Strategic environmental policy under free trade with transboundary pollution

Harvey Lapan and Shiva Sikdar

No 59160, 2010 Conference (54th), February 10-12, 2010, Adelaide, Australia from Australian Agricultural and Resource Economics Society

Abstract: We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in a race to the bottom in environmental taxes, which makes both countries worse. This is not due to the terms of trade motive, but rather the incentive, in a strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. Under free trade, internationally nontradable quotas result in the lowest pollution level and strictly welfare- dominate taxes. The ordering of internationally tradable quotas and pollution taxes depends, among other things, on the degree of international pollution spillovers

Keywords: Environmental; Economics; and; Policy (search for similar items in EconPapers)
Pages: 27
Date: 2010
New Economics Papers: this item is included in nep-ene and nep-env
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Related works:
Journal Article: Strategic Environmental Policy under Free Trade with Transboundary Pollution (2011)
Working Paper: Strategic environmental policy under free trade with transboundary pollution (2011)
Working Paper: Strategic Environmental Policy Under Free Trade with Transboundary Pollution (2008)
Working Paper: Strategic Environmental Policy Under Free Trade with Transboundary Pollution (2007)
Working Paper: Strategic environmental policy under free trade with transboundary pollution (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aare10:59160

DOI: 10.22004/ag.econ.59160

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