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Pollution Policy and Trade Liberalization of Environmental Goods

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Abstract

During the Doha Round at the World Trade Organization, reductions in trade barriers on environmental goods (EG) were put forward as a means of helping developed and developing countries alike deal with current environmental problems. We examine the potential effectiveness of such a strategy in a developing country that imports all its consumption of EG from an imperfectly competitive foreign eco-industry. We point out that trade liberalization of EG might in fact lead to less stringent pollution taxes, which can result in an actual rise in pollution levels. We then show that the environmental effectiveness objective of this trade reform can be achieved when the regulator uses quantitative abatement standards as an alternative pollution policy instrument. However, this environmental achievement comes at the expense of social welfare.

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Abbreviations

EG:

Environmental goods

OECD:

Organization for Economic Cooperation and Development

R&D:

Research and Development

UNCTAD:

United Nations Conference on Trade and Development

USITC:

United States International Trade Commission

WTO:

World Trade Organization

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Authors and Affiliations

  1. Department of Economics, University of Waterloo and CIRANO, 200 University Avenue West, Waterloo, N2L 3G1, ON, Canada

    Alain-Désiré Nimubona

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  1. Alain-Désiré Nimubona
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Correspondence to Alain-Désiré Nimubona.

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Author is grateful to Hassan Benchekroun, Anthony Heyes, Bernard Sinclair-Desgagné, and two anonymous referees for their very helpful comments and suggestions, which have significantly improved this paper. He also thanks Joan Canton, Chantal Line Carpentier, Maia David, Adeyemi Esuola, Ruth Forsdyke, Margaret Insley, Sylvain Leduc, Fabrice Ndikumagenge, and participants at numerous conferences and workshops for valuable comments on previous versions of the paper. The usual disclaimer applies.

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Nimubona, AD. Pollution Policy and Trade Liberalization of Environmental Goods. Environ Resource Econ 53, 323–346 (2012). https://doi.org/10.1007/s10640-012-9564-4

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