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Global Carbon Trade and Local Externalities

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  • Reto Schleiniger

Abstract

The burning of fossil fuels not only causes CO2 emissions but at the same time impairs local environmental condition such as ambient air quality. The present paper analyzes the distortion arising from international trade in carbon permits when local externalities persist. It is derived that the distortion is determined by the difference in factor endowment and population density of the trading regions. Moreover, an empirical illustration for Switzerland shows that a rich country buying emission rights sustains a welfare loss.

Suggested Citation

  • Reto Schleiniger, 2004. "Global Carbon Trade and Local Externalities," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 140(II), pages 245-264, June.
    • Handle: RePEc:ses:arsjes:2004-ii-4
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    More about this item

    Keywords

    International CO2 policy; emission trading; second-best analysis;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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