Unanticipated Consequences of Environmental Regulation on Pollution, Income distribution, Product composition and Trade*

Using a general equilibrium model of an open economy, the paper discusses several consequences of command and control environmental regulatory programs. The existing literature seems to suggest a degree of certainty in the effectiveness of such programs in controlling the damage to the environment. The paper questions this conviction and shows that there are some unanticipated consequences of regulation. Varying standards influence factor rewards, which in turn have implications for the distribution of income, product composition and the level of pollution. Under certain conditions, regulation that is more stringent may lead to a rise in the output of the polluting industry. In such cases, the pattern of trade is indeterminate. The paper casts serious doubts on the dogma that developing countries export pollution and need to be restrained by interconnecting trade agreements with Multilateral Environment Agreements. Environmental regulation may involve substantial losses to the working class, which is an issue the national governments will have to deal with carefully