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The Case for International Emission Trade in the Absence of Cooperative Climate Policy

  • Carbone, Jared C.
  • Helm, Carsten
  • Rutherford, Thomas F.

We evaluate the efficacy of international trade in carbon emission permits when countries are guided strictly by their national self-interest. To do so, we construct a calibrated general equilibrium model that jointly describes the world economy and the strategic incentives that guide the design of national abatement policies. Countries' decisions about their participation in a trading system and about their initial permit endowment are made noncooperatively; so a priori it is not clear that permit trade will induce participation in international abatement agreements or that participation will result in significant environmental gains. Despite this, we find that emission trade agreements can be effective; that smaller groupings pairing developing and developed-world partners often perform better than agreements with larger rosters; and that general equilibrium responses play an important role in shaping these outcomes.

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Paper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 35491.

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Date of creation: Oct 2008
Date of revision:
Publication status: Published in Darmstadt Discussion Papers in Economics . 194 (2008-10)
Handle: RePEc:dar:ddpeco:35491
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  1. Christoph BOhringer & Andreas LOschel, 2003. "Market power and hot air in international emissions trading: the impacts of US withdrawal from the Kyoto Protocol," Applied Economics, Taylor & Francis Journals, vol. 35(6), pages 651-663.
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  12. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
  13. Tol, Richard S J, 2001. "Climate Coalitions in an Integrated Assessment Model," Computational Economics, Society for Computational Economics, vol. 18(2), pages 159-72, October.
  14. Paul M. Bernstein & W. David Montgomery & Thomas F. Rutherford & Gui-Fang Yang, 1999. "Effects of Restrictions on International Permit Trading: The MS-MRT Model," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 221-256.
  15. Barrett, Scott, 1994. "Self-Enforcing International Environmental Agreements," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 878-94, Supplemen.
  16. Richard Tol, 2002. "Estimates of the Damage Costs of Climate Change, Part II. Dynamic Estimates," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 21(2), pages 135-160, February.
  17. EYCKMANS, Johan & TULKENS, Henry, 1999. "Simulating coalitionally stable burden sharing agreements for the climate change problem," CORE Discussion Papers 1999026, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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