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Title:Effects of unilateral climate policy on terms of trade, capital accumulation, and welfare in a world economy PDF Logo
Authors:Farmer, Karl
Friedl, Birgit
Rainer, Andreas
Issue Date:2008
Series/Report no.:CESifo working paper 2375
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.
Subjects:Capital accumulation
emission permits
terms of trade
overlapping generations
welfare
JEL:F11
Q56
D91
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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