Greenhouse Gas Emission Controls and Firm Locations in North-South Trade

Author Name ISHIKAWA Jota (Faculty Fellow, RIETI) / OKUBO Toshihiro (Keio University)
Creation Date/NO. May 2013 13-E-045
Research Project Economic Analysis of Technology in the Global Economy
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This paper studies greenhouse gas (GHG) emission controls in the presence of international carbon leakage through international firm relocation. In a trade and geography framework with two countries ("North" and "South"), only North sets a target for GHG emissions. We compare the consequences of emission quotas, emission taxes, and emission standards under trade liberalization for the location of pollution-intensive and less pollution-intensive sectors and the degree of carbon leakage. With low trade costs, further trade liberalization increases global emissions by facilitating carbon leakage. Regulation by quotas leads to spatial sorting with less carbon leakage and less global emissions than regulation by taxes and standards.

Published: Ishikawa, Jota, and Toshihiro Okubo, 2017. "Greenhouse-gas emission controls and firm locations in North-South trade," Environmental and Resource Economics, Vol. 67(4), pp. 637-660