Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/309004 
Year of Publication: 
2023
Citation: 
[Journal:] Environmental Economics and Policy Studies [ISSN:] 1867-383X [Volume:] 26 [Issue:] 3 [Publisher:] Springer Japan [Place:] Tokyo [Year:] 2023 [Pages:] 479-502
Publisher: 
Springer Japan, Tokyo
Abstract: 
We study the endogenous formation of climate coalitions linked to a preferential free trade arrangement. In a multi-stage, micro founded strategic trade and participation game, coalition and fringe countries dispose of a discriminatory tariff on dirty imports as well as emission permits imposed on domestic producers. Permits are traded on a common permit market inside the coalition and on local markets outside, respectively. We provide an analytical solution for the general equilibrium and the policy game, in the three country case, while the participation game is solved by Monte Carlo simulation. Moreover, conditional probabilities are computed for the transition to coalitions of various sizes induced by free trade. Under various regimes analyzed, we find that preferential free trade can create strong incentives for building effective climate coalitions in terms of depth and breadth. This result even holds if fringe countries are given the option of trade cooperation as a retaliation devise and is driven by a favorable shift in the coalition's terms of trade. As a policy implication, negotiations on international climate treaties and free trade arrangements should be interlinked.
Subjects: 
Climate change
International environmental agreements
Preferential free trade
Issue linkage
Emission permits
JEL: 
Q54
Q56
F18
F15
Q58
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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