Can Cleaner Environment Promote International Trade? Environmental Policies as Export Promoting Mechanisms

We develop an international duopoly model where the firms export their output to a world-market. Production uses a depletable resource, and it generates pollution which affects negatively households welfare. Governments control pollution using (i) an emission tax, the revenue from which finances public pollution abatement, (ii) a revenue-recycling tax, refunded to the emitting firm contingent on reducing the cost of private pollution abatement, and (iii) an environmentally related standard. We evaluate them as (i) export promoting Non-Tariff Measures (NTMs) measuers, and (ii) resource conserving/depleting and welfare enhancing policy instruments. Our results indicate that, by and large (i) public pollution abatement works as an export-promoting but resource depleting mechanism, which under certain conditions can enhance welfare; (ii) revenue recycling works as an export-contracting but resource preserving mechanism, and (iii) environmental standards relative to public abatement work as an export-contracting but resource preserving mechanism, but relative to revenue recycling work in the opposite direction.