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Global CO2-Trade and Local Externalities

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  • Bruno S. Frey
  • Alois Stutzer

Abstract

The burning of fossil fuels not only causes CO2 emissions but at the same time impairs local environmental quality such as ambient air quality. The present paper analyzes the possible distortion arising from international trade in CO2 emissions when local externalities persist. It is theoretically derived that the maximal possible 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

  • Bruno S. Frey & Alois Stutzer, "undated". "Global CO2-Trade and Local Externalities," IEW - Working Papers 077, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:077
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    File URL: https://www.zora.uzh.ch/id/eprint/51978/1/iewwp077.pdf
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    References listed on IDEAS

    as
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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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