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Regulatory Stringency and Emission Leakage Mitigation

Fabio Antoniou, Panos Hatzipanayotou () and Nikos Tsakiris
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Panos Hatzipanayotou: Athens University of Economics and Business

No 2302, DEOS Working Papers from Athens University of Economics and Business

Abstract: We construct a two-country trade model where emissions are an input in production and generate cross-border pollution. We examine the strategic incentives of an active regulator that sets a binding level of emissions in production. We show that, in the presence of terms of trade and emission leakage strategic motives, tighter regulation can mitigate emission leakage, reduce global pollution, and improve a country's welfare. This result and the corresponding policy implications depend on the relative magnitude of emissions intensities of goods between sectors and on their relationship in production and consumption.

Keywords: Environmental Regulation; International Trade; Emission Leakage; Cross-border Pollution (search for similar items in EconPapers)
JEL-codes: F18 H23 Q54 (search for similar items in EconPapers)
Date: 2023-01-13
New Economics Papers: this item is included in nep-ene, nep-env and nep-int
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