We ask whether the threat of carbon tariffs might lower the cost of reductions in world carbon emissions by inducing unregulated regions to adopt emission controls. We use a numerical model to generate payoffs of a game in which a coalition regulates emissions and chooses whether to employ carbon tariffs against unregulated regions. Unregulated regions respond by abating, retaliating, or ignoring the tariffs. In the Nash equilibrium, the use of tariffs is a credible and effective threat. It induces cooperation from noncoalition regions that lowers the cost of global abatement substantially relative to the case where the coalition acts alone. (JEL D58, F13, F18, H23, Q54, Q58)
Böhringer, Christoph, Jared C. Carbone, and Thomas F. Rutherford.
"The Strategic Value of Carbon Tariffs."
American Economic Journal: Economic Policy,
Computable and Other Applied General Equilibrium Models
Trade Policy; International Trade Organizations
Trade and Environment
Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
Climate; Natural Disasters and Their Management; Global Warming
Environmental Economics: Government Policy