UNILATERAL EMISSION CUTS AND CARBON LEAKAGES IN A NORTH-SOUTH TRADE MODEL

Partha Sen
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Partha Sen: Centre for Development Economics, Delhi School of Economics, Delhi, India

No 232, Working papers from Centre for Development Economics, Delhi School of Economics

Abstract: The effects of a unilateral cut in emissions (e.g. by Annexure 1 countries in Kyoto) are analyzed in a dynamic two-country two-commodity model. If the fossil fuel is priced at marginal cost, a unilateral cut reduces total emissions (the carbon leakage is less than one hundred percent). But if the fuel is priced above marginal cost then a “green paradox” appears, i.e. the price of the fuel will fall until its use (over time) exhausts the entire stock. Here a unilateral policy is self-defeating and it is necessary to get binding commitments on fossil fuel use from all the countries. The production and trade implications for the participant and non-participant countries are analyzed.

Pages: 32 pages
Date: 2013-07
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