ENVIRONMENTAL-REGULATION AND INTERNATIONAL-TRADE

In this paper, we investigate how a country's choice of environmental policy instrument affects the international competitiveness of its fir ms. We show that in a Cournot-Nash equilibrium, the total market share of firms regulated through tradeable emission permits increases relat ive to that of the firms operating under command and control due to be tter allocation of total abatement among the firms in the country. Our work suggests that free trade situations should not only result in si milar environmental standards but also in similar regulatory regimes. It may come as no surprise that the environmental authorities in Canad a are seriously considering following the United States in instituting a tradeable emission permits mechanism.