Shifting Trade Patterns as a Means of Reducing Global Carbon Dioxide Emissions

Abstract

SummaryThis article extends and applies the world trade model with bilateral trade (WTMBT), a linear program with any number of goods, factors, and regional trade partners that determines regional production, bilateral trade patterns, and region‐specific prices on the basis of comparative advantage by minimizing factor use. The model provides a consistent analysis of the global production system, representing geographical location at a regional level, region‐specific technologies at a sector level, emissions from production, and resource constraints and costs. An illustrative analysis investigates how changes in the geographic distribution of production could contribute to reducing global carbon dioxide (CO2) emissions and at what cost. The model provides a bridge between global objectives and their determinants and consequences in specific sectors in individual regions. Multi‐objective analysis is used to construct a trade‐off curve between global factor costs and CO2 emissions. The relevance of both primal and dual solution variables is demonstrated. In particular, changes in goods prices and emissions are investigated. We conclude that the main impact of tightening carbon constraints is a substantial reduction in international trade accompanied by a shift away from regions most reliant on the combustion of coal. In addition to the analysis of the overall global trends, including the impact on prices, the implications of the global carbon constraint for one specific industry are investigated.