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Free-Riding, Carbon Treaties and Trade Wars: the Role of Domestic Environmental Policies

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  • Lisandro Abrego
  • Carlo Perroni

Abstract

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.

Suggested Citation

  • Lisandro Abrego & Carlo Perroni, 1998. "Free-Riding, Carbon Treaties and Trade Wars: the Role of Domestic Environmental Policies," CSGR Working papers series 09/98, Centre for the Study of Globalisation and Regionalisation (CSGR), University of Warwick.
    • Handle: RePEc:wck:wckewp:09/98
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    Cited by:

    1. Dominik Egli & Frank Westermann, 2001. "On the Welfare Equivalence of Tariffs and Quotas under Duopoly," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 137(II), pages 171-182, June.
    2. Chen, Fanglin & Chen, Zhongfei & Zhang, Xin, 2024. "Belated stock returns for green innovation under carbon emissions trading market," Journal of Corporate Finance, Elsevier, vol. 85(C).

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