A Holistic View of Trade, Pollution Permits and Abatement

Hamid Beladi, Lu Liu and Reza Oladi
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Lu Liu: Southwestern University of Finance and Economics, China

No 2, Working Papers from College of Business, University of Texas at San Antonio

Abstract: By constructing a dynamic general equilibrium model this paper studies the optimal pollution emission and abatement policies for a small economy. We show that in autarky government issues an optimal level of emission permits but its optimal abatement level is zero at the unique steady- state equilibrium. On the other hand, government employs an optimal two-dimensional policy with free trade if the country is an exporter of a pollution intensive good. That is, government issues pollution permits (thus controls the emission level) while it undertakes a positive level of abatement activity. In other words, an optimal combination of emission cap and pollution abatement is required for a small trading economy with comparative advantage in dirty goods.

Keywords: Pollution permits; abatement; international trade (search for similar items in EconPapers)
JEL-codes: F1 Q5 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2011-02-11
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