Essays on International Trade and Climate Change

Abstract

This collection of essays investigates the interaction between policies and outcomes related to international trade and climate change. Chapter 1 analyzes the relationship between climate change policies and international trade flows. Using data on carbon dioxide (CO₂) emissions intensities for disaggregated industries and US imports from 1990 to 2010, I find that committing to a quantified emissions target under the Kyoto Protocol is associated with a country exporting less to US in emissions-intensive industries. This effect is quantitatively important and is comparable to that of factor endowments on comparative advantage. Moreover this pattern is not present prior to the adoption of the Kyoto Protocol, but only emerges as it went into effect. Chapter 2 analyzes the potential effectiveness of using trade policy to address the issue of carbon leakage with unilateral emissions mitigation. I extend the Helpman-Krugman model of intra-industry trade to incorporate greenhouse gas emissions as a factor in production. Simulation exercises show that carbon motivated border adjustments alleviate carbon leakage, but are typically not environmentally effective with respect to global emissions. Such measures benefit owners of domestic factors used intensively in emissions-intensive sectors, but reduce real income of other factors as well as the welfare of the foreign economy. These results suggest that such border measures have limited impacts on the global environment, but may be useful as second-best redistribution policies. Chapter 3 investigates the driving forces behind the decreasing trend of CO₂ emissions from the US industrial sector. From 1998 to 2007, real gross output grew by 7.9%, while CO₂ emissions decreased by 4.6%. Using CO₂ emissions intensities data compiled for year 1998 and subsequent emissions and production data, I decompose the changes in emissions into technology, composition and scale effects. The technology effect, i.e., the decrease in emissions intensities, accounted for almost all of the reduction in industrial emissions. Increasing net imports, on the other hand, amounted to about one third of the size of the technology effect. These essays suggest that there is considerable interaction between patterns of international trade and trade policy and CO₂ emissions and climate change policy.