Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy

Karl Farmer, Birgit Bednar-Friedl () and Andreas Rainer

No 2375, CESifo Working Paper Series from CESifo

Abstract: We present a two-good, two-country overlapping generations model where emissions arise from production and each country has a domestic emission permit system. When one country unilaterally reduces her cap on emissions, her output available for domestic and foreign consumption diminishes more than in the other country. With unchanged consumption expenditure shares for both goods the terms of trade improve, while capital stocks decline in the reducing and less strongly in the non-reducing country. The net welfare effect of improving terms of trade and falling capital stocks is negative in both countries. However, if the country which unilaterally reduces her emission permits is a net creditor to the world economy, her own welfare loss remains below that of the non-reducing country.

Keywords: capital accumulation; emission permits; terms of trade; overlapping generations; welfare (search for similar items in EconPapers)
JEL-codes: D91 F11 Q56 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Effects of Unilateral Climate Policy on Terms of Trade, Capital Accumulation, and Welfare in a World Economy (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2375

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