Green lobbies and transboundary pollution in large open economies

2012

In this paper, we explore the use of trade policy in addressing transboundary stock pollution problems such as acid rain and water pollution. We show that a tariff determined by the current level of accumulated pollution can induce the time path of emissions optimal for the downstream (polluted) country. But if the upstream (polluting) country can lobby the downstream government to impose lower tariffs, distortions brought by corruption and foreign lobbying lead to a rise in the upstream country's social welfare, and to a decrease in social welfare in the downstream country. Thus, the usefulness of trade policy as a tool for encouraging cooperation and internalizing transboundary externalities depends critically on the degree of governments' susceptibility to foreign political influence. JEL classification: D72; F18; F59; Q56.

Journal of Economic Behavior & Organization, 2003

This paper explores the effects of trade liberalization on environmental policy outcomes when collective action is endogenous. The polluting industry's ability to undertake lobbying is shown to depend on the degree of competition in the product market, establishing a new link between trade and environmental policies. If trade liberalization causes industry collective action to become harder to sustain, the stringency of the environmental policy is likely to rise. These results highlight the role of trade liberalization on product market competition and its consequent impact on the incentive to lobby for less stringent environmental policies.

SSRN Electronic Journal, 2000

We employ a common agency model to examine how green lobbies a®ect the determination of trade and environmental policy in two large countries that are linked through trade°ows and transboundary pollution. We show that, when governments are not restricted in their ability to use trade barriers, environmental lobbying always results in higher pollution taxes relative to a no-lobbying scenario. Consequently, uncoordinated environmental policies are closer to the e±cient Pigouvian solution than internationally coordinated policies. If, however, governments are bound by international trade rules, green lobbies may bias environmental policies downwards and environmental policy coordination is unambiguously e±ciency-enhancing.

In this paper we employ a common agency model to study the role of green and producer lobbies in the determination of trade and environmental policies. We focus on two large countries that are linked by trade ‡ows and transboundary pollution externalities. We show that the nature of the relationship between lobbies and the relative e¢ciency of unilateral and cooperative policy outcomes depend crucially on three factors: the type of policy regime, whether governments act unilaterally or cooperatively, and the extent of the 'pollution leakages'.

Indian Growth and Development Review, 2010

The paper examines interdependencies between trade and environment policies, as they get jointly determined in a political-economy model of a small open economy. Following , the structure of trade protection and environment policy is characterized when government is not a benevolent maximizer of social welfare. Campaign contributions help win the elections and provide it the incentive to distort policies to attract contributions from lobbies. With bargaining over more than one policy instrument, it may trade-off one policy for the other, to strike a balance between favors to lobbies and loss in social welfare. It may tax imports higher to offset the cost of stricter environment regulation or reduce import protection to counter the effect of a lenient environment policy. Interestingly, whilst the government always 'concedes' by providing positive tariff protection to the import-competing sector at home, it may or may not give in to lobby's demand for lower pollution tax. Moreover, the equilibrium level of import protection is positively related to the world price of the importable good, a result that ties in with the literature on the political economy of protection to declining industries .

2001

Several studies hypothesize exogeneous environmental regulation as the primary motive for trade between two regions, often predicting a lower welfare for the region with incomplete environmental protection. Such analyses do not allow the region to adjust its environmental policy in response to a shift in the trade regime. Further, they do not allow the region to refuse free trade in the face of a welfare loss. As an alternative I propose a common agency model of government to endogenize environmental policy and the choice of trade regime. Conditions for the incomplete internalization of an environmental externality are specified, and the pollution tax in autarky is compared to that under free trade. The paper finds that moving to free trade induces a tightening of pollution policy reducing the deadweight loss from incomplete environmental regulation. This improvement occurs regardless of any price changes that accompany free trade. In contrast to the predictions from earlier article...

2009

This paper examines whether trade competition abets regulatory races in the environmental area and how domestic political institutions mediate the effects of trade competition. First, to analyze trade competition, we develop a new measure, structural equivalence, which assesses competitive threats a country faces from other countries whose firms export the same products to the same destinations. Employing this new measure, we analyze air pollution intensity (SO2: sulfur dioxide) and water pollution intensity (BOD: biochemical oxygen demand) for a panel of 140 countries for 1980-2003. We find that trade competition is a significant predictor of water pollution among structurally equivalent countries. We test separately whether trade competition abets upward and downward regulatory races and we find that while trade competition abets downward races in both air and water pollution, it encourages an upward race in water pollution only. Moreover, we test the mediating effect of domestic veto player/political constraints and we find that when domestic political constraints are low, countries are responsive to the pressure from trade competitor countries and these responses are reflected eventually in the changes in domestic environmental outcomes. The significant effect of trade competition on pollution, however, disappears when domestic political constraints reach a certain level and this critical point is lower in the case of air pollution intensity (SO2) than in water pollution intensity (BOD).

This paper examines conditions under which domestic political institutions mediate the effect of trade competition on regulatory races in the environmental area. We focus on the role of domestic veto players in shaping governments' policy responses to trade competition which are reflected eventually in air (Sulphur dioxide, SO2) and water pollution (Biochemical Oxygen Demand, BOD) intensity levels. Our analysis of 140 countries for the period 1980-2003 suggests that countries' air and water pollution intensity levels respond to pressures from trade competitors when political constraints faced by governments are low. As the number of veto players and their ideological heterogeneity increase, domestic pollution intensity levels become less responsive to the competitive pressure from trade. Importantly, in relation to water pollution, the constraining effect of veto players is more pronounced for air pollution ---visible pollution issue around which organized, urban constituencies tend to mobilize.

Review of Development Economics, 2011

We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in a race to the bottom in environmental taxes, which makes both countries worse off. This is not due to the terms of trade motive, but rather the incentive, in a strategic setting, to reduce the incidence of transboundary pollution. With command and control policies (emission quotas), countries are unable to influence foreign emissions by strategic choice of domestic policy; hence, there is no race to the bottom. However, with internationally tradable quotas, unless pollution is a pure global public bad, there is a race to the bottom in environmental policy. Under free trade, internationally nontradable quotas result in the lowest pollution level and strictly welfare-dominate taxes. The ordering of internationally tradable quotas and pollution taxes depends, among other things, on the degree of international pollution spillovers. JEL classification codes: F18, Q56, H23, D62.

International Studies Quarterly, 2019

It is usually assumed that the cost of abating pollution is the main deterrent of domestic support for international climate cooperation. In particular, some scholars have argued that, due to the burden of pollution abatement, businesses commonly constrain governments, which then take less cooperative positions on global climate agreements. I suggest that this argument needs further qualification: pollution-related costs rarely have unconditional effects on preferences for global climate agreements. Instead, a sector's pollution level is more likely to influence preferences for climate cooperation if mediated by its trade exposure. If pollution is high, firms in high-trade sectors may be less able to absorb climate regulation, and hence they should be more sensitive to climate cooperation. If pollution is low, firms in high-trade sectors may support climate cooperation, because by being more efficient they are more capable of adjusting to regulation. These dynamics should then a...