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Domestic versus international emissions trading with capital mobility

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  • Cheng, Haitao

Abstract

We employ the footloose capital model to examine and compare how two countries decide on their emission permits non-cooperatively under domestic and international emissions trading in the presence of capital mobility. We find that even if two countries are symmetric and have the same carbon prices under domestic emissions trading, they can benefit from international emissions trading. This finding holds regardless of capital mobility. We also find that allowing footloose capital increases each country’s and global emissions under domestic emissions trading; however, it does not affect emissions under international emissions trading. Additionally, we show that the cooperative choices of emission permits are the same regardless of international mobility of emission permits and capital and are always lower than the non-cooperative ones.

Suggested Citation

  • Cheng, Haitao, 2024. "Domestic versus international emissions trading with capital mobility," Resource and Energy Economics, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:resene:v:77:y:2024:i:c:s0928765524000095
    DOI: 10.1016/j.reseneeco.2024.101433
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    More about this item

    Keywords

    Capital tax; Emission permit market; Monopolistic competition; Pollution haven effect;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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