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Piecemeal Reform of Trade and Environmental Policy When Consumption Also Pollutes

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  • Metcalfe, Mark R.
  • Beghin, John C.

Abstract

The design of trade and environmental policy pays increasing attention to pollution linked to trade liberalization and generated by consumption. We incorporate endogenous (price-responsive) consumption pollution into a dual trade model to assess welfare effects of coordinated trade and environmental piecemeal reform in a small, open and distorted economy. Pollution is generated by production and consumption. Producers control the level of pollution and face incentives to abate both types of pollution. We identify sufficient conditions for welfare-improving reforms of trade and environmental policies. An additional domestic environmental policy instrument must be imposed on exportables because of their supply response to foreign environmental taxes.

Suggested Citation

Handle: RePEc:ags:hebarc:18362
DOI: 10.22004/ag.econ.18362
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