Departmental Bulletin Paper Tradable Emissions Permits in the Presence of Trade Distortions

Kawahara, Shinya

66 ( 4 )  , pp.85 - 99 , 2017-03-31 , 立正大学経済学会
This paper investigates how trade liberalization affects domestic emissionstrading scheme in a political economy framework. Developing a modelin which the amounts of emissions cap are endogenously determined, weshow that a pro-industry government issues too large amount of emissionscap to benefit an industry group, while a pro-environment government issuestoo small amount of emissions cap to benefit an environmental group.Then, we examine how a country’s decision to liberalize trade can affectthe equilibrium price of emissions cap chosen by the corruptible government.In particular, we show that trade liberalization will increase thetoo low price of permits chosen by the pro-industry government, while itwill decrease the too high price of permits chosen by the pro-environmentgovernment.

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