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Endogenous Climate Coalitions and Free Trade - Building the Missing Link

Thomas Kuhn (thomas.kuhn@wirtschaft.tu-chemnitz.de), Radomir Pestow (radomir.pestow@wirtschaft.tu-chemnitz.de) and Anja Zenker (anja.zenker@wirtschaft.tu-chemnitz.de)
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Thomas Kuhn: Chemnitz University of Technology, Department of Economics, Professur VWL IV Finanzwissenschaft
Radomir Pestow: Chemnitz University of Technology, Department of Economics, Professur VWL IV Finanzwissenschaft
Anja Zenker: Chemnitz University of Technology, Department of Economics, Professur VWL IV Finanzwissenschaft

No 18, Chemnitz Economic Papers from Department of Economics, Chemnitz University of Technology

Abstract: In this paper, we discuss the endogenous formation of climate coalitions in an issue-linkage regime. In particular, we propose to build a link to the issue of preferential free trade. Trade privileges exclusively granted to members of the climate coalition work as an incentive mechanism for countries to join in. A multi-stage strategic trade framework is used in which coalition (fringe) countries can dispose of a policy set comprising a discriminatory import-tariff on dirty goods as well as producer emission permits traded on a common (local) permits market. A fairly novel modelling of the preferential free trade area is incorporated which is at the core of our approach. We find strong support for the claim that trade liberalization can promote relatively large and effective climate coalitions compared to the single issue regime. As a policy implication, negotiations on international climate treaties and free trade arrangements should be interlinked.

Keywords: Climate Change; International Environmental Agreements; Free Trade; Issue Linkage; Emission Permits (search for similar items in EconPapers)
JEL-codes: Q54 Q56 F18 F15 Q58 (search for similar items in EconPapers)
Date: 2018-02
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Published in Chemnitz Economic Papers, February 2018, pages 1-28

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https://www.tu-chemnitz.de/wirtschaft/vwl1/RePEc/d ... imate_Coalitions.pdf First version, 2018 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tch:wpaper:cep018

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