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

Abstract

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.

Is Environmental Tax Harmonization Desirable in Global Value Chains?

“…Is Environmental Tax Harmonization Desirable in Global Value Chains? (Forslid et al 2017;Ikefuji et al 2016;Ishikawa and Okubo 2017;Pflüger 2001;Voßwinkel and Birg 2018;Zeng and Zhao 2009). 4 Pflüger (2001), for example, examines the effect of pollution taxes on the international relocation of monopolistically competitive firms.…”

“…4 Pflüger (2001), for example, examines the effect of pollution taxes on the international relocation of monopolistically competitive firms. By extending Pfluger's model to incorporate transboundary pollution, Ishikawa and Okubo (2017) reveal that trade liberalization may increase global pollution through firm relocation from a country with stringent regulation to a country with lax regulation. Voßwinkel and Birg (2018) examine non/cooperative environmental policies in an oligopolistic competition setting with a specific focus on the quality difference of goods.…”

Uniform emission taxes, abatement, and spatial disparities

“…Therefore, as in the related literature (e.g. Zeng and Zhao 2009;Ishikawa and Okubo 2017;Forslid et al 2018), we assume that the emitting sector M produces differentiated varieties of goods under IRS and monopolistic competition, while the non-emitting sector A produces a homogeneous good under constant returns to scale (CRS) and perfect competition. Throughout the paper, the good produced by sector M is called good M and the good produced by sector A is called good A.…”

“…Markusen et al 1993Markusen et al , 1995Pfl€ uger 2001;Venables 2001). More recently, Zeng and Zhao (2009) and Ishikawa and Okubo (2017) examined environmental issues by considering firm relocation using the footloose capital (FC) models (Martin and Rogers 1995). Forslid et al (2018) analysed a similar issue by incorporating firm heterogeneity and abatement activities.…”

“…1993, 1995; Pflüger 2001; Venables 2001). More recently, Zeng and Zhao (2009) and Ishikawa and Okubo (2017) examined environmental issues by considering firm relocation using the footloose capital (FC) models (Martin and Rogers 1995). Forslid et al .…”