Zoom link:
https://zoom.us/j/98295796929?pwd=OVRDUlpWUG5DMUxuYTZHdy9CUHhlQT09
Meeting-ID: 982 9579 6929
Kenncode: D2RC9C
This paper sheds light on the unidentified effects of unilateral environmental and trade actions within an international trade framework with two large open economies, transboundary pollution, and Public Pollution Abatement (PPA) activities. In this framework, Pareto efficiency dictates that Border Carbon Adjustment (BCA) should account not only for the difference in carbon taxes between the two countries, but also for the policy’s unintended consequences on PPA. More importantly, we show how trade liberalisation can mitigate carbon leakage. We argue that a conditional reduction of trade barriers, in the form of tariffs such as BCA, subject to stricter environmental policy by the country that exports the polluting good, mitigates carbon leakage and increases countries’ welfare. Such reform strategy is consistent with WTO rules and simultaneously generates strong incentives for countries with laxer environmental policy to adopt a stricter one.