(1), pages 170-180, March.
    8. Stephan, Gunter & Muller-Furstenberger, Georg, 1998. "Discounting and the Economic Costs of Altruism in Greenhouse Gas Abatement," Kyklos, Wiley Blackwell, vol. 51(3), pages 321-338.
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    More about this item


    Climate policy; carbon emission trade; rate-of-interest differential; marginal cost of abatement; capital mobility; international capital market imperfection;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water


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