International Transport and the Environment: Environmental regulations and international emissions trading

Author Name TAKARADA Yasuhiro  (Nanzan University)
Creation Date/NO. September 2013 13-J-061
Research Project Economic Analysis of Environmental, Energy, and Resource Strategies Following the Great East Japan Earthquake
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We develop a two-country, two-good general equilibrium model of international trade that takes international transport sectors into explicit consideration to examine the effects of environmental policy on international transport. International transportation services are traded between two countries. First, we find that international emission permit trading between the international transport sectors of two countries benefits the country that imports transportation services, regardless of the trading price of emission permits. However, a country that exports transportation services may lose from emissions trading even if it receives all of the direct gains from permit trade by buying (or selling) permits at the current market price of the other country. Our results suggest that the trade pattern in transportation services is crucial to the welfare effects of permit trade in international transport sectors. Second, we demonstrate that a country may gain from unilateral reduction in the emission permit of its transport sector despite the fact that the stricter regulation shrinks its transport sector. Both countries can benefit from the voluntary regulation if environmental regulations on international transport are initially weak.