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Building Climate Coalitions on Preferential Free Trade Agreements

Thomas Kuhn (), Radomir Pestow () and Anja Zenker ()
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Thomas Kuhn: Chemnitz University of Technology
Radomir Pestow: Chemnitz University of Technology
Anja Zenker: Chemnitz University of Technology

Environmental & Resource Economics, 2019, vol. 74, issue 2, 539-569

Abstract: Abstract In this paper we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose a preferential free trade agreement on which a climate coalition should be built. The basic idea is that the gains of free trade can provide strong incentives for countries to join the coalition. As a framework, a multi-stage strategic trade model is employed in which each country may set an emission cap being effective on a permit market. In addition, a discriminatory import tariff may be imposed on dirty goods. However, at the heart of our approach is a preferential free trade arrangement among the members of a climate coalition leading to a favourable shift in the terms of trade. As a main result, trade liberalisation is found as an institution highly effective in building climate coalitions. In particular, the parametrical simulation of the model shows that participation in joint emission reduction is higher, consumption patterns are more environmentally friendly, and coalitional welfare is much more improved than in case of a single-issue environmental agreement.

Keywords: Climate change; International environmental agreements; Free trade; Issue linkage; Tradable permits; Strategic trade policy (search for similar items in EconPapers)
JEL-codes: Q54 Q56 F18 F15 Q58 (search for similar items in EconPapers)
Date: 2019
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