Domestic versus international emissions trading with capital mobility

Haitao Cheng

Resource and Energy Economics, 2024, vol. 77, issue C

Abstract: We employ the footloose capital model to examine and compare how two countries decide on their emission permits non-cooperatively under domestic and international emissions trading in the presence of capital mobility. We find that even if two countries are symmetric and have the same carbon prices under domestic emissions trading, they can benefit from international emissions trading. This finding holds regardless of capital mobility. We also find that allowing footloose capital increases each country’s and global emissions under domestic emissions trading; however, it does not affect emissions under international emissions trading. Additionally, we show that the cooperative choices of emission permits are the same regardless of international mobility of emission permits and capital and are always lower than the non-cooperative ones.

Keywords: Capital tax; Emission permit market; Monopolistic competition; Pollution haven effect (search for similar items in EconPapers)
JEL-codes: F12 F18 H23 Q58 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:77:y:2024:i:c:s0928765524000095

DOI: 10.1016/j.reseneeco.2024.101433

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