Where-to-Abate' And 'Where-to-Invest' Flexibility - An Integrated Assessment Analysis of Climate Change

Georg Müller-Fürstenberg and Gunter Stephan

Swiss Journal of Economics and Statistics (SJES), 2002, vol. 138, issue II, 191-213

Abstract: Within the framework of a dynamic Computable General Equilibrium (CGE) model this paper analyses the impact of trade restrictions on regional rates of return on capital, marginal costs of abatement and optimal climate policy. It will be shown that regional differences both in marginal costs of abatement and in marginal productivity of capital are driven by market imperfection. With restrictions on international trade, the industrialized countries of the North exhibit higher marginal costs of abatement and a lower marginal productivity of capital than the developing nations of the South. Free trade not only in carbon emission rights but also in capital increases conventional welfare but stimulates carbon dioxide emissions to grow, - an effect that is not completely offset by efficiency gains in abatement. Nevertheless, depending upon the choice of the discount rate some kind of an insensitivity result is observed.

Keywords: Climate policy; carbon emission trade; rate-of-interest differential; marginal cost of abatement; capital mobility; international capital market imperfection (search for similar items in EconPapers)
JEL-codes: F21 Q25 (search for similar items in EconPapers)
Date: 2002
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Citations: View citations in EconPapers (1)

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