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
Date Written: July 1998
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: Suggested Citation