Participation And Duration Of Environmental Agreements

2We begin with the general question of how to achieve trade policy objectives (section 2). Contrary to the «orthodox» position on the commercial economy, we believe that trade policy, if used carefully, can contribute to the achievement of environmental objectives without undermining the international trading system. Section 3 examines the relative benefits of carbon taxes and a cap-and-trade system. We will then explain the effects of authorizing international trade in emission permits (section 4). Here are two types of situations. If the regions where trade takes place do not harmonise their policies, trade in permits can undermine environmental policy in one of the regions. The more favourable arguments in favour of trade in authorisations arise where the different regions harmonise their policies. But in this case too, trade in permits could increase or reduce incentives for a strict environmental policy. In other words, while trade in permits reduces mitigation costs, it does not necessarily increase the amount of the reduction balance.

The trade in permits is not necessarily «environmentally friendly». We briefly examine the case where mitigation costs are changed with the trade regime; This possibility arises, for example, when the incentive to invest in mitigation capital depends on the possibility of negotiating authorisations. 19 Initially, the Kyoto negotiators disagreed on whether to allow international trade in authorizations. The argument for trade reflects the argument for market-based policy in a closed economy: trade increases economic efficiency, that is: reduces aggregate mitigation costs by shifting the reduction to lower-cost countries. The most convincing arguments against trade are based on the practical fear that it will undermine emission reductions by allowing some countries to sell fake emission credits. [2] The Kyoto Protocol resolved the dispute by allowing limited trade in permits. The same debate is taking place during the review of the Emissions Trading Scheme in the next version of the Kyoto Protocol and the review of the Emissions Trading Scheme between countries or regions belonging to different agreements (the Kyoto Protocol, the Regional Greenhouse Gas Initiative in the Eastern United States and the Western Initiative on Climate Change, in which Western American states and Canadian provinces participate). Depending on whether the trade takes place between countries or regions that define independent policies («non-harmonized policies») or whether they take place in a region where countries coordinate their policies («harmonized policy»). Economists and trade economists have been debating for years whether to extend the WTO`s mandate to influence environmental policy (Guzman 2002) (Cone 2002). Until recently, trade economists largely agreed to oppose such an extension.

Under WTO rules, this extension would require the agreement of all members, an unlikely outcome given the opposition of many countries. Even if such a consensus could be reached, economists generally felt that the benefits of further trade liberalization were significant, that current trade rules were prone to erosion, and that the risks of climate change were modest. As long as this perception persists, it makes sense to isolate environmental objectives from trade policy. Another perspective is that the globalization of global markets rests on solid foundations and that the risks associated with climate change are significant. From this point of view, it makes sense to use trade policy to achieve environmental objectives.