Trade, Politics,and the Environment: Tailpipe vs. Smokestack

Economists interested in the interaction between trade, politics and the environ-ment have restricted their attention almost exclusively to the problem of production related—“smokestack”—pollution. We instead consider consumption related—“tailpipe”—pollution and show that this can reverse a number of core results. For example, we show that the impact of regulation on trade patterns depends on the type of pollution being regulated: while strict smokestack regula-tion dampens exports of pollution intensive goods, tailpipe regulation may promote these exports. Similarly, we show that pollution type may fundamentally alter the impact of openness on political opposition to environmental regulation: while openness may make dirty industry oppose smokestack regulation more vociferously, it can make industry a less ardent enemy of tailpipe regulation.