Domestic and foreign cap-and-trade regulations, carbon tariffs, and product tariffs during international trade conflicts: A multiproduct cost-efficiency analysis

Yonghong Zhao, Fu-Wei Huang, Ching-Hui Chang and Jyh-Jiuan Lin

Energy Economics, 2024, vol. 140, issue C

Abstract: This paper develops a down-and-out call option model with structural breaks to examine the effects of domestic environmental policies on carbon-intensive firms amid international trade conflicts. The findings reveal that stricter cap-and-trade regulations, carbon tariffs, and product tariffs exacerbate pollutant-specific diseconomies of scale, limit economies of scope, and reduce firm equity. The positive impact on pollutant-specific diseconomies of scale leads to higher pollution, hindering progress toward Sustainable Development Goal 7 (SDG 7: Affordable and Clean Energy) from a multiproduct cost-efficiency perspective. Meanwhile, the negative impact on economies of scope results in fewer products and pollutants, aligning with SDG 7 but conflicting with Sustainable Development Goal 8 (SDG 8: Decent Work and Economic Growth), as the scope measure accounts for efficiency in both products and pollutants. Additionally, the negative impact on firm equity discourages progress toward both SDGs, especially during trade conflicts. In summary, environmental policies distinctly affect firm multiproduct cost efficiency and equity, particularly under varying trade conflict conditions.

Keywords: Cap-and-trade; Carbon tariff; International trade conflict; Multiproduct cost efficiency; Product tariff (search for similar items in EconPapers)
JEL-codes: F13 F51 Q51 Q58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:140:y:2024:i:c:s0140988324007436

DOI: 10.1016/j.eneco.2024.108034

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