Essays on the international trade impacts of climate policy

With the approaching 2012 Kyoto Protocol deadline and enforcement of new environmental regulations governments have become increasingly interested in the impact which traded goods have on climate change and the effect of such environmental policies on trade patterns. Critics are questioning the wisdom of transporting products across continents instead of consuming locally produced goods, assuming that lower use of international transport will reduce global greenhouse gas emissions. The taxation of greenhouse gas emissions represents an efficient means of achieving climate change mitigation, and this is often the starting point in any discussion of long run global GHG reduction. However, the direct effects of such a tax, or equivalently, an emissions trading scheme, will vary across countries and sectors in line with the emissions intensity of the sector. If these intensities differ widely across regions, then realization of a global abatement scheme can have unexpected consequences for both production and trade of goods. Therefore, the objective of this thesis is to understand the international trade impacts of policies aimed at reducing greenhouse gas emissions as well as to explore the environmental impacts of current trade patterns. The first essay analyses whether substitution of domestic for imported food will reduce the direct and indirect GHG emissions associated with its consumption. While shifting consumption patterns in wealthy countries from imported to domestic livestock products reduces GHG emissions associated with international trade and transport, the results show that these transport emissions reductions are dwarfed by changes in global emissions due to differences in GHG emissions intensities of production. Thus our findings indicate that diverting consumption to local goods only reduces global emissions when undertaken in regions with relatively low emissions intensities. The second essay explores the variation of economic emissions intensities across regions and their role in output and trade changes due to GHG taxation. Since emissions intensities in agriculture, forestry and land use sectors differ greatly across regions, the effect of a GHG tax will vary across countries and sectors accordingly. For the first time, estimates of economic emissions intensities for livestock production across all regions of the world are reported and decomposed to understand the sources of regional variation. The findings indicate that the bulk of the variation in emissions intensities per dollar of output is due to differences in the value of output per animal produced by each animal in different regions and not due to GHG emissions per animal, which are similar across regions. The results of GHG taxation scenarios show that due to large variation of economic emissions intensities by region a global emissions tax imposed on one or more of the global livestock sectors sharply changes the pattern of comparative advantage, shifting production to the richer countries. The final essay investigates the effects of a GHG tax on transport sectors and trade globally. The elasticities of substitution between different modes of transport are estimated and then incorporated into the Global Trade Analysis Project general equilibrium model in order to investigate the impacts of a carbon tax on modal choice and overall trade volumes. The comparison of the emissions tax with average tariff on merchandise imports reveals that the impact of such GHG tax on import prices is generally an order of magnitude smaller than the average tariff. The findings also show that a global GHG tax on transport sectors increases the competitiveness of transport services exports from the most developed countries with relatively lower economic emissions intensities of transport services, while having a negative effect on most developing regions, which have relatively higher emissions rates per dollar of transport services