International trade and climate change

Abstract

This paper provides a selective review of the interaction between international trade, international trade policies, environmental policies and climate change. The focus is on the role that international trade and the existence of countries have on the generation of emissions leading to greenhouse gas stocks in the atmosphere and hence, potentially, to climate change and on the role of trade and environmental policies in dealing with this global externality. We first review the question of whether trade exacerbates or contributes to the climate change problem by increasing global emissions, a particularly important issue being the pollution haven problem. Then we consider environmental policies and trade. We analyse non-cooperative environmental policies and investigate whether trade undermines the effectiveness of unilateral environmental policies, in which carbon leakage and international competitiveness are of particular importance. To deal with climate change, cooperation among countries is important. In this aspect, we review the interactions between trade and environmental policies, border tax adjustment policies, and the role of the World Trade Organization in combating climate change arising from economic activities.