Carbon Motivated Regional Trade Arrangements: Analytics and Simulations

Yan Dong () and John Whalley ()

No 14880, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents both analytics and numerical simulation results relevant to proposals for carbon motivated regional trade agreements summarized in Dong & Whalley(2008). Unlike traditional regional trade agreements, by lowing tariffs on participant’s low carbon emission goods and setting penalties on outsiders to force them to join such agreements , carbon motivated regional trade agreements reflect an effective merging of trade and climate change regimes, and are rising in profile as part of the post 2012 Copenhagen UNFCC negotiation. By adding country energy extraction cost functions, we develop a multi-region general equilibrium structure with endogenously determined energy supply. We calibrate our model to business as usual scenarios for the period 2006-2036. Our results show that carbon motivated regional agreements can reduce global emissions, but the effect is very small and even with penalty mechanisms used, the effects are still small. This supports the basic idea in our previous policy paper that trade policy is likely to be a relatively minor consideration in climate change containment.

JEL-codes: F13 Q54 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-env
Date: 2009-04
Note: EEE
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