The Energy Journal · 2004 · 121 citations · 61 references
Social SciencesEconomicsEnvironmental PolicyEnvironmental EconomicsInternational EconomicsInternational TradeCarbon MarketsEmissions TradingEnvironmental TaxationGlobal TradeTrade LiberalizationTrade PolicyCarbon Emissions TradingEmissions Allowance TradingEnergy TaxesInternational Carbon MarketsInternational Carbon TradingInternational Trade EconomicsPermit TradingTerms Of Trade Effects
Economic efficiency is a major argument for international emissions trading under the Kyoto Protocol. We show that permit trading can be welfare decreasing for countries, even though private trading parties benefit. The result is a case of “immiserizing” growth in the sense of Bhagwati where the negative terms of trade and tax interaction effects wipe out the gains from trading. Simulation and welfare decomposition results based on a CGE model of the global economy show that under EU-wide trading countries that are net permit sellers generally lose, due primarily to the existence of distortionary energy taxes.
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