Fair trade and harmonization of climate change policies in Europe

In March 2000, the European Commission presented a Green Paper on greenhous e gas emissions trading within Europe, supporting implementation of a Commu nity-wide scheme in which the design and regulation of all essential elemen ts would be harmonized at the Community level. The present paper analyzes e conomic arguments used to justify such a coordinated scenario, showing thes e arguments to be based on misleading rhetoric about fair trade and harmoni zation. Diverse allocations of emissions allowances across Member Stales ar e justified in theory. In practice, too, no empirical evidence or model-bas ed results demonstrate that an uncoordinated European trading scheme would adversely affect competitiveness to any significant extent or substantially increase industrial relocations. (C) 2001 Elsevier Science Ltd. All rights reserved.