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Unilateral Emission Cuts And Carbon Leakages In A North-South Trade Model

  • Partha Sen

    (Centre for Development Economics, Delhi School of Economics, Delhi, India)

The effects of a unilateral cut in emissions (e.g. by Annexure 1 countries in Kyoto) are analyzed in a dynamic two-country two-commodity model. If the fossil fuel is priced at marginal cost, a unilateral cut reduces total emissions (the carbon leakage is less than one hundred percent). But if the fuel is priced above marginal cost then a “green paradox” appears, i.e. the price of the fuel will fall until its use (over time) exhausts the entire stock. Here a unilateral policy is self-defeating and it is necessary to get binding commitments on fossil fuel use from all the countries. The production and trade implications for the participant and non-participant countries are analyzed.

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Paper provided by Centre for Development Economics, Delhi School of Economics in its series Working papers with number 232.

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Length: 32 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:cde:cdewps:232
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