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Is International Emissions Trading Always Beneficial?

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  • Mustafa Babiker
  • John Reilly
  • Laurent Viguier

Abstract

Economic efficiency is a major argument for international emissions trading under the Kyoto Protocol. We show that permit trading can be welfare decreasing for countries, even though private trading parties benefit. The result is a case of “immiserizing†growth in the sense of Bhagwati where the negative terms of trade and tax interaction effects wipe out the gains from trading. Simulation and welfare decomposition results based on a CGE model of the global economy show that under EU-wide trading countries that are net permit sellers generally lose, due primarily to the existence of distortionary energy taxes.

Suggested Citation

  • Mustafa Babiker & John Reilly & Laurent Viguier, 2004. "Is International Emissions Trading Always Beneficial?," The Energy Journal, , vol. 25(2), pages 33-56, April.
    • Handle: RePEc:sae:enejou:v:25:y:2004:i:2:p:33-56
    DOI: 10.5547/ISSN0195-6574-EJ-Vol25-No2-2
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    References listed on IDEAS

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    1. McKibbin, Warwick J. & Shackleton, Robert & Wilcoxen, Peter J., 1999. "What to expect from an international system of tradable permits for carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 319-346, August.
    2. Criqui, Patrick & Mima, Silvana & Viguier, Laurent, 1999. "Marginal abatement costs of CO2 emission reductions, geographical flexibility and concrete ceilings: an assessment using the POLES model," Energy Policy, Elsevier, vol. 27(10), pages 585-601, October.
    3. Hertel, Thomas, 1997. "Global Trade Analysis: Modeling and applications," GTAP Books, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University, number 7685, December.
    4. Parry, Ian W. H. & Williams III, Roberton C., 1999. "A second-best evaluation of eight policy instruments to reduce carbon emissions," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 347-373, August.
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    More about this item

    Keywords

    Emissions trading; Kyoto Protocol; CGE model; EU; EPPA-EU model;
    All these keywords.

    JEL classification:

    • F0 - International Economics - - General

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