Free trade and global warming: a trade theory view of the Kyoto protocol

• Published in: Journal of environmental economics and management Vol. 49; no. 2; pp. 205 - 234
• Main Authors: Copeland, Brian R., Taylor, M. Scott
• Format: Journal Article
• Language: English
• Published: New York Elsevier Inc 01.03.2005; Elsevier; Elsevier Science Publishing Company, Inc
• Series: Journal of Environmental Economics and Management
• Subjects: Carbon leakage; Climate change; Emission permits; Emission standards; Emissions; Emissions control; Environmental economics; Environmental protection; Free trade; Global warming; International trade; Kyoto Protocol; Theory; Trade theory; International trade; Emission permits; Global warming; Carbon leakage; Kyoto protocol
• ISSN: 0095-0696; 1096-0449
• DOI: 10.1016/j.jeem.2004.04.006

This paper demonstrates how several important results in environmental economics, true under mild conditions in closed economies, are false or need serious amendment in a world with international trade in goods. Since the results we highlight have framed much of the ongoing discussion and research on the Kyoto protocol, our viewpoint from trade theory suggests a re-examination may be in order. Specifically, we demonstrate that in an open trading world, but not in a closed economy setting: (1) unilateral emission reductions by the rich North can create self-interested emission reductions by the unconstrained poor South; (2) simple rules for allocating emission reductions across countries (such as uniform reductions) may well be efficient even if international trade in emission permits is not allowed; and (3) when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions.