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External Balance, Dynamic Efficiency, and Welfare Effects of National Climate Policies

In: Growth and International Trade

Author

Listed:
  • Karl Farmer

    (University of Graz)

  • Matthias Schelnast

    (University of Graz)

Abstract

This chapter investigates the domestic and foreign welfare effects of unilateral and multilateral permit policies in a two-country overlapping generations model with producer carbon emissions. We show that the welfare effects of a more stringent cap on emissions depend on the external balance of the policy-implementing country, the dynamic (in)efficiency of the world economy, and the preference for environmental quality. Under dynamic efficiency, the global welfare loss of policy implementation in the net foreign creditor country is lower than of a policy implementation in the net foreign debtor country. Moreover, although the country which has unilaterally implemented a permit policy would gain from a multilateral policy, the associated welfare loss for the other country is larger than that of a unilateral policy abroad.

Suggested Citation

  • Karl Farmer & Matthias Schelnast, 2021. "External Balance, Dynamic Efficiency, and Welfare Effects of National Climate Policies," Springer Texts in Business and Economics, in: Growth and International Trade, edition 2, chapter 18, pages 425-456, Springer.
    • Handle: RePEc:spr:sptchp:978-3-662-62943-7_18
    DOI: 10.1007/978-3-662-62943-7_18
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