INTERNATIONAL-TRADE IN CARBON EMISSION RIGHTS AND BASIC MATERIALS - GENERAL EQUILIBRIUM CALCULATIONS FOR 2020

Restrictions on CO2 emissions affect international trade and the patte rn of comparative advantage. This paper, based on calculations with a static general equilibrium model, suggests that international trade in carbon rights is a substitute for trade in energy-intensive goods, an d thus international trading in carbon rights reduces sectoral effects of emission reductions. In our model, we surprisingly find that free riding by non-signatory countries may not render unilateral action ine ffective. If the OECD unilaterally cuts global emissions by 5 per cent from 1990 levels by the year 2020, emissions by non-OECD regions incr ease but offset less than 1 5 per cent of this cutback. Moreover, carb on taxes depress international oil prices and create incentives for in creased trade in natural gas.