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Where-to-Abate and Where-to-Invest Flexibility: An Integrated Assessment Analysis of Climate Change

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  • Gunter Stephan
  • Georg Müller-Fürstenberger

Abstract

Within the framework of a dynamic Computable General Equilibrium model this pa-per analyses the impact of trade restrictions on regional rates of return on capital, mar-ginal costs of abatement and optimal climate policy. It will be shown that regional dif-ferences both in marginal costs of abatement and in the marginal productivity of capi-tal are driven by market imperfection. With restrictions on international trade, the in-dustrialized countries of the North exhibit higher marginal costs of abatement and a lower marginal productivity of capital than the developing nations of the South. Free trade not only in carbon emission rights but also in capital increases conventional wel-fare but stimulates carbon dioxide emissions which are not completely offset by effi-ciency gains in abatement. Nevertheless, depending upon the choice of the discount rate some kind of an invariance result is observed.

Suggested Citation

  • Gunter Stephan & Georg Müller-Fürstenberger, 2000. "Where-to-Abate and Where-to-Invest Flexibility: An Integrated Assessment Analysis of Climate Change," Diskussionsschriften dp0001, Universitaet Bern, Departement Volkswirtschaft.
  • Handle: RePEc:ube:dpvwib:dp0001
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    References listed on IDEAS

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    More about this item

    Keywords

    Climate policy; carbon emission trade; rate-of-interest differential; marginal cost of abatement; capital mobility; international capital market imperfection;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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