Free-Riding, Carbon Treaties, and Trade Wars: The Role of Domestic Environmental Policies

Centre for the Study of Globalisation and Regionalisation Working Paper No. 09/98

Posted: 9 Feb 1999

See all articles by Lisandro Abrego

Lisandro Abrego

International Monetary Fund (IMF)

Carlo Perroni

University of Warwick - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: July 1998

Abstract

This paper uses a calibrated general-equilibrium model of North-South trade with carbon emissions to explore the strategic, open-economy implications of price and quantity based instruments for CO2 emission reduction. We compute non-cooperative environmental and trade policy equilibria and Nash bargaining outcomes in environmental policies with side payments of cash. Results show that quotas can lead to higher internalization levels in a non-cooperative zero-tariff equilibrium in comparison with emission fees. If tariffs are also chosen non-cooperatively, the form of policy instrument used affects equilibrium tariffs, with quotas leading to lower trade barriers, particularly under a regional carbon treaty.

JEL Classification: Q3, Q4, F1

Suggested Citation

Abrego, Lisandro and Perroni, Carlo, Free-Riding, Carbon Treaties, and Trade Wars: The Role of Domestic Environmental Policies (July 1998). Centre for the Study of Globalisation and Regionalisation Working Paper No. 09/98. Available at SSRN: https://ssrn.com/abstract=146967

Lisandro Abrego

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Carlo Perroni (Contact Author)

University of Warwick - Department of Economics ( email )

Coventry CV4 7AL
United Kingdom
44 24 7652 8416 (Phone)
44 24 7652 3032 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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