lawflipper

EnvironmentalEffectsofInternationalTradeJeffreyFrankelHarpelProfessorHarvardKennedySchoolHarvardUniversityEXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILEXPERTREPORTNUMBER31TOSWEDEN'SGLOBALISATIONCOUNCILGLOBALISATIONCOUNCILAUTHORJeffreyFrankelGRAPHICDESIGNNinaGergiORIGINALSusanBergPRINTEdita,Vsters2008PHOTOColorboxISBN978-91-85935-30-7ISSN1654-6245ORDERTheGlobalisationCouncilPHONE+4684051000E-MAILglobaliseringsradet@education.
ministry.
sewww.
sweden.
gov.
se/globalisationTheauthoracknowledgescapableresearchassistancebyDanxiaXie;valuableinputfromJosephAldy,ScottBarrett,JagdishBhagwati,ThomasBrewer,SteveCharnovitz,ArikLevinsohn,GarySampsonandRobertStavins;andusefulcom-mentsonthefirstdraftfromPontusBraunerhjelm,PrasanthRegy,RobStavins,HelenaSvaleryd,andDanxiaXie.
PrefaceIsglobalizationbadfortheenvironmentTradehassomeofitseffectsthroughthechannelofacceleratingeconomicgrowth,becausetradecontributestogrowthanalogouslytoinvestment,technologicalprogress,andsoon.
Althoughgrowthisbadforairandwaterpollutionattheinitialstagesofindustrialization,lateronitreducespollutionascountriesbecomerichenoughtopaytocleanuptheirenvironments.
ThereportEnvironmentalEffectsofInternationalTradeconsiderswhetherglobalisationhasdamagedenvironmen-talgoals.
Empiricalstudiesofcross-countrydatagenerallyfindnodetrimentaleffectsoftradeonsomemeasuresofenvironmentaldegradationsuchaslocalSO2(sulphurdi-oxide)airpollution,controllingforincome.
Theevidencedoessuggestthattradeandgrowthcanexacerbateothermeasuresofenvironmentaldegradation,however,particu-larlyCO2emissions(carbondioxide).
Increasingly,peoplelivinginonecountrywanttoprotecttheair,water,forests,andanimalsnotjustintheirowncountries,butalsoinothercountriesaswell.
Butnosinglecountrycanaddressglobalenvironmentalproblemsonitsown,duetothefreeriderproblem.
Whilethereisaroleforunilateralactionsonclimatechange,inthelongtermmultilateralactionof-ferstheonlyhopeofaddressingtheproblem.
TheauthorrecommendsspecificbordermeasurestoaddressleakagethatneednotnecessarilyviolatetheWTOorsensibletradeprinciples.
JeffreyFrankelisHarpelProfessorofCapitalFormationandGrowthatHarvardUniversity'sKennedySchoolofGovernment.
Theauthortakesfullresponsibilityforthere-sultsandtheanalysespresentedinthisreport.
Stockholm,Februari2009PontusBraunerhjelmPrincipalSecretary,TheGlobalisationCouncilGlobalisationCouncilmembersTheSwedishGovernmenthasestablishedaGlobalisationCounciltopro-moteadeeperknowledgeofglobalisationissues,drawupeconomicpolicystrategiesandbroadenpublicdialogueaboutwhatneedstobedonetoensurethatSwedencancompetesuccessfullyinaworldmarkedbyconti-nuedrapidglobalisation.
TheCouncil'sworkisexpectedtoleadtopropo-sedmeasureswhosepurpose,broadlydefined,willbetoboostSweden'scompetitivenessandattractivenessontheinternationalscene.
InadditiontoregularCouncilmeetings,backgroundreportswillbewrittenbyindependentresearchersandotherexperts.
ThesewillbequalityassessedbyreferencegroupscomposedofrepresentativesfromacademiaandtheGovernmentOfficesandbyleadingeconomistsontheCouncil'sAdvisoryBoard.
TheworkoftheCouncil,whichmustbecom-pletedwellbeforethe2010generalelection,willbedocumentedinafinalreportalongwitheconomicpolicyrecommendations.
Plansarealsobeingdrawnupforanumberofexternalactivities,suchasconferencesandseminars.
TheCouncilcomprisesrepresentativesfromthebusinesssector,theGovernment,socialpartners,thegovernmentadministration,themediaandtheresearchcommunity.
ItischairedbytheMinisterforHigherEdu-cationandResearch,LarsLeijonborg.
ThePrincipalSecretaryisPontusBraunerhjelm.
Theothermembersare:KristinaAlsér,MercatusEngineeringAB,CountyGovernor,KronobergCountyHansBergstrm,columnistandreaderinpoliticalscienceCarlBildt,MinisterforForeignAffairsUrbanBckstrm,Director-General,ConfederationofSwedishEnterpriseLarsCalmfors,professorofinternationaleconomicsPerCarstedt,CEO,SEKABGroupDilsaDemirbag-Sten,journalist,authorAnnaEkstrm,Chair,SwedishConfederationofProfessionalAssociationsSvenOttoLittorin,MinisterforEmploymentWanjaLundby-Wedin,President,SwedishTradeUnionConfederation(LO)KarinMarkides,President,ChalmersUniversityofTechnologyElisabethNilsson,President,SwedishSteelProducers'AssociationAinaNilssonStrm,HeadofDesign,ABVolvoStureNordh,Chair,SwedishConfederationofProfessionalEmployees(TCO)MatsOdell,MinisterforLocalGovernmentandFinancialMarketsMaudOlofsson,MinisterforEnterpriseandEnergyandDeputyPrimeMinisterCarl-HenricSvanberg,PresidentandCEO,EricssonLenaTreschowTorell,professorofphysics,RoyalSwedishAcademyofEngineeringSciences(IVA)HarrietWallberg-Henriksson,President,KarolinskaInstitutetMarcusWallenberg,Chair,InternationalChamberofCommerce(ICC)OlleWstberg,Director-General,SwedishInstituteTableofcontentsPreface3GlobalisationCouncilmembers4Summary61.
EnvironmentalEffectsofInternationalTrade101.
1Introduction101.
2Objectives112.
EnvironmentalEffectsofTradeintheAverageCountry182.
1The"Racetothebottom"hypothesis192.
2The"Gainsfromtrade"hypothesis202.
3Estimatesoftheoverallcorrelationoftradewithenvironmentalquality213.
ThePollutionHavenHypothesis314.
DoesEconomicGlobalizationConflictwithEnvironmentalRegulation355.
TheKyotoProtocolandtheLeakage/CompetitivenessIssue496.
MeasuresinClimateChangeLegislationtoAddressCompetitiveness53References67Appendix766EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILSummaryThereportsurveysthestateofourknowledgeregardingtheeffectsoftradeontheenvironment.
Acentralquestioniswhetherglobalizationhelpsorhurtsinachievingthebesttradeoffbetweenenvironmen-talandeconomicgoals.
DointernationaltradeandinvestmentallowcountriestoachievemoreeconomicgrowthforanygivenlevelofenvironmentalqualityOrdotheydamageenvironmentalqualityforanygivenrateofeconomicgrowthGlobalizationisacomplextrend,encompassingmanyforcesandmanyeffects.
Itwouldbesurprisingifallofthemwerealwaysunfavorabletotheenvironment,orallofthemfavorable.
Thehighestpriorityshouldbetodeterminewaysinwhichglobalizationcanbesuccessfullyharnessedtopromotepro-tectionoftheenvironment,alongwithothersharedobjectives,asopposedtodegradationoftheenvironment.
Thereportconsiderswhetherglobalizationhasdamagedenviron-mentalgoals.
Tradehassomeofitseffectsthroughthechannelofaccel-eratingeconomicgrowth,becausetradecontributestogrowthanalo-gouslytoinvestment,technologicalprogress,andsoon.
Othereffectscomeevenwhentakingthelevelofincomeasgiven.
Inthecaseofeachofthetwochannels,effectscanbeeitherpositiveornegative.
Concerningeffectsviatheincomechannel,acommonfindingistheso-calledEnvironmentalKuznetsCurve:alooseU-shapedrela-tionshipbetweenincomeandenvironmentalquality.
Atearlystagesofeconomicdevelopment,growthbringsadeteriorationintheen-vironment.
Butthenafteraparticularcriticallevelisreachedfur-thergrowthtendstobringanimprovementintheenvironment.
Thecriticallevelisestimatedtocomeatpercapitaincomeofaround$5,000-$6,000peryear,inthecaseofsulphurdioxide(SO2).
Afterthat,theincreasedpollutioncomingdirectlyfromthegreaterscaleofeconomicactivityisoutweighedbyaswitchfrommorehighlypollutingsectors(manufacturing)tolesspollutingsectors(services)aswellasaswitchwithingivenindustriesfromdirtiertechniquestocleanertechniques.
EnvironmentalEffectsofInternationalTrade7Concerningeffectsoftradethatcomethroughnon-incomechan-nels,theycanagainbenegativeorpositive.
Onthenegativeside,thewell-known"racetothebottom"hypothesisisthatopencountriesingeneral,outoffearofadverseeffectsontheirinternationalcompeti-tiveness,adoptlessstringentenvironmentalregulationsthanlessopencountries.
Alesswell-knownsetofpossiblepositiveeffectscouldbecalledthe"gainsfromtrade"hypothesis:globalizationcouldencour-agetechnicalinnovation,ratchetupenvironmentalstandards,orleadtotheexerciseofconsumerpowerandtheadoptionofcorporatecodesofconduct.
Finally,opennesstotrademightencouragesomecountriestospe-cializeindirtieractivities,andtoexporttheirproductstootherswithhigherenvironmentalstandards.
Underthis"pollutionhavens"hy-pothesis,globalizationhasitsprimaryeffectonthedistributionofpollutionacrosscountries,ratherthanontheoverallaverage.
Anyofthesehypothesesisplausible.
Thequestionisempirical.
Thereportreviewsempiricalevidence.
Empiricalstudiesofcross-countrydatagenerallyfindnodetrimen-taleffectsoftradeonsomemeasuresofenvironmentaldegradationsuchaslocalSO2(sulphurdioxide)airpollution,controllingforin-come.
Thusglobalizationandtheenvironmentneednotnecessarilybeinconflict.
Tradeandgrowthgivecountriesthemeanstocleantheair,providedtheyhaveeffectiveinstitutionsofgovernanceinplaceatthenationallevel.
(Democraticgovernanceisanotherdeterminantofenvironmentalquality.
)Theevidencedoessuggestthattradeandgrowthcanexacerbateothermeasuresofenvironmentaldegradation,however,particularlyCO2emissions(carbondioxide).
ThedifferencecanbeexplainedbytheobservationthatCO2isaglobalexternality,whichcannotbead-dressedatthenationallevelduetothefreeriderproblem.
Institutionsofgovernancearenecessaryatthemultilaterallevel,andthesehavenotbeeninplace,atleastuntilrecently.
8EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILOnepointtobeemphasizedhereisthatitisanillusiontothinkthatenvironmentalissuescouldbeeffectivelyaddressedifeachcountrywereinsulatedagainstincursionsintoitsnationalsovereigntyatthehandsofinternationaltradeortheWorldTradeOrganization(WTO).
Increasingly,peoplelivinginonecountrywanttoprotecttheair,wa-ter,forests,andanimalsnotjustintheirowncountries,butalsoinothercountriesaswell.
Todosointernationalcooperationisrequired.
Nationalsovereigntyistheobstacletosuchefforts,nottheally.
Mul-tilateralinstitutionsareapotentialally,nottheobstacle.
ThereportthendiscusseswhethertheWTOhasinthepastbeenhostiletoenvi-ronmentalgoals.
Mostenvironmentalistshavefailedtounderstandthesubstantialevolutionovertime:Thereisnowmorelegalbasisthaninthepastforusingtrademeasurestohelpenforcemultilaterallyagreedenvironmentalinitiatives,providedtheyarenon-discriminatory.
Thelastpartofthereportfocusesexclusivelyonthequestionoftradeaspectsofnations'climatechangepolicy,whichmaynowbeonacollisioncoursewiththeglobaltradepolicyregime.
InbothWashing-ton,DC,andBrussels,legislationimplementingemissioncapsislikelytoleadalsototheunilateralapplicationoftariffs(ortheirequivalent,arequirementforimporterstosurrendertradablepermits)againstcarbon-intensiveimportsfromcountriesthataredeemednottobedoingenoughtocutemissions.
InpracticesuchtrademeasuresarelikelytorunafouloftheWTO,andforgoodreason.
Iftheyaretoaddressvalidconcernsregardingleakageandcompetitiveness,itissuggestedthatbordermeasuresshouldfollowcertainprinciples.
Theprinciplesinclude:MeasuresshouldonlybeappliedbycountriesobeyingemissiontargetsoftheKyotoProtocoland/oritssuccessorsundertheUNFrameworkConventiononClimateChange(UNFCCC).
Judgmentsastofindingsoffact--whatcountriesarecomplyingornot,whatindustriesareinvolvedandwhatistheircarboncon-tent,whatcountriesareentitledtorespondwithbordermeasures,EnvironmentalEffectsofInternationalTrade9orthenatureoftheresponse–shouldbemadebyindependentpanelsofexperts,notpoliticianswhoarevulnerabletopoliticalpressurefrominterestgroupsforspecialprotection.
Measuresshouldtrytoequalizethemarginalcostofcarbonattheborder.
Thisrulesoutsubsidies–whetherintheformofmoneyorextrapermitallocations--todomesticsectorsthatareconsid-eredtohavebeenputatacompetitivedisadvantage,ascurrentlycontemplatedbytheEuropeanUnion.
Importpenaltiesshouldnarrowlytargetfossilfuels,andafewofthemostenergy-intensivemajorindustries,suchasaluminum,cement,steel,paper,glass,andperhapsironandchemicals.
Theyshouldnottargetproductsthatarefurtherremovedfromthecarbon-intensiveactivity,suchasfirmsthatuseinputsthatareproducedinanenergy-intensiveprocess.
Norshouldunilateralmeasuresseektosanctionanentirecountry.
ThisreportrecommendsveryspecificallythatwhentheConferenceofPartiesmeetstonegotiateaKyotosuccessor(atCopenhagen,De-cember2009,inparticular),itshouldagreeonamultilateralframe-workfortrademeasures,ratherthanleavingthemuptoindividualstateswithoutguidelines.
10EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL1.
EnvironmentalEffectsofInternationalTrade1.
1IntroductionTenyearsago,attheMinisterialmeetingoftheWorldTradeOrganiza-tion(WTO)inSeattleinNovember1999,someprotestorsworeturtlecostumeswhilelaunchingthefirstofthebiganti-globalizationdem-onstrations.
Thesedemonstratorswereconcernedthatinternationaltradeinshrimpwasharmingseaturtlesbyensnaringtheminnets.
TheyfeltthataWTOpanelhad,inthenameoffreetrade,negatedtheabilityoftheUnitedStatestoprotecttheturtles,simultaneouslyunderminingtheinternationalenvironmentandnationalsovereignty.
Subsequently,anti-globalizationprotestsbecamecommonatmeet-ingsofmulti-nationalorganizations.
Perhapsnoaspectofglobaliza-tionworriesthecriticsmorethanitsimplicationsfortheenvironment.
Theconcernisunderstandable.
Itiswidely(ifnotuniversally)accept-edthatthedirecteffectsofglobalizationontheeconomyarepositive,asmeasuredbyGrossDomesticProduct.
Concernsrisemorewithre-gardto"non-economic"effectsofglobalization.
1Ofthese,some,suchaslaborrights,mightbeconsideredtobeasubjectproperlyofnationalsovereignty,witheachnationbearingtheresponsibilityofdecidingtowhatextentitwishestoprotectitsownlaborforce,basedonitsownvalues,capabilities,andpolitics.
Whenweturntoinfluencesontheenvironment,however,thecaseforcountriesstickingtheirnosesintoeachother'sbusinessisstronger.
Weallshareacommonplanet.
2Pollutionandotherformsofenvironmentaldegradationaretheclas-1Thequotationmarksarenecessaryaround"non-economic,"becauseeconomists'conceptualframeworkfullyincorporatessuchobjectivesasenvironmentalquality,eventhoughpollutionisanexternalitythatisnotmeasuredbyGDP.
Forfurtherreadingonhoweconomiststhinkabouttheenvironment,seeHanley,Shogren,andWhite(1997)orStavins(2000).
2TheliteratureontradeandtheenvironmentissurveyedinDean(1992,2001)andCopelandandTaylor(2003b).
EnvironmentalEffectsofInternationalTrade11sicinstanceofwhateconomistscallanexternality.
Thistermmeansthatindividualpeopleandfirms,andsometimesevenindividualcountries,lacktheincentivetorestraintheirpollution,becauseunderamarketsystemthecostsareborneprimarilybyothers,ratherthanbythemselves.
Thephrase"tragedyofthecommons"wasoriginallycoinedinthecontextofavillage'ssharedpastureland,whichwouldinevitablybeover-grazedifeachfarmerwereallowedfreeandunre-stricteduse.
Itcapturestheideathatwewillfouloursharedairandwatersuppliesanddepleteournaturalresourcesunlesssomehowweareindividuallyfacedwiththecostsofouractions.
1.
2ObjectivesItisimportanttobeginaconsiderationoftheseissuesbymakingclearthatbotheconomicincomeandenvironmentalqualityareworthyob-jectives.
Individualsmaydisagreeontheweightthatshouldbeplacedononeobjectiveoranother.
Butweshouldnotletsuchdisagreementsleadtodeadlockedpoliticaloutcomesinwhichtheeconomyandtheenvironmentarebothworseoffthannecessary.
Canglobalizationbemadetoimprovetheenvironmentthatcomeswithagivenlevelofin-comeinmarket-measuredtermsManyseemtobelievethatglobali-zationnecessarilymakesthingsworse.
IfTurkeygrowsrapidly,isanincreaseinpollutioninevitableIsitlikely,onaverageIfthatgrowtharisesfromglobalization,ratherthanfromdomesticsources,doesthatmakeenvironmentaldamagemorelikelyLesslikelyAretherepoli-ciesthatcansimultaneouslypromotebotheconomicgrowthandanimprovedenvironmentThesearethequestionsofinterest.
12EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILTwoobjectives:GDPandtheenvironmentAnextremeversionofenvironmentalactivismwouldarguethatweshouldturnbacktheclockonindustrialization–thatitisworthde-liberatelyimpoverishingourselves--ifthatiswhatittakestosavetheenvironment.
Ifthehumanspeciesstillconsistedofafewmil-lionhunter-gatherers,man-madepollutionwouldbeclosetozero.
ThomasMalthus,writingintheearly19thcentury,predictedthatgeometricgrowthinpopulationandintheeconomywouldeventu-allyandinevitablyrunintothenaturalresourcelimitsofthecarryingcapacityoftheplanet.
3Inthe1960s,theClubofRomepickedupwhereMalthushadleftoff,warningthatenvironmentaldisasterwascomingsoon.
Someadherentstothisschoolmightfavorthedeliber-atereversalofindustrialization--reducingmarket-measuredincomebelowcurrentlevelsinordertosavetheenvironment.
4Butenvironmentalconcernshavebecomemoremainstreamsincethe1960s.
Wehaveallhadtimetothinkaboutit.
Mostpeoplebelievethatbothacleanenvironmentandeconomicgrowtharedesirable,thatwecanhaveacombinationofboth,anditisamatteroffindingthebesttradeoff.
Indeed,thatisonepossibleinterpretationofthepopularphrase"sustainabledevelopment.
"Toevaluatethecostsandbenefitsofglobalizationwithregardtotheenvironment,itisimportanttobepreciseconceptually,forexam-pletomakethedistinctionbetweeneffectsontheenvironmentthatcomeviarapideconomicgrowthandthosethatcomeforagivenlevelofeconomicoutput.
Wehaveasingleconcept,GDP,thatattemptstomeasuretheaggre-gatevalueofgoodsandservicesthataresoldinthemarketplace,andthatdoesarelativelygoodjobofit.
Measurementofenvironmental3Malthuswasaneconomist.
Acontemporarycommentatorreactedbycallingeconomicsthedismalscience.
Thisdescriptionhasstuck,longafterecologyorenvironmentalsciencebrokeoffasindependentfieldsofstudy,fieldsthatinfactmakeeconomistslooklikesunnyoptimistsbycomparison.
4Meadows,etal(1972),andDaly(1993).
Forageneralsurveyoftheissues,seeEsty(2001).
EnvironmentalEffectsofInternationalTrade13qualityismuchlesswelladvanced.
Therearemanydifferentaspectsoftheenvironmentthatwecareabout,anditishardtoknowhowtocombinethemintoasingleoverallmeasure.
ItwouldbeharderstilltoagreeonhowtocombinesuchameasurewithGDPtogetameasureofoverallwelfare.
Proponentsofso-calledgreenGDPaccountinghavetriedtodoexactlythat,butsofartheenterpriseisveryincomplete.
Forthetimebeing,thebestwecandoislookatavarietyofseparatemeasurescapturingvariousaspectsoftheenvironment.
AclassificationofenvironmentalobjectivesForthepurposeofthisreport,itisusefultoarraydifferentaspectsoftheenvironmentaccordingtotheextenttowhichdamageislocalizedaroundspecificsources,asopposedtospillingoutoverageographi-callymoreextensivearea.
Thefirstcategoryofenvironmentaldamageispollutionthatisin-ternaltothehouseholdorfirm.
Perhaps80percent(bypopulation)ofworldexposuretoparticulatesisindoorpollutioninpoorcountries--smokefromindoorcookingfires--whichneednotinvolveanyexternality.
5Theremaybearolefordisseminationofinformationre-gardinglong-termhealthimpactsthatarenotimmediatelyevident.
Nevertheless,whathouseholdsinsuchcountriesareprimarilylackingistheeconomicresourcestoaffordstovesthatrunoncleanerfuels.
6Inthecaseofinternalpollution,higherincomesdirectlyallowthesolutionoftheproblem.
5ChaudhuriandPfaff(2002)findaninvertedU-shapedrelationshipbetweenincomeandthegenerationofindoorsmoke,acrosshouseholds.
Inthepooresthouseholds,risingincomesmeanmorecookingandmoreindoorpollution.
Still-higherincomesallowaswitchtocleanerfuels.
Governmentinterventionisnotrequired.
6Somehealthrisksinindustrialproductionareanalogous.
Workersineverycountryvoluntarilyacceptdangerousjobs,e.
g.
,inmining,becausetheypaybetterthanotherjobsthatareavailabletosomeonewiththesamesetofskills.
14EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILSomecategoriesofenvironmentaldamageposepotentialexternali-ties,butcouldbeinternalizedbyassigningpropertyrights,atleastintheory.
Ifacompanyhascleartitletoadepletablenaturalresourcesuchasanoilwell,ithassomeincentivetokeepsomeoftheoilforthefuture,ratherthanpumpingitalltoday.
7Thebiggestprob-lemsarisewhenthelegalsystemfailstoenforcecleardivisionsofpropertyrights.
Tropicalforestlandthatanyonecanentertochopdowntreeswillberapidlyover-logged.
Manypoorcountrieslacktheinstitutionalandeconomicresourcestoenforcelawsprotectingsuchresources.
Oftencorruptarmsofthegovernmentthemselvescolludeintheplundering.
Anotherexampleisthedumpingofwaste.
Ifsome-oneagreedtobepaidtolethislandbeusedasawastedisposalsite,voluntarilyandwithouthiddenadverseeffects,economicssaysthattherewouldnotnecessarilybeanythingwrongwiththearrangement.
Wastehastogosomewhere.
Butthesituationwouldbedifferentifthegovernmentofapoorundemocraticcountryweretoagreetobepaidtoacceptwastethatthenhurttheenvironmentandhealthofresidentswholackedtheinformationorpoliticalclouttoparticipateinthepolicydecisionortoshareinthebenefits.
Inthatcasetheenvi-ronmentaleffectsdonotbelonginthefirstcategory.
Thesecondcategory,nationalexternalities,includesmostkindsofairpollutionandwaterpollution,thelatteraparticularlygreathealthhazardinthethirdworld.
Thepollutionisexternaltotheindividualfirmorhousehold,andoftenexternaltothestateorprovinceaswell,butmostofthedamageisfeltwithinthecountryinquestion.
In-terventionbythegovernmentisnecessarytocontrolsuchpollution.
Thereisnoreasonwhyeachnationalgovernmentcannotundertakethenecessaryregulationonitsown,thoughtheadequacyofeconomicresourcestopaythecostsoftheregulationisagainanissue.
7Evenwhenpropertyrightsarenotindoubtandthereisnoexternality,acommonenvironmentalconcernisthatthewelfareoffuturegenerationsdoesnotreceiveenoughweight,becausetheyarenotheretorepresentthemselves.
Fromtheeconomists'viewpoint,thequestioniswhethertheinterestratethatentersfirms'decisionsincorporatesthecorrectdiscountrate.
Thistopicisbeyondthescopeofthisreport,butGoulderandStavins(2002)provideaconcisesurvey.
EnvironmentalEffectsofInternationalTrade15Athirdcategoryisinternationalexternalities.
Increasingly,aswewillsee,environmentalproblemscrossnationalboundaries.
Inthesecases,somecooperationamongcountriesisnecessary.
Acidrainanddownstreampollutionofriversareexamplesofexternalitiesthatspillacrosstheborderofthenationalstatebutaffectonlygeographicalneighbors.
Thestrongestexamplesofinternationalexternalitiesarepurelyglobalexternalities:chemicalsthatdepletethestratosphericozonelayer,greenhousegasesthatleadtoglobalclimatechange,andhabitatdestructionthatimpairsbiologicaldiversity.
Individualcoun-triesshouldnotexpecttobeabletodomuchaboutglobalexternali-tiesontheirown.
Thesedistinctionswillturnouttobeimportant.
TheEnvironmentalKuznetsCurveEconomicgrowthhasbothharmfuleffectsonenvironmentalqualityandbeneficialeffects.
Asageneralization,theharmfuleffectscomeviathescaleofindustryandthebeneficialeffectscomeviashiftsto-wardcleanersectorsandcleanerproductiontechniques.
WhatisthenetoutcomeoftheseconflictingeffectsAlookatdataacrosscoun-triesoracrosstimeallowssomeroughgeneralizations.
Forsomeim-portantenvironmentalmeasures,aninvertedU-shapedrelationshipappears:atrelativelylowlevelsofincomepercapita,growthleadstogreaterenvironmentaldamage,untilitlevelsoffatanintermediatelevelofincome,afterwhichfurthergrowthleadstoimprovementsintheenvironment.
GrossmanandKrueger(1993,1995),andtheWorldBank(1992),broughttopublicattentionthisgenralempiricalfind-16EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILingforacrosssectionofcountries,usingmeasuresoflocalpollution.
8GrossmanandKrueger(1993)areevidentlytheonestohavenamedtheinvertedU-shapedpattern"theEnvironmentalKuznetsCurve.
"9GrossmanandKrueger(1995)estimatedthatSO2(SulfurDioxide)pollutionpeakedwhenacountry'sincomewasabout$5,000-$6,000percapita(in1985dollars).
FrankelandRose(2003)estimatedthepeakatabout$5,770.
Mostdevelopingcountrieshavenotyetreachedthesethresholds.
Forcountrieswherealongenoughtimeseriesofdataisavailable,thereisalsosomeevidencethatthesameinvertedU-shapedrelation-shipcanholdacrosstime.
Theairinmajorindustrializedcitieswasfarmorepollutedinthe1950sthanitistoday.
Asimilarpatternholdstypicallywithrespecttodeforestationinrichcountries:thepercent-ageofUSlandthatwasforestedfellinthe18thcenturyandfirsthalfofthe19thcentury,butroseinthe20thcentury.
10TheideabehindtheEnvironmentalKuznetsCurveisthat,althoughgrowthisbadforairandwaterpollutionattheinitialstagesofin-dustrialization,lateronitreducespollutionascountriesbecomerichenoughtopaytocleanuptheirenvironments.
ItwouldbeinaccuratetoportraytheEnvironmentalKuznetsCurve(EKC)asdemonstrat-8GrossmanandKrueger(1993,1995)foundtheinventedU-shapedpatternforurbanairpollution(SO2andsmoke)andseveralmeasuresofwaterpollution;SeldenandSong(1994)founditforSO2,suspendedparticulatematter(PM),NOx,andcarbonmonoxide;Shafik(1994)forsuspendedPMandSO2HiltonandLevinson(1998)forautomotiveleademissions;Bimonte(2001)forthepercentageofnationalterritorythatisprotectedland;andBradford,Fender,ShoreandWagner(2005)forarsenic,COD,dissolvedoxygen,leadandSO2(butnotforPMandsomeothermeasuresofpollution).
SternandCommon(2001)reviewthecaseforsulphur,andemphasizetheimportanceofincludingdevelop-ingcountriesinthesample.
TheoverallEKCliteratureissurveyedbyDasgupta,Laplante,WangandWheeler(2002).
9ThephraseisbyanalogywiththeclassicKuznetscurve,aninvertedU-shapedrelationshipbetweeninequalityandincomepercapita,discoveredbySimonKuznets,awinneroftheNobelMemorialPrizeinEconomicSciences.
10CropperandGriffiths(1994)findlittleevidenceacrosscountriesofanEKCforforestgrowth.
ButShafik(1994)doesfindtherelationshipfordeforestation.
FosterandRosenzweig(2003)findsupportiveevidenceinthetimeseriesforIndia.
EnvironmentalEffectsofInternationalTrade17ingthatifcountriespromotegrowth,theenvironmentwilleventu-allytakecareofitself.
OnlyifpollutionislargelyconfinedwithinthehomeorwithinthefirmdoesthatPanglossianviewapply.
Mostpollution,suchasSO2,NOx,etc.
,isexternaltothehomeorfirm.
11Forsuchexternalities,higherincomeandapopulardesiretocleanuptheenvironmentarenotenough.
Theremustalsobeeffectivegov-ernmentregulation,whichusuallyrequiresademocraticsystemtotranslatethepopularwillintoaction(somethingthatwasmissingintheSovietUnion,forexample),aswellastheruleoflawandrea-sonablyintelligentmechanismsofregulation.
Theempiricalevidenceconfirmsthattheparticipationofwell-functioningdemocraticgov-ernmentsisanimportantpartoftheprocess.
Thatisatthenationallevel.
Therequirementsfordealingwithcross-borderexternalitiesaregreaterstill.
AnotherpossibleexplanationforthepatternoftheEnvironmen-talKuznetsCurveisthatitworksnaturallyviathecompositionofoutput.
Intheory,thepatterncouldresultfromtheusualstagesofeconomicdevelopment:thetransitionfromanagrarianeconomytomanufacturing,andthenfrommanufacturingtoservices.
Servicestendtogeneratelesspollutionthanheavymanufacturing.
12Thisexplanationislesslikelythantheconventionalviewtorequirethemechanismofeffectivegovernmentregulation.
IftheKuznetscurveinpracticeresultedsolelyfromthiscompositioneffect,however,thenhighincomesshouldleadtoabetterenvironmentevenwhenexter-nalitiesariseattheinternationallevel,whichisapparentlynotthecase.
Importantly,mostpastresearchhasnotfoundaKuznetscurveforcarbondioxide,aswewillseebelow.
13EventhoughemissionsperunitofGDPdotendtofall,thishasnotbeenenoughtoreduceoverallcarbonemissions.
11ThetermNOxincludesbothNitricoxide(NO)andNitrogendioxide(NO2),componentsofsmog.
12Arrow,etal,(1995);Panayotou(1993).
13E.
g.
,Holtz-EakinandSelden(1995).
18EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL2.
EnvironmentalEffectsofTradeintheAverageCountrySomeenvironmentaleffectsofinternationaltradecomeviaeconomicgrowth,andsomeariseevenforagivenlevelofincome.
Inbothcases,theeffectscanbeeitherbeneficialordetrimental.
Probablythestron-gesteffectsoftradearethefirstsort,viaincome.
Muchlikesavingandinvestment,technologicalprogress,andothersourcesofgrowth,tradetendstoraiseincome.
Aswehaveseen,higherincomeinturnhasen-vironmentaleffectsthatareinitiallyadverseeventhough,accordingtotheEnvironmentalKuznetsCurve,theyeventuallyturnfavorableinthecaseofsomeenvironmentalcriteriasuchasSO2.
WhatabouteffectsoftradethatdonotoperateviaeconomicgrowthTheycanbeclassifiedinthreecategories:systemwideeffectsthatareadverse,systemwideeffectsthatarebeneficial,andeffectsthatvaryacrosscountriesdependingonlocal"comparativeadvan-tage.
"Weconsiderthefirsttwocategoriesinthispartofthereport,andthethirdinthepartofthereportonpollutionhavens.
Thead-versesystemwideeffectscanbeclassifiedunderthephrase"racetothebottom.
"Thebeneficialeffectscanbeputunderthegeneralru-bric"gainsfromtrade.
"2.
1The"Racetothebottom"hypothesisThenotionofaracetothebottomisperhapsthestrongestbasisforfearingthatinternationaltradeandinvestmentspecifically(rath-erthanindustrializationgenerally)willputdownwardpressureoncountries'environmentalstandardsandthusdamagetheenviron-EnvironmentalEffectsofInternationalTrade19mentacrosstheglobalsystem.
14Leadersofindustry,andoftheunionswhosemembersareemployedinindustry,arealwaysconcernedaboutcompetitionfromabroad.
Whendomesticregulationraisestheircosts,theyfearthattheywilllosecompetitivenessagainstfirmsinothercountries.
Theywarnofalossofsales,employment,andinvestmenttoforeigncompetitors.
15Thusdomesticproducersoftensoundthecompetitivenessalarmasawayofapplyingpoliticalpressureontheirgovernmentstominimizetheburdenofregulation.
16The"racetothebottom"concernisthat,totheextentthatcoun-triesareopentointernationaltradeandinvestment,environmentalstandardswillbelowerthantheywouldotherwisebe.
Buthowim-portantisthisinpracticeEconomists'researchismixedonhowimportantisenvironmentalregulationasadeterminantoffirms'abilitytocompeteinternation-ally.
Whendecidingwheretolocate,multinationalfirmsseemtopaymoreattentiontosuchissuesaslaborcostsandmarketaccessthantothestringencyoflocalenvironmentalregulation.
17Wenowconsiderpossiblefactorsthatcouldworkintheoppositedirection,benefitingtheenvironment,beforeturningtosomestatisti-calevidenceonthequestion.
14Theredoexistotherpossiblechannelswherebyinternationaltradecanbeenvironmentallydetrimen-tal.
CostelloandMcAusland(2003)andCostello,Springborn,McAuslandandSolow(2006)studytheproblemofdamagefromtheintroductionofinvasiveorexoticspeciesthroughtrade,15LevinsonandTaylor(2001)findthatthoseUSindustriesexperiencingthelargestriseinenvironmen-talcontrolcostshaveindeedalsoexperiencedthelargestincreasesinnetimports.
Mulatu,Florax,andWithagen(2004),adddataalsofromGermanyandtheNetherlandstostudytheroleofdifferencesinenvironmentalregulation,alongsidethetraditionalroleofdifferencesinfactorendowments,asdetermi-nantsofnettradeinvariousmanufacturingindustries.
16McAusland(2008)andSchleich(1999)findthatopeningtointernationaltraderaisespoliticalopposi-tiontoregulationofproducer-generated("smokestack")pollutionbutreducesoppositiontoregulationofhousehold-generated("tailpipe")pollution.
17Jaffe,Peterson,PortneyandStavins(1995),GrossmanandKrueger(1993),LowandYeats(1992),andTobey(1990).
Afewotherresearchers,however,havefoundmoreofaneffectofenvironmentalregula-tionondirectinvestmentdecisions:LeeandRoland-Holst(1997)andSmarzynskaandWei(2001).
20EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL2.
2The"Gainsfromtrade"hypothesisWhilethepossibilitythatexposuretointernationalcompetitionmighthaveanadverseeffectonenvironmentalregulationisfamiliar,lesswidelyrecognizedandmoresurprisingisthepossibilityofeffectsinthebeneficialdirection,whichwewillcallthegainsfromtradehypothesis.
Tradeallowscountriestoattainmoreofwhattheywant,whichincludesenvironmentalgoodsinadditiontomarket-measuredoutput.
Howcouldopennesshaveapositiveeffectonenvironmentalqual-ity,oncewesetasidethepossibilityofacceleratingprogressdownthebeneficialslopeoftheEnvironmentalKuznetsCurveAfirstpos-sibilityconcernstechnologicalandmanagerialinnovation.
Opennessencouragesongoinginnovation.
18Itthenseemspossiblethatopennesscouldencourageinnovationbeneficialtoenvironmentalimprovementaswellaseconomicprogress.
Asecondpossibilityisaninternationalratchetingupofenvironmentalstandards.
19Thelargestpoliticalju-risdictioncansetthepaceforothers.
WithintheUnitedStates,itiscalledthe"Californiaeffect:"Whenthelargeststatesetshighstand-ardsforautopollutioncontrolequipment,forexample,theendresultmaybesimilarstandardsinotherstatesaswell.
TheUnitedStatesortheEuropeanUnioncanplaythesameroleglobally.
Multinationalcorporations(MNCs)areoftenthevehiclefortheseeffects.
Theytendtobringcleanstate-of-the-artproductiontech-niquesfromhigh-standardcountriesoforigin,tohostcountrieswheretheyarenotyetknown.
Theclaimisnotthatallmultinationalcorpo-18Tradespeedstheabsorptionoffrontiertechnologiesandbest-practicemanagement.
Thisexplainswhythosecountriesthattrademorethanothersareobservedtoexperiencehighersustainedgrowth,ratherthanjusttheone-timeincreaseinthelevelofrealincomepredictedbyclassicaltradetheory.
19E.
g.
,Vogel(1995),BraithwaiteandDrahos(2000),Porter(1990,1991)andPorterandvanderLinde(1995).
Thisratchetingupmaybemoreeffectiveforproductstandardsthanforstandardsregardingprocessesandproductionmethods.
EnvironmentalEffectsofInternationalTrade2120EstyandGentry(1997,pp.
157,161,163)andSchmidheiny(1992).
21Ruggie(2002).
22Neumayer(2002).
rationsapplythehighestenvironmentalstandardswhenoperatinginothercountries.
Rathertheclaimisthatthestandardstendonaveragetobehigherthanifthehostcountrywereundertakingthesameactiv-ityonitsown.
20Corporatecodesofconductofferanewwaythatresidentsofsomecountriescanpursueenvironmentalgoalsinothercountries.
21Formalinternationalcooperationamonggovernmentsisanotherwaythatinterdependencecanleadtohigherenvironmentalstandardsratherthanlower.
222.
3EstimatesoftheoverallcorrelationoftradewithenvironmentalqualityOnceagain,itisimportanttodistinguish(1)thefearthatglobaliza-tionwillleadtoaracetothebottominregulatorystandards,from(2)fearsthattheenvironmentwillbedamagedbytheveryprocessofindustrializationandeconomicgrowthitself.
Openingofnationaleconomiestointernationaltradeandinvestmentcouldplayaroleinbothcases,butthetwopossiblechannelsareverydifferent.
Inthefirstcase,theracetothebottomhypothesis,theclaimisthatopennessun-derminesenvironmentalstandardsevenforagivenpathofeconomicgrowth.
Thiswouldbeadamningconclusionfromthestandpointofglobalization,becauseitwouldimplythatbylimitingtradeandinvestmentinsomeway,wemightbeabletoattainabetterenviron-mentforanygivenlevelofGDP.
Inthesecondcase,theimplicationwouldbethatopennessonlyaffectstheenvironmentinthewaythat22EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL23E.
g.
,EirasandSchaeffer(2001,p.
4).
24BarrettandGraddy(2000)isoneofseveralstudiestofindthatanincreaseincivilandpoliticalfreedomssignificantlyreducessomemeasuresofpollution.
FredrikssonandMani(2004)findthatthecombinationoftradeintegrationandpoliticalstabilityenhancesthestringencyofenvironmentalregula-tion.
investment,oreducation,orproductivitygrowth,oranyothersourceofgrowthaffectstheenvironment,bymovingtheeconomyalongtheEnvironmentalKuznetsCurve.
Tryingtorestricttradeandinvest-mentwouldbealessattractivestrategyinthiscase,becauseitwouldamounttodeliberateself-impoverishment.
Thequestionofmostinterestisthus:Ifasetofcountriesopensuptotrade,isitonaveragelikelytohaveapositiveornegativeeffectontheenvironmentforagivenlevelofincomeWhichtendinpracticetodominate,theunfavorable"racetothebottom"effectsorthefa-vorable"gainsfromtrade"effectsEconometricscanhelpanswerthequestion.
Statistically,somemeasuresofenvironmentalqualityarepositivelycorrelatedwiththeleveloftrade.
Forexample,countriesmoreopentointernationaltradeonaverageexperiencelowerlevelsofSO2pol-lution.
23Figure1showsthedataforacross-sectionofcountries.
Onthehorizontalaxis,opennessismeasuredbytheratiooftotaltrade(importsplusexports)toGDP.
Ontheverticalaxis,pollutionismeas-uresbySO2concentrations.
Anegativecorrelationisevident,espe-ciallywhenonelookswithineitherthesetofcountriesdistinguishedbythosethataremoredemocraticorthosethatarelessso.
24EnvironmentalEffectsofInternationalTrade23Figure1:Aninverserelationshipbetweenthetotaltrade/GDPratioandsulphurdioxideOpennessvsSO2concentrations,inLow-vsHigh-DemocracyRegimes,199024EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL25Thegravitymodelspecifiesexogenousdeterminantsofacountry'sleveloftrade:distancefrommajortradingpartners,commonbordersorlanguages,landlockedness,size,incomepercapita,andothers.
26PMisParticulateMatter,linkedtoheartdisease,lungcancer,andotherhealthhazards.
Butcorrelationisnotcausality.
Thecausalrelationshipsarecomplex,runninginmanydirectionssimultaneously.
Onewouldnotwanttoclaimthattradeleadstoacleanerenvironment,ifinrealitytheyarebothrespondingtosomeotherthirdfactor,suchasdemocracyoreco-nomicgrowthorpopulationdensity.
Anumberofstudieshavesoughttoisolatetheindependenteffectofopenness.
Lucas,etal.
(1992),studythetoxicintensityimpliedbythecompositionofmanufacturingoutput,andfindthattrade-dis-tortingpoliciesincreasepollutioninrapidlygrowingcountries.
Dean(2002)findsonnetabeneficialeffectofliberalizationforagivenlevelofincome.
Antweiler,CopelandandTaylor(2001)andCopelandandTaylor(2001,2003,2004)alsoconcludethattheneteffectoftradeliberalizationonSO2concentrationsisbeneficial.
Noneofthesestudiesmakesallowancefortheproblemthattrademaybetheresultofotherfactorsratherthanthecause.
Antweiler,CopelandandTaylor(2001)pointoutthispotentialweakness.
UpdatedevaluationoftheoveralleffectoftradeontheenvironmentFrankelandRose(2003)attempttodisentanglethevariouscausalrelationshipsfordataacrosscountriesintheyear1990.
Thestudyat-temptstoisolatetheeffectsthattradehaveindependentlyofincomebymeansofthegravitymodel.
25Thusitbeginsbyconsideringtherelationshipbetweenpollutionandincome.
Consistentwithmuchoftherestoftheliterature,itfindsstatisticalsupportforthefamousEnvironmentalKuznetsCurveforallthreemeasuresofairpollution--SO2,NOxandPM26–butfindstheoppositeforCO2:emissionsEnvironmentalEffectsofInternationalTrade25continuetoacceleratewithgrowthindefinitely,asestimatedinsidetheobservedrange.
Holdingconstantforincome,opennessasmeasuredbytheratiooftradetoincomeisestimatedtoreduceairpollutionforallthreepollutants,especiallysoforSO2.
Thissuggeststhatthe"gainsfromtrade"effectsareatleastaspowerfulasthe"racetothebottom"effect.
ButagaintheoppositeresultemergesforCO2:opennessisestimatedtoworsenemissions,atanygivenlevelofincome,withamoderatelevelofstatisticalsignificance.
Thissuggestsfearsthatcom-petitivenessconcernswillengenderaracetothebottominregulationaremorejustifiedinthecaseofcarbon.
27ThedifferencebetweenthecaseofCO2andthecaseoflocalpol-lutioniseasilyexplained.
Ordinaryairpollutionisanexternalityfromthestandpointofthehouseholdorfirm,butmuchlesssofromthestandpointofthenation.
Ifasocietyhasthemeansandwilltocleanupitsair,whichrequiresbothanadequatelevelofincomeandaneffectivemechanismofgovernance,itwilldoso.
Butthishappensbygovernmentregulation,notautomatically.
Externalitiessuchasozonedepletion,speciesdiversity,andGHGemissionsarepurelyglobal.
Nationalgovernmentscannotaddressthemeffectivelyonanindivid-ualbasis,duetothefreeriderproblem.
Absentaneffectivemultilat-eralgovernancemechanism,thereisnothingtorestraindetrimentaleffectsoftradeandgrowthontheglobalenvironment.
ChintrakarnandMillimet(2006)haveusedthegravitymodeltoobtainsimilarresultsatthesub-nationallevel.
Kellenberg(2008)hasrecentlyusedittoobtainsimilarresultsforapanelof128countries.
Hefindsthatthebeneficialenvironmentaleffectsoftrade--reducingemissionsoffourlocalairpollutants--arisesamongpoorcountriesandamongrichcountries.
Formiddle-incomecountriesKellenbergfindstheoppositeeffect.
2827Thecontributionofthatstudyisthatitaddressestheproblemsofcausalitythatarelikelytofollowbecausetradeisendogenous,andincometoo.
Itfocusesonexogenousvariationintradeacrosscountriesattributabletofactorssuchasgeographicallocation.
Whenthestatisticaltechnique(InstrumentalVari-ables)correctsinthiswayfortheendogeneityoftradeandincome,itfindsqualitativelysimilaranswers(similartotheOrdinaryLeastSquarescase).
Tradeandgrowth(athigherlevelsofincome)bothtendtobebeneficialformeasuresofnationalairpollution,butdetrimentalforemissionsofCO2.
28Appendix1addressesarecentcritiqueregardingthesepapers.
26EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL29ThePolityIVProjectcontinuesthe"Polity"researchtraditionofcodingtheauthoritycharacteristicsofstatesintheworldsystemforpurposesofcomparative,quantitativeanalysis.
TheoriginalPolitycon-ceptualschemetomeasureconcomitantqualitiesofdemocraticandautocraticauthorityingoverninginstitutionswasformulated,andtheoriginalPolityIdatacollected,underthedirectionofTedRobertGurr.
Polityenvisionsaspectrumofgoverningauthoritythatspansfromfullyinstitutionalizedautocra-ciestofullyinstitutionalizeddemocracies.
The"PolityScore"capturesthisregimeauthorityspectrumona21-pointscalerangingfrom-10(hereditarymonarchy)to+10(consolidateddemocracy).
30Thisfollowsfromtheresultthatthecoefficientonthequadraticterm(incomesquared)issignificantlylessthanzero.
31Thereproductiondoesnotentirelymatchtheoriginalbecausewehaveuseddifferentmeasuresofenvironmentalquality.
Airpollutionismeasuredintermsofemissions(metrictonspercapita),ratherthanconcentrations.
Furthermore,thesetablesusePM10(particulatematterwithaerodynamicdiameterof10micrometers)inplaceofthebroadermeasureofPM.
Inaddition,thesamplesizesherevary;theyhavebeenchosentomatchthoseforwhichsubsequent-yeardataareavailable.
32WaterpollutionnowshowsaEKCfor1995and2000.
Thewaterresultsarereportedinthepaneltables(below)butnotcross-sectionsforindividualyears.
WenowupdatetheFrankel-Rosestudy,toincludedatamorerecentthan1990.
Weseektoexplainthedependentvariable,whichtakestheform,insequence,ofseveralmeasuresofenvironmentaldegration.
Oftheexplanatoryvariables,theonewearemostinterestinginestimat-ingistheenvironmentaleffectoftrade.
Econometrictechniquesallowustocontrolfortheeffectsofincome,democraticgovernance(meas-uredbyPolity29)andpopulationdensity(capturedbyitsinverse,landareapercapita).
SeeFrankelandRose(2003)formoredetails.
Tables1and2pertainto1990,andgenerallyreproducetheoriginalfindings:SO2andPMemissionsshowEnvironmentalKuznetsCurves,i.
e.
,pol-lutionturnsdownwhenincomebecomessufficientlyhigh.
30Open-nesshasasignificantdampeningeffectonSO2incolumn(3)ofTable1,andasignificantexacerbatingeffectonCO2emissionsincolumn(1),butisinsignificantintheothercases.
Democracygenerallyhasastatisticallybeneficialeffect.
31Estimationfornetforestationshowsstatisticallyinsignificantresults,andisnotreportedinthispaper.
Tables5,6and7(inAppendix2)updatetheestimationto1995,2000and2004,respectively.
32Theresultsarenotasstrongasbefore,especiallyforPM10.
PartoftheproblemmaybeinadequatesampleEnvironmentalEffectsofInternationalTrade27sizesinthecaseofthemostrecentobservedyear,2004;manycoun-triesaremissingfromthesamplebecausetheydonotreportdataonatimelybasis.
Accordingly,inTables3and4wegathertogetherdatafortheentireperiod1990-2004intoasinglesample,i.
e.
,apanelstudy.
Themoredatathatareused,themorereliablearetheestimates.
Table3treatseachyearasasinglecrosssectionofdatapoints,whileTable4representseachyearbythesubsequentfive-yearaverage,withtheobjectiveofaveragingoutsomenoiseinmeasurement.
TheresultsforCO2arefairlystrong:AnEnvironmentalKuznetsCurvehasnowappeared–suggestingthatemissionsmayeventuallyturndownathighlevelsofincomeafterall--perhapsasaresultofef-fortsamongsomehigh-incomecountriessincethe1997KyotoProto-colestablishedamodicumofmultilateralgovernance.
Trade,however,continuestoshowupasexacerbatingCO2emissions.
3333Ithasbeensuggestedthatthequadraticequationmaybetooconfiningasafunctionalformtocapturetherelationshipbetweenincomeandenvironmentalquality.
Harbaugh,Levinson,andWilson(2001)emphasizethesensitivityofthestandardEnvironmentalKuznetsCurvefindingstosuchdetailsasfunc-tionalform.
GrossmanandKrueger(1993,1995),SeldenandSong(1994)andPanayotou(2000)infactusedcubicequations[Candia,2003].
FrankelandRosetriedasplinefunctionasanalternativetothecubic(whichmadelittledifferencetotheresults).
Here,intheappendixtables1A-7A,wetrythecubicfunctionalform.
Insomecases,particularly1995,thedatadoseemtofitthecubicformmorecomfort-ablythanthequadratic.
Buttherearenomajorqualitativechangesregardingourmainfocusofinterest:theeffectofopennessontheenvironment,conditionalonincome.
TradestillappearstoexacerbateemissionsofCO2.
28EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILTable1:DeterminationofEnvironmentalDegradation,1990,OLS(1)(2)(3)(4)(5)(6)VARIABLESCO2,F-R2004CO2,2008SO2,F-R2004SO2,2008PM,F-R'04PM10,2008Trade/GDP0.
017**0.
001-0.
306***0.
002-0.
3740.
001(0.
008)(0.
002)(0.
079)(0.
002)(0.
337)(0.
001)LogrealGDPpercapita-17.
879***2.
492**287.
250**0.
363566.
6510.
967(4.
365)(1.
051)(118.
806)(0.
919)(336.
189)(0.
720)LogrealGDPp/csquared1.
329***-0.
063-16.
584**0.
032-35.
566*-0.
075*(0.
284)(0.
062)(6.
781)(0.
055)(19.
056)(0.
042)Polity(democracy)-0.
016*-0.
010**-6.
579***0.
001-6.
697*-0.
001(0.
009)(0.
004)(2.
049)(0.
002)(3.
416)(0.
005)LogofAreapercapita0.
155-0.
068-2.
921**0.
146**-13.
024**-0.
021(0.
155)(0.
099)(1.
394)(0.
064)(6.
292)(0.
039)Observations1021324113438133Notes:Robuststandarderrorsinparentheses.
1.
F-R'04:theFrankel&Rose(2004)result2.
F-R'08:updatewithPennWorldTable6.
2,andnewenvironmentaldata:3.
NewCO2countryemissiondatafromWBWDI----NationalCO2emissions(metrictonspercapita)4.
NewSO2countryemissiondata:fromWRIandEDGAR----NationalSO2emissions(metrictonsp.
c.
)5.
NewPM10countryleveldata:fromWBWDI----PM10countrylevel(microgramspercubicmeter)***pflipperedseaanimal,theUnitedStateshadbannedimportsoftunafromcountriesthatallowedthefishermentousenetsthatalsocaughtdolphins.
MexicobroughtacasebeforetheGATT,asthispre-datedtheWTO.
TheGATTpanelruledagainsttheU.
S.
law,inpartduetoitsunilateralism40andinpartduetofeaturesthatdiscriminatedunnecessarilyagainstMexicanfish-39Charnovitz(2003a).
40Aroundthesameperiod,membersoftheInternationalCommissionfortheConservationofAtlanticTunas(ICCAT),whichseekssustainabilityofstocks,adoptedbansinamultilaterallycoordinatedfashionagainstimportsofAtlanticbluefintunaandswordfishfromsomeoverfishingcountries,particularlyCentralAmericannon-parties(Barrett,2003,pp.
325-327).
46EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILermeninfavorofUSfisherman.
TheGATTreportwasneveradopted.
Thepartiesinsteadineffectworkedouttheirdifferencesbilaterally,"outofcourt.
"Thecasewasconsideredasetbackfortrade-sensitiveenvironmentalmeasures,atleastunilateralones.
Butthesetbackprovedtemporary.
AsystemforlabelingtunaintheUSmarketaseither"dolphinsafe"ornotwaslaterfoundconsistentwiththeGATT.
TheAmericanconsumerresponseturnedouttobesufficientlygreattoaccomplishthedesiredcessationofnon-dolphin-safeimports.
ThattheGATTrulinginthetunacasedidnotaffirmtherightoftheUStousetradebanstoprotectthedolphinsshowshowmuchtheenvironmentalistcausehasprogressedundertheWTO,inthesubse-quentgasolineandshrimp-turtlecases.
ArePPMmeasurescompatiblewiththeWTOThetrueimportofthe1998WTOpaneldecisionontheshrimp-turtlecasewasmissedbyalmosteveryoneatthetime.
Thebigsig-nificancewasapathbreakingrulingthatenvironmentalmeasurescantarget,notonlyexportedproducts(ArticleXX),butalsopartners'Processes&ProductionMethods(PPMs)--subject,asalways,tonon-discrimination(ArticlesI&III).
TheUnitedStateswasintheendabletoseektoprotectturtlesintheIndianOcean,provideditdidsowith-outdiscriminationagainstAsianfishermen.
EnvironmentalistsfailedtonoticeorconsolidatethePPMprecedent,andtothecontraryweremisguidedlyupinarmsoverthiscase.
41AnotherimportantprecedentwastheMontrealProtocolonstrat-osphericozonedepletion.
Scientistsinthe1970sdiscoveredthat41Forafullexplanationofthelegalissues,seeCharnovitz(2003a).
AlsoCharnovitzandWeinstein(2001)andM.
Weinstein,"GreensandGlobalization:DeclaringDefeatintheFaceofVictory,"TheNewYorkTimes,22April,2001.
EnvironmentalEffectsofInternationalTrade47widelyusedman-madesubstancessuchasChlorofluorocarbons(CFCs)weredepletingtheOzoneLayer,thuslettingmoreUltravioletBradiationreachthesurfaceoftheearthandproducinghigherratesofskincancer.
Tosolvetheproblem,theMontrealProtocolwasne-gotiated,phasingoutthesubstances.
Thetreaty,whichenteredintoforcein1989,containedtradecontrols.
Thecontrolshadtwomotiva-tions42:(1)toencouragecountriestojoin,and(2)ifmajorcountrieshadremainedoutside,thecontrolswouldhaveminimizedleakage,themigrationofproductionofbannedsub-stancestononparticipatingcountries.
Intheevent(1)worked,so(2)wasnotneeded.
Barrett(1997,2003)hasshowntheoreticallyhowmultilateraltradesanctionscansometimessuccessfullyenforceamultilateralenviron-mentaltreatysuchastheMontrealProtocol.
Nationalbordertaxad-justments43,suchasthosediscussedinthecontextofKyotolaterinthisreport,maynotprovideenoughofa"stick"todeterfree-riders,i.
e.
,tomotivaterecalcitrantcountriestojointheagreement.
44Na-tionalthreatstoimposemorestringentsanctionsmaynotbecredible,becauseindividualcountrieswillnotfinditrationaltoadopttradebarriersthatimposeasmucheconomicharmonthemselvesasonthetargetedcountry.
Barrett(1997;2003,p.
314-320)appliesthekeyassumptionfrom"newtradetheory"álaBranderandKrugman(1983)--imperfectcompetition--tothequestionofinternational42Benedick(1991)andBrack(1996).
43EarlyanalysesincludeMarkusen(1975).
44Barrett(2003,p.
309-310)arguesthatanalternative"stick"proposedbyCarraroandSiniscalco(1994),athreatbyparticipantstowithholdresearchanddevelopmentfromnon-participants,wasshownbytheMontrealProtocoltobelargelyirrelevantinpractice.
48EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL45Barrett(1994,1997),Kennedy(1994),Ulph(1994)andXingandKolstad(1996).
46SeeSampson(2000),p.
87.
OneGATTlegalexpertadvisedthosenegotiatingtheMontrealProtocolthatheconsidereditstradesanctionstobeGATT-consistent;butothersintheGATTSecretariatsubse-quentlydisagreed(Benedick,1998;Barrett,2003).
NocountryeverbroughtacaseagainsttheProtocol.
Barrett(2003,p.
312)argues,"Intheanarchicinternationalsystem,thisismoresignificantthanalegalopinion.
"environmentalcooperation.
Incontrasttoclassictheoriesoftradebyfirmsandcountriesthataretoosmalltoaffecttheworldpricesfortheirproducts,theassumptionofimperfectcompetitionimpliesthatwithoutinternationalcooperation,itiseconomicallyrationalforeachgovernmenttoweakenthestandardsforemissionsabatementthatitimposesonitsownfirms.
45Barrett'ssolutionistostructurethein-ternationalenvironmentalagreementwithprovisionforstrongtradesanctions,andwiththeusualrulethatthetreatydoesnotgointoeffectuntilathresholdnumberofcountriesjoins.
Thenthedesiredoutcomecouldwellbeasustainableequilibrium:allcountriesjoin,thethreatofsanctionsneednotbecarriedout,andtraderemainsun-impeded,asturnedouttobethecasewiththeMontrealProtocol.
ThetwoexamplesoftheMontrealProtocolandtheshrimp-turtlecase,together,goalongwaytoestablishingthelegitimacyoftrademeasuresagainstPPMs.
Itmustbenotedthatmanyeconomistsandinternationallawyersarenotyetconvinced,letalonerepresentativesofIndiaandotherdevelopingcountries.
Sometradeexpertscontinuetobelievethatevenmultilateraltradepenaltiesagainstnon-membersmightnotbepermissibleunderinternationaltradelaw.
46EnvironmentalEffectsofInternationalTrade495.
TheKyotoProtocolandtheLeakage/CompetitivenessIssueTheKyotoProtocolonGlobalClimateChange,negotiatedin1997,isthemostambitiousattemptatamultilateralenvironmentagree-menttodate.
ThetaskofaddressingClimateChangewhilesatisfy-ingthepoliticalconstraintsofthevariousfactions(particularly,theUS,EU,anddevelopingcountries)wasaninherentlyimpossibletask.
MosteconomistsemphasizethattheagreementasitwaswrittenatKyotowouldimposelargeeconomiccostsontheUnitedStatesandothercountries,whilemakingonlyaminordentintheproblem.
TheClintonAdministration'sinterpretationoftheProtocolinsistedonso-calledflexibilitymechanisms,suchasinternationaltradingofemissionpermits,tobringtheeconomiccostsdowntoamodestrange.
Withouttheflexibilitymechanisms,theUnitedStateswouldbeoutoftheProtocol,evenifthesubsequentadministrationhadbeenmoreenvi-ronmentallyfriendlythanitwas.
(AsEuropeanandothercountrieshavegoneaheadwithouttheUnitedStates,theyhavebeenfindingthattheycannotmanagewithoutsuchtradingmechanisms.
)EvenmostofthosewhoforonereasonoranotherdonotbelievethatKyotowasausefulstep,however,shouldacknowledgethatmulti-lateralagreementswillbenecessaryiftheproblemofGlobalClimateChangeistobetackled.
TheadministrationofGeorgeW.
Bush,evenafteritgotpastitsresistancetothescience,wasreluctanttofaceuptothis.
Thepointforpresentpurposesisthatasysteminwhicheachcountryinsists,basedonanappealtonationalsovereignty,thatitbelefttoformulateenvironmentalpoliciesonitsown,wouldbeaworldinwhichglobalexternalitieslikegreenhousegasemissionswouldnotbeeffectivelyaddressed.
Theglobalclimateregimeisnowonacollisioncoursewiththeglobaltradepolicyregime.
47Nationaleffortstoreduceemissionsofgreenhousegases(GHGs)instillamongenvironmentalistsfearsofleakageandamongbusinesspeoplefearsoflostcompetitiveness.
Poli-cy-makersrespondtothesefears.
In2008,legislativeattemptsinbothWashington,DC,andBrusselstoenactlong-termtargetsforreduced47Frankel(2005a,b).
50EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILemissionofGHGsincludedprovisionsforpossiblepenaltiesagainstimportsfromcountriesperceivedasnon-participating.
Intheviewoftheauthor,trademeasures,ifwelldesigned,couldintheorybeWTO-compatible,inlightoftheprecedentoftheshrimp-turtlecaseinparticular.
ButtheactualprovisionsemergingfromthepoliticalprocessarelikelytoviolatetherulesoftheWTO,whichposesthescenarioofaWTOpanelrejectingamajorcountry'sclimatechangelegislation.
ThatwouldbeanightmareforthesupportersoftheWTOandfreetradeasmuchasforthesupportersoftheKyotoProtocolandenvironmentalprotection.
TheissueisjustthelatestandlargestinstanceoffearsamongmanyenvironmentaliststhattheWTOisanobstacletotheirgoalsingeneral.
Thefirstpartsofthisreportdiscussedthebroaderissueofwhetherenvironmentalgoalsingeneralarethreatenedbytheglobalfreetradesystem.
Therestofthereportfocusesexclusivelyonthenarrowerquestionoftrademeasuresintheefforttoimplementclimatechangepolicyandwhethertheyarelikelytobesuccessful.
ItconcludeswithspecificrecommendationsforhowbordermeasurescouldbedesignedsothattheyweremorelikelytobetruetothegoalofreducingleakageandyetconsistentwiththeWTO.
Developingcountries,leakage,andcompetitivenessWeneeddevelopingcountriesinsidewhateverregimeisthesucces-sortoKyoto,forseveralreasons.
ThedevelopingcountrieswillbethesourceofthebigincreasesinemissionsincomingyearsevenundertheBusiness-as-Usualpath(BAU).
China,India,andotherdevelop-ingcountrieswillrepresentuptotwo-thirdsofglobalcarbondiox-ideemissionsoverthecourseofthiscentury,vastlyexceedingtheOECD'sexpectedcontributionofroughlyone-quarterofglobalEnvironmentalEffectsofInternationalTrade51emissions.
Withouttheparticipationofmajordevelopingcountries,emissionsabatementbyindustrializedcountrieswillnotdomuchtomitigateglobalclimatechange.
48Butthesituationisworsethanthat.
Ifaquantitativeinternationalregimeisimplementedwithoutthedevelopingcountries,theiremis-sionsarelikelytoriseevenfasterthantheBAUpath,duetotheproblemofleakage.
Leakageofemissionscouldcomeaboutthroughseveral(interrelated)channels.
First,outputofenergy-intensivein-dustriescouldrelocatefromcountrieswithemissionscommitmentstocountrieswithout.
Thiscouldhappeneitheriffirmsinthesesectorsrelocatetheirplantstounregulatedcountries,oriffirmsinthesesec-torsshrinkintheregulatedcountrieswhiletheircompetitorsintheunregulatedcountriesexpand.
Aparticularlyalarmingdangeristhataplantinapoorunregulatedcountrymightusedirtytechnologiesandsoemitmorethantheplantproducingthesameoutputwouldhaveinthehigh-standardrichregulatedcountry,sothataggregateworldemissionsactuallygoupratherthandown!
Anotherchannelofleakagerunsviaworldenergyprices.
Ifpar-ticipatingcountriessucceedincuttingbackconsumptionofthehigh-carbonfossilfuels,coalandoil,demandwillfallandthepricesofthesefuelswillfallonworldmarkets(otherthingsequal).
Thisisequallytrueiftheinitialpolicyisacarbontaxthatraisesthepricetorich-countryconsumersasifitcomesviaothermeasures.
Non-participatingcountrieswouldnaturallyresponsetodeclinesinworldoilandcoalpricesbyincreasingconsumption.
Conversely,demandforcleannaturalgaswouldincreaseintherichcountries,drivinguptheworldprice,andreducingrelianceonitinnon-participatingcountries.
Hencemoreemissions.
Estimatesvaryregardingthedamageintonsofincreasedemissionsfromdevelopingcountriesforeverytonabatedinanindustrialized48Anadditionalreasonweneeddevelopingcountriesinistogiveindustrializedcountriestheoppor-tunitytobuyrelativelylow-costemissionspermits,whichiscrucialtokeepinglowtheeconomiccostofachievinganygivengoalintermsofconcentrations.
ElaborationisavailablefromAldyandFrankel(2004),Frankel(2007),SeidmanandLewis(2008)andmanyothersources.
52EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILcountry.
Twoimportantstudiesofleakage,andofthesizeofborderadjustmentsor"greentariffs"thatwouldbenecessaryifcountrieswerelegitimatelytocounteracttheproblemofleakage,concludethattheywouldbesmallonmosttradedgoods.
49Butoneauthoritativeandcomprehensivesurveyreachesalesssanguineconclusion:"Leak-ageratesintherange5to20percentarecommon.
"50Anotherreportsthatstudies'estimatesofleakagerangefrom8to11percent.
51Evenmoresalientpoliticallythanleakageistherelatedissueofcompetitiveness:AmericanindustriesthatareparticularlyintensiveinenergyorinotherGHG-generatingactivitieswillbeatacompetitivedisadvantagetofirmsinthesameindustriesoperatinginnon-regulatedcountries.
52Suchsectorsasaluminum,cement,glass,paperandsteelwillpointtorealcostsintermsoflostoutput,profits,andemployment.
53Theyunderstandablywillseekprotectionandarelikelytogetit.
Thepublictendstoassumethatiftheseindustriesfacecostsitfollowsthatthecountryintheaggregatedoesaswell;offsettinggainstonewgreen-technologyfieldsandothercarbon-savingsectorsarenotasvisible.
49Andtherefore"benefitsproducedbyborderadjustmentwouldbetoosmalltojustifytheiradministra-tivecomplexityortheirdeleteriouseffectsintrade.
"--McKibbinandWilcoxen(2008).
TheotherstudyisHauser,etal.
(2008).
ResearchersattheOECD,however,havelargerestimatesofleakageandcorre-spondingnecessarybordertaxes,especiallyonthepartoftheEU,ifitistheonlyregionthatisseriouslytaxingcarbondomestically,whichisprettymuchthecurrentstateofaffairs(Braathen,2008).
50InternationalPanelonClimateChange(2001),Chapter8.
3.
2.
3,pp.
536-544.
51Bordoff(2008,fn.
4).
Oneoftheestimates,McKibbenetal(1999),isthatiftheUShadadopteditsKyototargetunilaterally,leakagewouldhavebeen10%.
DemaillyandQuirion(2008a)andReinaud(2008)findssmalleffectsfromthefirststageoftheEUISEmissionsTradingsystem,butthistellsuslittleaboutthenextstage.
52ItisnottheoreticallymeaningfultotalkaboutanadverseeffectonthecompetitivenessoftheAmeri-caneconomyintheaggregate.
Thosesectorslowincarbon-intensitywouldintheorybenefitfromanincreaseintaxationofcarbonrelativetoeverythingelse.
Thistheoreticalpointisadmittedlynotveryintuitive.
Farmorelikelytoresonatepubliclyistheexamplethatproducersofrenewableenergy,andoftheequipmentthattheyuse,wouldbenefit.
53Hauser,etal.
(2008).
EnvironmentalEffectsofInternationalTrade536.
MeasuresinClimateChangeLegislationtoAddressCompetitivenessTheresultofenvironmentalists'leakageconcernsandbusinessmen'scompetitivenessconcernsisthatmuchofthelegislationrecentlypro-posedatthenationallevelincludesprovisionstoapplycertainme-asurestoimportsofcarbon-intensiveproductsfromcountriesthataredeemednottobemakingsufficienteffortsthemselvestoaddressclimatechange.
CatalogofmeasuresagainstimportsfromunregulatedcountriesThereisaconfusingvarietyofnamesforthesortsofprotectionthatcarbon-intensivesectorsarelikelytogetagainstimportsfromnon-participatingcountries.
Thephrasesvarywidelyintheirconnotations.
Abit,butnotall,ofthevariation,issemantic.
54Borderadjustmenttaxes.
Technically,thisphraseappliesnotjusttoimporttariffsalonebuttoacombinationofimporttariffsandexportsubsidies.
Butexportsubsidiesdoseemtobeunderactivecontemplation.
Greentariffs.
"Importtariffs"arethemostaccuratedescriptionofwhatwearetalkingabout;theadjective"green"convertsanega-tive-soundingtermintoapositiveone.
Importbarriers.
Thephrase"importbarriers"hasthepejorativeflavorofprotectionism.
Itclearlyincludestheoption–likelytobeadoptedinpractice--ofrequiringimporterstobuyemission6.
MeasuresinClimateChangeLegislationtoAddressCompetitivenessandLeakage54Pauwelyn(2007)comparessomeoftheseoptionsmorecarefully,fromalegalstandpoint.
FischerandFox(2009)comparefourofthemfromaneconomicstandpoint:animporttaxalone,exportrebatealone,fullborderadjustment,anddomesticproductionrebate.
Forrecentpapersthatcomparetheop-tionsintheEuropeancontext,seeAlexeeva-Talebi,LschelandMennel(2008),DemaillyandQuirion(2008b)andPetersenandSchleich(2007).
54EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILpermits,or"internationalreserveallocawances"inthelanguageoftheLieberman-Warnerbill.
Foreconomistssuchrequirementsarepreciselyequivalenttoimporttariffs:Thecostofthepermitisthesameasthetariffrate.
Otherswouldnotsoreadilymaketheconnection,however.
Internationallawmaywelldefyeconomiclogicbytreatingimporttariffsasimpermissiblebutpermitre-quirementsforimportsasokay(Pauwelyn,2007,Brewer,2008,andFischerandFox,2009).
Carbon-equalizationtaxes.
Awell-designedpolicytotargetleak-ageandcompetitivenesscouldbedescribedasequalizingtheef-fectivetaxonthecarboncontentofgoodsproduceddomesticallyorimportedfromabroad.
Onehopesthat"carbonequalization"isnotusedasaeuphemismfordomesticsubsidiesorrebates.
Tradesanctions.
Analternativefunctionofimportmeasuresistoencouragethosecountriesnotparticipatinginthepost-Kyotomultilateralarchitecturetoenlist.
Tradecontrols.
Tradecontrolsfallonlyonenvironmentallyrel-evantsectors.
Tradesanctions,ontheotherhand,targetproductsthatarearbitraryandunrelatedtothenon-compliantact.
TheyareusedmultilaterallyonlybytheWTOandUNSecurityCoun-cil,andarenotcurrentlyunderconsiderationtoaddressclimatechange.
55PossibleapplicationoftradebarriersbytheUnitedStatesOftwelvemarket-basedclimatechangebillsintroducedinthe110thCongress,almosthalfcalledforsomebordermeasures:eitherataxtobeappliedtofossilfuelimports(unobjectionable,providedthesame55Charnovitz(2003b,page156).
EnvironmentalEffectsofInternationalTrade55taxisappliedtodomesticproductionofthesamefossilfuels)orarequirementthatenergy-intensiveimportssurrenderpermitscorre-spondingtothecarbonemissionsembodiedinthem.
56TheBingaman-Specter"LowCarbonEconomyAct"of2007wouldhaveprovided"Ifothercountriesaredeemedtobemakinginadequateefforts[inreducingglobalGHGemissions],startingin2020thePresidentcouldrequireimportersfromsuchcountriestosubmitspecialemissional-lowances(fromaseparatereservepool)tocoverthecarboncontentofcertainproducts).
"SimilarlytheLieberman-WarnerbillwouldhaverequiredthepresidenttodeterminewhatcountrieshavetakencomparableactiontolimitGHGemissions;forimportsofcoveredgoodsfromcoveredcountries,startingin2020,theimportermustbuyinternationalreserveallowances.
57Theserequirementswouldbeequivalenttoataxonthecoveredimports.
ThemajorpresidentialcandidatesintheUSelectioncampaignsupportedsomeversionofthesebills,includingimportmeasuresinthenameofsafeguardingcompetitivenessvis-à-visdevelopingcountries.
Inaddition,Congresshasalreadyenactedadifferentlawthatposessimilarissues:TheEnergyIndependence&SecurityAct2007"limitsUSgovernmentprocurementofalternativefueltothosefromwhichthelifecyclegreenhousegasemissionsareequaltoorlessthanthosefromconventionalfuelfromconventionalpetroleumsources.
"58Can-ada'soilsandsarevulnerable.
SinceCanadahasratifiedtheKyotoProtocolandtheUShasnot,thelegalityofthismeasurestrikestheauthorasquestionable.
56Source:ResourcesfortheFuture.
57S.
2191:America'sClimateSecurityActof2007.
Sections6005-6006.
58Section526.
Source:FT,Mar.
10,2008.
56EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL59BiermanandBrohm(2005)andGovernmentofSweden(2004).
60FT,Jan24,2008.
61LettertoEUCommissionPresidentJoseManuelBarroso,January2008.
PossibleapplicationoftradebarriersbytheEUItispossiblethatmanyinWashingtondon'trealizethattheUSislikelytobethevictimoflegalsanctionsbeforeitisthewielderofthem.
InEuropefirmshavealreadyenteredthefirstKyotobudgetperiodofbindingemissionlimits,competitivenessconcernsarewell-advanced,andthenon-participatingUnitedStatesisanobvioustargetofresentment.
59AftertheUnitedStatesfailedtoratify,Europeanparliamentar-iansproposeda"Kyotocarbontax"againstimportsfromtheUnitedStates.
60TheEuropeanCommissionhadtomakeadecisionontheissueinJanuary2008,whentheEuropeanUniondetermineditsemis-siontargetsforthepost-Kyotoperiod.
Inpreparationforthisdecision,FrenchPresidentSarkozywarned:"…iflargeeconomiesoftheworlddonotengageinbindingcommit-mentstoreduceemissions,Europeanindustrywillhaveincentivestore-locatetosuchcountries…Theintroductionofaparallelmechanismforbordercompensationagainstimportsfromcountriesthatrefusetocommittobindingreductionsthereforeappearsessential,whetherintheformofataxadjustmentoranobligationtobuypermitsbyimporters.
Thismecha-nismisinanycasenecessaryinordertoinducethosecountriestoagreeonsuchacommitment.
"61TheenvisionedmechanismsoundssimilartothatintheBingaman-SpecterandLieberman-Warnerbills,withthedifferencethatitcouldgointoeffectsoon,sinceEuropeisalreadylimitingemissionswhereastheUSisnot.
EnvironmentalEffectsofInternationalTrade57Intheevent,theEUCommissionincludedinsteadthefollowingprovisioninitsDirective:"Energy-intensiveindustrieswhicharedeterminedtobeexposedtosig-nificantriskofcarbonleakagecouldreceiveahigheramountoffreeal-locationoraneffectivecarbonequalizationsystemcouldbeintroducedwithaviewtoputtingEUandnon-EUproducersonacomparablefooting.
SuchasystemcouldapplytoimportersofgoodsrequirementssimilartothoseapplicabletoinstallationswithintheEU,byrequiringthesurrenderofallowances.
"62Thesecondofthetwooptions,"carbonequalization"soundsconsist-entwithwhatisappropriate(andwiththesortofmeasuressuggestedbySarkozy,andspelledoutindetailintheUSbills).
Thefirstoption,however,isbadlydesigned.
Yes,itwouldhelpEuropeanindustriesthatarecarbon-intensiveandthereforevulnerabletocompetitionfromnon-membersbygivingthemalargerquantityoffreeemissionpermits.
GiventhemarketintradingpermitsthatalreadyexistsintheEU,togiveafirmpermitsisthesameastogivethemacashsubsidy.
Accordingtosimplemicroeconomictheory,thesesubsidieswoulddonothingtoaddressleakage;whileitreducestheaveragecosttothesefirms'operationsinsideEuropeanborders,itdoesnotreducethemarginalcost,whichisthemorerelevantconcept.
Becausecarbon-intensiveproductionischeaperinnon-participatingcountries,theEuropeanfirmsintheorywouldsimply"takethemoneyandrun.
"Theycouldsellthepermitstheyreceiveandpocketthemoney,withthecarbon-intensiveproductionstillmovingfromEuropetothenon-participants.
Perhapsthesefirmswouldusethemoneytobuyplantsinunregulatedcountries,ordevelopsuchsubsidiariesthemselves.
6362Source:Paragraph13,DirectiveoftheEuropeanParliament&oftheCouncilamendingDirective2003/87/ECsoastoimproveandextendtheEUgreenhousegasemissionsallowancetradingsystem;Brussels,Jan.
2008.
63Oneimportantstudy,Hauseretal(2008)tendstofavorsuchdomesticsubsidies,andopposesbordermeasures,inpartbecausethelatterarejudgedtobemorelikelytorunafouloftheWTO.
Icometotheoppositeconclusion,forthereasonsstatedandbecausesubsidiestosectorsfacinginternationalcompeti-tionruncontrarytotheWTOasmuchasimporttariffsdo.
58EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILAdmittedlyinpracticetheremightbesomeeffectsfromfreeal-locationstoaffectedindustries;forexample,aninfusionofliquiditymightkeepinoperationafirmthatotherwisewouldgobankrupt.
Buttherewouldprobablybealmostasmuchleakageasiftherehadbeennopolicyresponseatall.
Presumablythepurposebehindthesubsidiesoptionisnottominimizeleakage,forwhichitwouldbethewrongremedy,nortopunishnon-participatingcountries,butsimplytobuyoffdomesticinterestssothattheywillnotopposeactiononclimatechangepolitically.
AlsosomeinternationallawexpertsbelivethatfreedistributionofpermitswouldbelesslikelytofallafouloftheWTOthanmonetarysubsidies.
Butinthiscaseitisimportanttomakesurethatthepoliticiansunderstandthatthisiswhattheyaredoing,be-causetherhetoricisdifferentandtheeconomiclogicissubtle.
Wouldpenaltiesagainstcarbon-intensiveimportsbecompatiblewiththeWTOWouldmeasuresthataredirectedagainstCO2emissionsinothercountries,asembodiedinelectricityoringoodsproducedwithit,beacceptableunderinternationallawNotmanyyearsago,mostinter-nationalexpertswouldhavesaidthatimportbarriersagainstcarbon-intensivegoods,whethertariffsorquantitativerestrictions,wouldnecessarilyviolateinternationalagreements.
But,asnotedabove,thingshavechanged.
TheWTO(WorldTradeOrganization)cameintoexistence,suc-ceedingtheGATT,atroughlythesametimeastheKyotoProtocol.
Thedraftersofeachtreatyshowedmoreconsiderationfortheotherthandotherankandfileamongenvironmentalistsandfreetraders,respectively.
TheWTOregimeismorerespectfuloftheenvironmentthanwasitspredecessor.
ArticleXXallowsexceptionstoArticlesIEnvironmentalEffectsofInternationalTrade59andIIIforpurposesofhealthandconservation.
TheKyotoProtocoltextisequallysolicitousofthetraderegime.
ItsaysthatthePartiesshould"strivetoimplementpoliciesandmeasures.
.
.
tominimizead-verseeffects.
.
.
oninternationaltrade.
.
.
"SimilarlanguageisfeaturedintheUnitedNationalFrameworkConventiononClimateChange(UNFCCC),whichwastheparenttotheKyotoProtocol.
UndertheGATT,althoughcountriescoulduseimportbarrierstoprotectthemselvesagainstenvironmentaldamagethatwouldoth-erwiseoccurwithintheirownborders,theycouldnotuseimportbarriersineffortstoaffecthowgoodsareproducedinforeigncoun-tries,PPMs(ProcessesandProductionMethods).
GHGemissionsarePPMs.
IsthisanobstacletotheapplicationmeasuresagainstthemattheborderIdon'tseewhyithastobe.
Asarguedabove,twoprec-edentscanbecited:seaturtlesandstratosphericozone.
Incasethereisanydoubtthatthephrase"healthandconserva-tion"inArticleXXappliestoenvironmentalconcernssuchasclimatechange,athirdprecedentisrelevant.
In2007,anewWTOAppellateBodydecisionregardingBrazilianrestrictionsonimportsofretreadedtiresconfirmedtheapplicabilityofArticleXX(b)totrademeasuresinpursuitofGHGabatement:Rulings"accordconsiderableflexibilitytoWTOMembergovernmentswhentheytaketrade-restrictivemeas-urestoprotectlifeorhealth…[and]applyequallytoissuesrelatedtotradeandenvironmentalprotection…includingmeasurestakentocombatglobalwarming.
"64IpersonallyhavecometobelievethattheKyotoProtocolcouldhavefollowedtheMontrealProtocolbyincorporatingwell-designedtradecontrolsaimedatnon-participants.
Oneaspectthatstrengthenstheapplicabilityoftheprecedentisthatwearenottalkingabouttargetingpracticesinothercountriesthatharmsolelythelocalen-vironment,wherethecountrycanmakethecasethatthisisnobodyelse'sbusiness.
Depletionofstratosphericozonedepletionandendan-germentofseaturtlesareglobalexternalities.
(Ithelpedthattheseare64Source:BrendanMcGivern,12Dec.
,2007.
60EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILturtlesthatmigrateglobally.
)SoisclimatechangefromGHGemis-sions.
Carbonemissionshurtallresidentsoftheplanet.
OnecanspeculatethatviewsareevolvingevenamongthoseWTOofficialsandothertradeexpertswhobelievedthattheMontrealPro-tocolwasnotlegallyconsistentwiththeGATT.
Giventheprecedentsmentioned,andtheextentofpopularsupportinternationallyforactiononglobalclimatechange,itseemsunlikelythateitherpaneljuristsorstaffmembersattheWTOwouldwanttocommitinstitu-tionalsuicidebyrulingagainsttradesanctionsiftheywereadoptedmultilaterallyunderasuccessortotheKyotoProtocolandwereap-pliedwithoutunnecessarydiscrimination.
Ontheotherhand,ifonecountryunilaterallyadoptedarbitraryandunnecessarilydiscrimina-torybarriersagainstimportsfromanother[especiallyifthelatterhadratifiedKyotoandtheformerhadnot],itseemslikelythataWTOpanelwouldupholdacomplaintfromthesanctionvictim.
Someprinciplesfordesignoflegitimatecarbon-intensiveimportpenaltiesWhiletheshrimp-turtlecaseandtheMontrealProtocolhelpestab-lishtheprinciplethatwell-designedtrademeasurescanlegitimatelytargetPPMs,atthesametimetheysuggestprinciplesthatshouldhelpguidedraftersastowhatisgooddesign.
First,theexistenceofamultilaterallynegotiatedinternationaltreatysuchastheKyotoProtocolconditionsthelegitimacyoftradecontrols.
Ontheonehand,thatleakagetonon-memberscouldnegatethegoaloftheProtocolstrengthensthecasefor(therightsortof)tradecon-trols.
Itisstronger,forexample,thanintheshrimp-turtlecase,whichwasprimarilyaunilateralUSmeasure.
Ontheotherhand,thecaseisweakerthanitwasfortheMontrealProtocol.
(MultilateralinitiativesEnvironmentalEffectsofInternationalTrade6165Hoel(1996),forexample,analyzesthedifficultyofcomputingtaxesdifferentiatedbysector.
likethelatterareonfirmergroundthanunilateralinitiatives.
)TheKyotoProtocolcouldhavemadeexplicitallowanceformultilateraltradecontrols,andchosenotto.
ThecasewouldbeespeciallyweakforAmericanmeasuresiftheUShasstillnotratifiedtheKyotoPro-tocolorasuccessoragreement.
TheEuropeanshavearelativelygoodcaseagainsttheUnitedStates,untilsuchtimeastheUSratifies.
Butthecasewouldbestrongerstillifafuturemultilateralagreement,forexampleundertheFrameworkConventiononClimateChange(UN-FCCC),agreedonthelegitimacyoftradecontrolsandonguidelinesfortheirdesign.
Second,thereisthequestionofthesortsofgoodsorservicestobemadesubjecttopenalty.
Itwouldcertainlybelegitimatetoapplytar-iffsagainstcoalitself,assumingdomestictaxationofcoaloradomesticsystemoftradablepermitswereinplace.
Itisprobablyalsolegitimatewhenappliedtothecarboncontentofelectricity,thoughthisrequiresacceptanceofthePPMprinciple.
Thebigquestionisthecarbon/en-ergycontentofmanufactures.
Tradesanctionswouldprobablynotbelegitimatewhenappliedsolelyaspunishmentforfreeriding,againstunrelatedproductsofanon-memberor,inamoreextremecase,oncleaninputs,e.
g.
,abanonUSturbinesusedforlow-carbonprojects(unlessperhapseconomy-widesanctionsweremultilaterallyagreedbyUNFCCCmembers,anunlikelyprospect).
Paradoxically,theneedtokeepoutcoal-generatedelectricityoralu-minumfromnon-membersoftheKyotoProtocolisgreaterthantheneedtokeepoutcoalitself.
ThereasonisthattheProtocolalreadyputslimitsonwithin-countryemissions.
Ifoneassumesthelimitsareenforced,thentheworldcommunityhasnoparticularinterestinhowthecountrygoesaboutcuttingitsemissions.
Butifthecountryim-portscoal-generatedelectricityoraluminumfromnon-members,theemissionsoccuroutsideitsbordersandtheenvironmentalobjectiveisundermined.
Butitishardtodeterminecarboncontentofmanufactures.
65The62EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILbestwouldbetostaywiththehalf-dozenbiggest-scale,mostenergy-intensiveindustries–probablyincludingaluminum,cement,steel,paper,andglass.
Evenheretherearedifficultquestions.
Whatiftheenergyusedtosmeltaluminuminanothercountryiscleanerthanintheimportingcountry(Iceland'senergycomesfromhydroandgeo-thermal)ordirtier(muchofChina'senergycomesfromcoal)HowcanonedistinguishthemarginalcarboncontentoftheenergyusedforaparticularaluminumshipmentfromtheaveragecarboncontentofenergyinthecountryoforiginThesearequestionsthatwillhavetobeanswered.
Butassoonasonegoesbeyondahalfdozenbigin-dustries,itbecomestoodifficultforevenagood-faithinvestigatortodiscerntheeffectivecarboncontent.
Itisalsotooliabletoabuse.
Onewouldnotwanttolevytariffsagainstthecarpartsthataremadewiththemetalthatwasproducedinacarbon-intensiveway,oragainsttheautomobilesthatusedthosecarparts(theycouldbelow-mileagehy-brids!
)oragainsttheproductsofthefirmsthatboughtthecars,etc.
ThebigdangerJustbecauseagovernmentmeasureisgivenanenvironmentallabel,doesnotnecessarilymeanthatitismotivatedprimarily--orevenatall--bybonafideenvironmentalobjectives,.
ToseethepointonehasonlytolookatthemassivemistakeofAmericansubsidiesofethanol(andprotectionagainstcompetingbio-fuelsimportsfromBrazil).
Ifeachcountryonitsownimposesborderadjustmentsforimportsinwhateverwaysuitsnationalpolitics,theywillbepoorlytargeted,dis-criminatory,andoftencovertlyprotectionist.
Whenreadingthelan-guageintheUSCongressionalbillsortheEUdecision,itisnothardtoimaginethatspecialinterestscouldtakeoverforprotectionistpur-posestheprocesswherebyeachgovernmentdecideswhetherothercountriesaredoingtheirshare,andwhatforeigncompetitorsmeritEnvironmentalEffectsofInternationalTrade63penalties.
66Thishasbeenthehistoricalpattern.
67Thusthecompeti-tivenessprovisionswillindeedrunafouloftheWTO,andtheywilldeserveto.
Itisimportantwhomakesthedeterminationsregardingwhatcoun-triesareabidingbycarbon-reductioncommitments,whocanretaliateagainstthenon-compliers,whatsectorsarefairgame,andwhatsortofbarriersareappropriate.
Onepolicyconclusionisthatthesedeci-sionsshouldbedelegatedtoindependentpanelsofexperts,ratherthanmadebypoliticians.
Themostimportantpolicyconclusionisthatweneedamultilateralregimetoguidesuchmeasures.
Ideallytheregimewouldbenegoti-atedalongwithasuccessortotheKyotoProtocolthatsettargetsforfutureperiodsandbroughttheUnitedStatesanddevelopingcoun-triesinside.
Butifthatprocesstakestoolong,itmightbeusefulintheshorterrunfortheUSandEUtoenternegotiationstoharmonizeguidelinesforborderpenalties,ideallyinassociationwiththesecre-tariatsoftheUNFCCCandtheWTO.
68WhyapproachtheproblemmultilaterallySomesaythemostpromisingpathforaddressingtheproblemofcli-matechangeisforeachcountrytotakemeasuresonitsown.
ButGHG66TheCongressionallanguageimposingpenaltiesonimportsfromcountriesthatdonottaxcarbonwasapparentlyinfluencedbytheInternationalBrotherhoodofElectricalWorkers,whichregularlylobbiesforprotectionofAmericanworkersfromforeigncompetition.
AlanBeattie,FT,Jan24,2008.
Simul-taneously,theEuropeanTradeUnionConfederationurgedtheEUCommissiontotaximportsfromcountriesrefusingtoreduceemissions.
"Unionsbackcarbontaxonbigpollutingnations,"APandWallStreetJournal,Jan.
16,2008.
67EkensandSpeck(1999)findthatexemptionsgrantedbyEuropeangovernmentstoenvironmentaltaxes"usuallyruncountertotheenvironmentaleconomiclogicofusingenvironmentaltaxestoin-ternalisesocialcosts…andtheyarelikelytoincreasethecostsofachievingagivenlevelofemissionreduction.
"68Sampson(1999).
64EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILemissionsareinherentlyaglobalexternality.
Nosinglecountrycanad-dresstheproblemonitsown,duetothefreeriderproblem.
Whilethereisaroleforunilateralactionsonclimatechange,inthelongtermmultilateralactionofferstheonlyhopeofaddressingtheproblem.
Themultilateralinstitutionsarealreadyinplace--specificallytheUNFCCC,itschildtheKyotoProtocol,andtheWTO--andthebasicdesignsandoperationsoftheseinstitutionshappentoberelativelysensible,takingpoliticalrealitiesasgiven.
Theyaremoresensiblethanmostcriticsoftheinternationalinstitutionsandtheirallegedviola-tionsofnationalsovereigntybelieve.
Thisapplieswhetherthecrit-icsareontheleftorright,andwhethertheirmainconcernistheenvironmentortheeconomy.
69Onecanplaceveryheavyweightoneconomicgoals,andyetrealizethedesirabilityofaddressingexternali-ties,minimizingleakage,dealingwithcompetitivenessconcerns,andsoforth.
Onecanplaceveryheavyweightonenvironmentalgoals,andyetrealizethevirtuesofmarketmechanisms,non-discrimination,reciprocity,addressinginternationalexternalitiescooperatively,pre-ventingspecialinterestsfromhijackingenvironmentallanguagefortheirownfinancialgain,andsoforth.
ConcludingrecommendationsregardingtradepenaltiesinclimatelegislationThecentralmessageofthissectionofthereportisthatbordermeas-urestoaddressleakageneednotnecessarilyviolatetheWTOorsen-sibletradeprinciples,butthatthereisaverygreatdangerinpracticethattheywill.
69Ihaveaddressedelsewhereotherwaysinwhichtheclimateregime(Kyoto)couldcomeintoconflictwiththetraderegime(WTO),andthemoregeneralquestionsofwhetherfreetradeandenvironmentalprotectionneedbeinconflict.
Frankel(2004,2005a,b,2008).
EnvironmentalEffectsofInternationalTrade65Iconcludewithsomesubjectivejudgmentsastosomeprinciplesthatcouldguideacountry'sbordermeasuresifitsgoalwereindeedtoreduceleakageandavoidartificiallytiltingtheplayingfieldtowardcarbon-intensiveimportsofnon-participatingcountries.
Iclassifycharacteristicsofpossiblebordermeasuresintotwocategories,whichIwillnamebycolor(forlackofbetterlabels):(1)the"Black"category:thosethatseemtomeverydangerous,inthattheyarelikelytobecomeanexcuseforprotectionism;and(2)the"White"category:thosethatseemtomereasonableandap-propriate.
TheBlack(inappropriate)bordermeasuresinclude:UnilateralmeasuresappliedbycountriesthatarenotparticipatingintheKyotoProtocoloritssuccessors.
Judgmentsastofindingsoffactthataremadebypoliticians,vul-nerabletopoliticalpressurefrominterestgroupsforspecialpro-tection.
Unilateralmeasuresthatseektosanctionanentirecountry,ratherthantargetingnarrowlydefinedenergy-intensivesectors.
Importbarriersagainstproductsthatarefurtherremovedfromthecarbon-intensiveactivity,suchasfirmsthatuseinputsthatareproducedinanenergy-intensiveprocess.
Subsidies–whetherintheformofmoneyorextrapermitalloca-tions--todomesticsectorsthatareconsideredtohavebeenputatacompetitivedisadvantage.
(Oneshouldnotethatthediversiontosubsidiesintheformoffreepermitsisbasedoneconomists'logic.
Internationallawyersmayfeeldifferently.
)66EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILTheWhite(appropriate)bordermeasurescouldbeeithertariffsor(equivalently)arequirementforimporterstosurrendertradableper-mits.
Theprinciplesinclude:Measuresshouldfollowsomemultilaterally-agreedsetofguide-linesamongcountriesparticipatingintheemissiontargetsoftheKyotoProtocoland/oritssuccessors.
Judgmentsastofindingsoffact--whatcountriesarecomplyingornot,whatindustriesareinvolvedandwhatistheircarboncon-tent,whatcountriesareentitledtorespondwithbordermeasures,orthenatureoftheresponse–shouldbemadebyindependentpanelsofexperts.
MeasuresshouldonlyappliedbycountriesthatarereducingtheiremissionsinlinewiththeKyotoProtocoland/oritssuccessors,againstcountriesthatarenot,eitherduetorefusaltojoinortofailuretocomply.
Importpenaltiesshouldtargetfossilfuels,andafewofthemostenergy-intensivemajorindustries:aluminum,cement,steel,paper,glass,andperhapsironandchemicals.
Ifcountriesfollowtheseguidelinesinenactingborderpenalties,theymaybeconsistentwiththeavowedgoalsofpreventingleakageandunduelossofcompetitivenessandareunlikelytofallafouloftheWTO.
Iftheydonotfollowtheseguidelines–themorelikelyout-come–theycanbeinconsistentwiththesegoals,andwiththeWTOaswell.
EnvironmentalEffectsofInternationalTrade67ReferencesAldy,Joseph,andJeffreyFrankel,2004,"DesigningaRegimeofEmissionCommitmentsforDevelopingCountriesthatisCost-EffectiveandEquita-ble,"G20LeadersandClimateChange,CouncilonForeignRelations.
Aldy,Joseph,ScottBarrett,andRobertStavins(2003),"ThirteenPlusOne:AComparisonofGlobalClimateArchitectures,"ClimatePolicy,3,no.
4,373-97.
Alexeeva-Talebi,Victoria,AndreasLschelandTimMennel,2008,ClimatePolicyandtheProbelmofCompetitiveness:BorderTaxAdjustmentsorIntegratedEmissionsTrading"DiscussionPaperNo.
08-061,ZentrumfürEuropischeWirtschaftsforschungGmbH,Mannheim,Germany.
Antweiler,Werner,BrianCopelandandScottTaylor,2001,"IsFreeTradeGoodfortheEnvironment"AmericanEconomicReview,91,no.
4,September,877-908.
Arrow,K.
,R.
Bolin,P.
Costanza,P.
Dasgupta,C.
Folke,C.
S.
Holling,B.
O.
Jans-son,S.
Levin,K.
G.
Maler,C.
Perrings,andD.
Pimentel,1995,"EconomicGrowth,CarryingCapacity,andtheEnvironment,"Science268,520-521,April28.
Barrett,Scott,1994,"StrategicEnvironmentalPolicyandInternationalTrade,"JournalofPublicEconomics,54,325-338.
Barrett,Scott,1997,"TheStrategyofTradeSanctionsinInternationalEnviron-mentalAgreements,"ResourceandEnergyEconomics19,345-361.
Barrett,Scott,2003,"TradeLeakageandTradeLinkage,"Chapter12ofEn-vironmentandStatecraft:TheStrategyofEnvironmentalTreaty-Making(OxfordUniversityPress,UK)Barrett,Scott,andKathrynGraddy,2000,"Freedom,Growth,andtheEnvi-ronment,"EnvironmentandDevelopmentEconomics5,433-456.
Benedick,R.
E.
1991,OzoneDiplomacy,(HarvardUniversityPress:Cam-bridgeMA).
Bhagwati,Jadgish,2000,"OnThinkingClearlyAbouttheLinkageBetweenTradeandtheEnvironment,"TheWindoftheHundredDays:HowWash-ingtonMismanagedGlobalization(MITPress:Cambridge).
Bierman,F.
,andR.
Brohm,2005,"ImplementingtheKyotoProtocolWithouttheUnitedStates:TheStrategicRoleofEnergyTaxAdjustmentsattheBorder,"ClimatePolicy4,no.
3.
Bimonte,Salvatore,2001,"ModelofGrowthandEnvironmentalQuality,ANewEvidenceoftheEnvironmentalKuznetsCurve,"UniversitadegliStu-didiSiena,Quaderni,no.
321,April.
68EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILBordoff,Jason,2008,"InternationalTradeLawandtheEconomicsofClimatePolicy:EvaluatingtheLegalityandEffectivenessofProposalstoAddressCompetitivenessandLeakageConcerns,"ClimateChange,TradeandInvest-mentConference:IsaCollisionInevitable,BrookingsInstitution:Washing-tonDC.
Brack,Duncan,1996,InternationalTradeandtheMontrealProtocol(TheRoyalInstituteofInternationalAffairsandEarthscanPublications,Ltd.
:London).
Bradford,David,RebeccaFender,StephenShoreandMartinWagner,2005.
"TheEnvironmentalKuznetsCurve:ExploringaFreshSpecification,"Con-tributionstoEconomicAnalysis&Policy,BerkeleyElectronicPress,4(1),1073-1073.
RevisedversionofDavidBradford,RebeccaSchlieckertandStephenShore,2000,"TheEnvironmentalKuznetsCurve:ExploringaFreshSpecification,"NBERWorkingPaperno.
8001.
Braithwaite,John,andPeterDrahos,GlobalBusinessRegulation,CambridgeUniversityPress,UK.
Brander,James,andPaulKrugman,1983,"AReciprocalDumpingModelofInternationalTrade"JournalofInternationalEconomics,15,313-323.
Brathen,NilsAxen,2008,"Carbon-RelatedBorderTaxAdjustments,"Com-mentsatconferenceonClimateChange,TradeandInvestment:IsaCollisionInevitable,June9,2008,BrookingsInstitution,Washington,DC,organizedbyLaelBrainard.
Brewer,T.
L.
"TheTradeRegimeandtheClimateRegime:InstitutionalEvolu-tionandAdaptation,"ClimatePolicy3,no.
4(2003):329-341.
Brewer,T.
L.
,2004,"Multinationals,theEnvironmentandtheWTO:IssuesintheEnvironmentalGoodsandServicesIndustryandinClimateChangeMitigation,"inS.
Lundan,A.
RugmanandA.
Verbecke,eds.
,Multinationals,theEnvironmentandGlobalCompetition(Elsevier).
Brewer,T.
L.
"TheWTOandtheKyotoProtocol:InteractionIssues,"ClimatePolicy4,no.
1(Sept.
2004).
Brewer,ThomasL.
,"U.
S.
ClimateChangePolicyandInternationalTradePolicyIntersections:IssuesNeedingInnovationforaRapidlyExpandingAgenda",PaperPreparedforaSeminaroftheCenterforBusinessandPublicPolicyGeorgetownUniversity-February12,2008.
[Candia,Lizzie,2003,"DoestheEnvironmentalKuznetsCurveExplainHowaGrowingEconomyCanAchieveBetterEnvironmentalQualityi"DundeeYearbookofInternationalNaturalResourcesandEnergyLawandPolicy,Vol.
7(UniversityofDundee,UK).
EnvironmentalEffectsofInternationalTrade69Carraro,Carlo,andD.
Siniscalco,1994,"RandDCooperationandtheStabil-ityofInteranationalEnvironmentalAgreements,"NotadiLavoro65/94,FondanzioneEniEnricoMattei,Milan.
Charnovitz,Stephen,2003a,"TheLawofEnvironmental'PPMs'intheWTO:DebunkingtheMythofIllegality,"TheYaleJournalofInternationalLaw27,no.
1(Winter):59-110.
Charnovitz,Stephen,2003b,"TradeandClimate:PotentialConflictsandSyn-ergies,"inBeyondKyoto:AdvancingtheInternationalEffortAgainstClimateChange(PewCenteronGlobalClimateChange):141-167.
Charnovitz,Steve,andMichaelWeinstein,2001,"TheGreeningoftheWTO,"ForeignAffairs80,no.
6,147-156.
Chaudhuri,Shubham,andAlexanderPfaff,2002,"EconomicGrowthandtheEnvironment:WhatCanWeLearnfromHouseholdData"ColumbiaUni-versity,February.
Chintrakarn,PandejandDanielMillimet.
2006.
"TheEnvironmentalConse-quencesofTrade:EvidencefromSubnationalTradeFlows,"JournalofEnvi-ronmentalEconomicsandManagement,52,430-453.
Chua,Swee.
2003.
"DoesTighterEnvironmentalPolicyLeadtoaCompara-tiveAdvantageinLessPollutingGoods"OxfordEconomicPapers55:25-35(OxfordUniversityPress).
Copeland,Brian,andScottTaylor,2001,"InternationalTradeandtheEnviron-ment:AFrameworkforAnalysis,"NBERWorkingPaperNo.
8540,Oct.
Copeland,Brian,andScottTaylor,2003,TradeandtheEnvironment:TheoryandEvidence(PrincetonUniversityPress:Princeton).
Copeland,Brian,andScottTaylor,2004,"Trade,GrowthandtheEnviron-ment,"JournalofEconomicLiterature42(1):7-71.
NBERWorkingPaperNo.
9823,July2003.
Costello,ChristopherandCarolMcAusland.
2003.
"Protectionism,Trade,andMeasuresofDamagefromExoticSpeciesIntroductions,"AmericanJournalofAgriculturalEconomics,85(4)2003:964-975.
Costello,Christopher,MikeSpringborn,CarolMcAuslandandAndySolow.
2006.
"Unintendedbiologicalinvasions:Doesriskvarybytradingpartner"JournalofEnvironmentalEconomicsandManagement54(3)2007:262-276.
]Cropper,Maureen,andCharlesGriffiths,1994,"TheInteractionofPopulationGrowthandEvironmentalQuality,"AmericanEconomicReview84,no.
2,May,250-254.
70EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILDaly,Herman,1993,"ThePerilsofFreeTrade,"ScientificAmerican,Nov.
,51-55.
Dasgupta,Susmita,BenoitLaplante,HuaWangandDavidWheeler,2002,"ConfrontingtheEnvironmentalKuznetsCurve,"JournalofEconomicPer-spectives,16,no.
1,Winter:147-168.
Dean,Judy,1992,"TradeandtheEnvironment:ASurveyoftheLiterature,"inPatrickLow,ed.
,InternationalTradeandtheEnvironment,WorldBankDiscussionPaperNo.
159.
Dean,Judy,2001,"Overview,"inInternationalTradeandtheEnvironment,J.
Dean,ed.
,InternationalLibraryofEnvironmentalEconomicsandPolicySeries,(AshgatePublishing:UK).
Dean,Judy,2002,"DoesTradeLiberalizationHarmtheEnvironmentANewTest,"CanadianJournalofEconomics35,no.
4,November:819-842.
Demailly,D.
andP.
Quirion,2008aDemailly,D.
andP.
Quirion,2008b,ConcilierCompetitiviteIndustrielleetPolitiqueClimatique:Faut-ilDistribuerlesQuotasdeCO2enFonctiondelaProductionouBienlesAjusterauxFrontieres"LaRevueEconomique59,no.
3,May.
Dua,Andre,andDanielEsty,1997,SustainingtheAsiaPacificMiracle:Envi-ronmentalProtectionandEconomicIntegration,InstituteforInternationalEconomics:WashingtonDC.
Ederington,Josh,ArikLevinsonandJennyMinier,2005,"FootlooseandPol-lution-Free,"ReviewofEconomicsandStatistics87:92-99.
NBERWorkingPaperNo.
9718,May2003.
Eiras,Ana,andBrettSchaefer,2001,"Trade:TheBestWaytoProtecttheEnvi-ronment,"Backgrounder,TheHeritageFoundationno.
1480,September27.
Ekins,Paul,andStefanSpeck,1999,"CompetitivenessandExemptionsFromEnvironmentalTaxesinEurope,"EnvironmentalandResourceEconomics(SpringerNetherlands),Volume13,Number4/June,1999:369-396Eskeland,GunnarS.
andAnnE.
Harrison.
2003.
"MovingtoGreenerPasturesMultinationalsandthePollutionHavenHypothesis,"JournalofDevelop-mentEconomics.
70(1):1-23.
Esty,Daniel,1994,GreeningtheGATT:Trade,Environment,andtheFuture,InstituteforInternationalEconomics,WashingtonDC.
Esty,Daniel,2001,"BridgingtheTrade-EnvironmentDivide,"JournalofEco-nomicPerspectives,Summer15,no.
3,113-130.
Esty,Daniel,andBradfordGentry,1997,"ForeignInvestment,Globalisation,andtheEnvironment,"GlobalizationandtheEnvironment,editedbyTomJones(OrganizationforEconomicCooperationandDevelopment:Paris).
EnvironmentalEffectsofInternationalTrade71Esty,Daniel,andMichaelPorter,2001,"MeasuringNationalEnvironmentalPerformanceandItsDeterminants,"YaleLawSchoolandHarvardBusinessSchool,April.
Fischer,Carolyn,andAlanFox,2009,"ComparingPoliciestoCombatEmis-sionsLeakage:BorderTaxAdjustmentversusRebates,"DiscussionPaper,February.
Foster,Andrew,andMarkRosenzweig,2003,"EconomicGrowthandtheRiseofForests,"QuarterlyJournalofEconomics,118,issue2,May601-638.
Frankel,Jeffrey,2004,"KyotoandGeneva:LinkageoftheClimateChangeRe-gimeandtheTradeRegime"forBroadeningClimateDiscussion:TheLinkageofClimateChangetoOtherPolicyAreas,FEEM/MITconference,Venice.
Frankel,Jeffrey,2005a,"ClimateandTrade:LinksBetweentheKyotoProtocolandWTO,"inEnvironment,vol.
47,no.
7,September2005:8-19.
Frankel,Jeffrey,2005b,"TheEnvironmentandGlobalization"inGlobalization:What'sNeweditedbyMichaelWeinstein(ColumbiaUniversityPress:NewYork):129-169.
ReprintedinEconomicsoftheEnvironment:SelectedReadings,FifthEdition,R.
Stavins,editor(W.
W.
Norton:NewYork),2005.
Frankel,Jeffrey,2007,"FormulasforQuantitativeEmissionTargets,"inArchi-tecturesforAgreement:AddressingGlobalClimateChangeinthePostKyotoWorld,JoeAldyandRobertStavins,editors,CambridgeUniversityPress,p.
32-56.
Frankel,Jeffrey,2008,"AddressingtheLeakage/CompetitivenessIssueInCli-mateChangePolicyProposals,"ClimateChange,TradeandInvestment:IsaCollisionInevitable,BrookingsInstitution,Washington,DC,organizedbyLaelBrainard.
Frankel,Jeffrey,andAndrewRose,"IsTradeGoodorBadfortheEnviron-mentSortingouttheCausality"ReviewofEconomicsandStatistics,87,no.
1,2005.
Fredriksson,PerG.
andMuthukumaraMani,2004,"TradeIntegrationandPo-liticalTurbulence:EnvironmentalPolicyConsequences,"AdvancesinEco-nomicAnalysis&Policy:Vol.
4:Iss.
2,Article1.
Goulder,Lawrence,andRobertStavins,2002,"AnEyeontheFuture,"Nature,419,Oct.
17,673-74.
GovernmentofSweden,Kommerskollegium,2004,ClimateandTradeRules–HarmonyorConflictGrossman,Gene,andAlanKrueger,1993,"EnvironmentalImpactsofaNorthAmericanFreeTradeAgreement,"inTheU.
S.
-MexicoFreeTradeAgree-ment,PeterGarber,editor,MITPress.
72EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILGrossman,Gene,andAlanKrueger,1995,"EconomicGrowthandtheEnvi-ronment,"QuarterlyJournalofEconomics,110,no.
2,May:353-77.
Hanley,Nick,JasonShogren,andBenWhite,EnvironmentalEconomicsinTheoryandPractice,(Oxford:NewYork),1997.
Harbaugh,Willaim,ArikLevinson,andDavidMolloyWilson2001,"Reexam-ingtheEmpiricalEvidenceforanEnvironmentalKuznetsCurve,"NationalBureauofEconomicResearch,February27.
Hauser,Trevor;RobBradley;BrittChilds;JacobWerksman;andRobertHeil-mayr,2008,LevelingtheCarbonPlayingField:InternationalCompetitionandUSClimatePolicyDesign,(PetersonInstituteforInternationalEco-nomics:WashingtonDC.
Hilton,F.
G.
Hank,andArikLevinson,1998,"FactoringtheEnvironmentalKuznetsCurve:EvidencefromAutomotiveLeadEmissions,"JournalofEn-vironmentalEconomicsandManagement35,126-141.
Hoel,M.
1992,"InternationalEnvironmentConventions:TheCaseofUniformReductionsofEmissions,"EnvironmentalResearchEconomics2,141-159.
Hoel,M.
,1996,"ShouldaCarbonTaxBeDifferentiatedAcrossSectors"Jour-nalofPublicEconomics,59,17-32.
Holtz-Eakin,D.
andT.
Selden,1995,"StokingtheFiresCO2EmissionsandEconomicGrowth,"JournalofPublicEconomics,vol.
57,May,85-101.
Hufbauer,Gary,DanielEsty,DianaOrejas,LuisRubio,andJeffreySchott,2000,NAFTAandtheEnvironment:SevenYearsLater,PolicyAnalysesinInternationalEconomicsNo.
61,InstituteforInternationalEconomics:WashingtonDC.
InternationalPanelonClimateChange(2001),ThirdAssessmentReport--Cli-mateChange2001,WorkingGroupIII.
Jaffe,Adam,S.
R.
Peterson,PaulPortneyandRobertStavins,1995,"Environ-mentalRegulationandtheCompetitivenessofU.
S.
Manufacturing:WhatDoestheEvidenceTellUs"JournalofEconomicLiterature33,132-63.
Kahn,MatthewE.
andYutakaYoshino,2004,"TestingforPollutionHavensIn-sideandOutsideofRegionalTradingBlocs,"AdvancesinEconomicAnalysis&Policy4(2).
Kander,Astrid,andMagnusLindmark,2006,"Foreigntradeanddecliningpol-lutioninSweden:adecompositionanalysisoflong-termstructuralandtechnologicaleffects,"Energypolicy,vol.
34,no13,pp.
1590-1599Kellenberg,Derek,2008,"Areexaminationoftheroleofincomeforthetradeandenvironmentdebate,"EcologicalEconomics68,issue1-2:106-115EnvironmentalEffectsofInternationalTrade73Kennedy,P.
W.
,1994,"EquilibriumPollutionTaxesinOpenEconomicswithImperfectCompetition,"JournalofEnvironmentalEconomicsManagement,27,141-159.
Levinson,Arik,andScottTaylor,2008,"TradeandtheEnvironment:Unmask-ingthePollutionHavenEffect,"InternationalEconomicReview,49(1),223-254.
List,JohnA.
andDanielMillimet.
2004.
"TheCaseoftheMissingPollutionHavenHypothesis,"JournalofRegulatoryEconomics,2004,26,239-262.
Low,P.
,andA.
Yeats,1992,"Do'Dirty'IndustriesMigrate"inP.
Low,editor,InternationalTradeandtheEnvironment(TheWorldBank),89-104.
Lucas,RobertE.
B.
,DavidWheeler,andHememalaHettige,1992,"EconomicDevelopment,EnvironmentalRegulationandtheInternationalMigrationofToxicIndustrialPollution:1960-1988,"inPatrickLow,editor,Interna-tionalTradeandtheEnvironment,WorldBankDiscussionPapersno.
159(TheWorldBank:WashingtonDC).
Markusen,JamesR.
,1975,"InternationalExternalitiesandOptimalTaxStruc-tures,"JournalofInternationalEconomics,5,15-29.
McAusland,Carol.
2008,"Trade,Politics,andtheEnvironment:Tailpipevs.
Smokestack"JournalofEnvironmentalEconomicsandManagement55(1):52-71.
McKibbin,Warwick,andPeterWilcoxen,2008,"TheEconomicandEnvi-ronmentalEffectsofBorderAdjustmentsforClimatePolicy,"BrookingsConferenceonClimateChange,TradeandCompetitiveness:IsaCollisionInevitable,Washington,DC.
Mulatu,Abay,RaymondJ.
G.
M.
Florax,andCeesWithagen,2004,"Environ-mentalRegulationandInternationalTrade:EmpiricalResultsforGermany,theNetherlandsandtheUS,1977-1992"ContributionstoEconomicAnalysis&Policy3(2).
Neumayer,Eric,2002,"DoesTradeOpennessPromoteMultilateralEnviron-mentalCooperation"TheWorldEconomy25,no.
6,812-832.
Panayotou,Theo,1993,"EmpiricalTestsandPolicyAnalysisofEnvironmentalDegradationatDifferentStagesofDevelopment,"WorkingPaperWP238,TechnologyandEmploymentProgramme(InternationalLaborOffice:Ge-neva).
Panayotou,Theo,2000,"EconomicGrowthandtheEnvironment,"CenterforInternationalDevelopmentWorkingPaperNo.
56,HarvardUniversity.
74EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILPauwelyn,Joost,2007,"U.
S.
FederalClimatePolicyandCompetitivenessCon-cerns:TheLimitsandOptionsofInternationalTradeLaw,"WorkingPaperNo.
07-02,NicholasInstitute,DukeUniversity,April.
Petersen,Everett,andJoachimSchleich,2007Regibeau,PierreM.
andAlbertoGallegos.
2004.
"ManagedTrade,TradeLiberali-sationandLocalPollution,"AdvancesinEconomicAnalysis&Policy4(2).
Ruggie,John,2002,"Trade,SustainabilityandGlobalGovernance,"ColumbiaJournalofEnvironmentalLaw,vol27,297-307.
Sampson,Gary,Trade,Environment,andtheWTO:ThePost-SeattleAgenda,JohnsHopkinsUniversityPress(Baltimore),2000.
Sampson,Gary,1999,"WTORulesandClimateChange:TheNeedforPolicyCoherence,"inBradneeChambers,editor,GlobalClimateGovernance:AReportontheInter-LinkagesBetweentheKyotoProtocolandOtherMul-tilateralRegimes(Tokyo:UnitedNationsUniversity).
Schleich,Joachim.
1999,"EnvironmentalQualitywithEndogenousDomesticandTradePolicies,"EuropeanJournalofPoliticalEconomy15,no.
1,March:53-71.
Schulze,GuntherG.
andHeinrichW.
Ursprung,eds.
2001.
InternationalEnvi-ronmentalEconomics:Asurveyoftheissues(OxfordUniversityPress:Ox-ford),Chapter4.
Seidman,Laurence,andKennethLewis,2008,"CompensationandContribu-tionsUnderanInternationalCarbonTreaty,"UniversityofDelaware,Feb-ruary.
Selden,Thomas,andDaqingSong,1994,"EnvironmentalQualityandDevel-opment:IsThereaKuznetsCurveforAirPollutionEmissions,"JournalofEnvironmentalEconomicsandManagement27,147-162.
Shafik,Nemat,1994,"EconomicDevelopmentandEnvironmentalQuality:AnEconometricAnalysis,"OxfordEconomicPapers46,757-773.
Smarzynska-Javorcik,Beata,andShang-JinWei,2004,"PollutionHavensandForeignDirectInvestment:DirtySecretorPopularMythContributionstoEconomicAnalysis&Policy3(2).
NBERWorkingPaperNo.
8465,Sep-tember2004.
Smulders,Sjak.
DaanvanSoest,CeesWithagen.
2004.
"Internationaltrade,speciesdiversity,andhabitatconservation,"JournalofEnvironmentalEco-nomicsandManagement.
Stern,David,andMichaelCommon,2001,"IsThereanEnvironmentalKuznetsCurveforSulfur"JournalofEnvironmentalEconomicsandManagement,41,162-178EnvironmentalEffectsofInternationalTrade75Suri,Vivek,andDuaneChapman,1998,"EconomicGrowth,TradeandEn-ergy:ImplicationsfortheEnvironmentalKuznetsCurve,"EcologicalEco-nomics25,2,May,147-160.
Tobey,James,1990,"TheEffectsofDomesticEnvironmentalPoliciesonPat-ternsofWorldTrade:AnEmpiricalTest,"Kyklos43,191-209.
Ulph,A.
,1994,"EnvironmentalPolicyandInternationalTrade:ASurveyofRecentEconomicAnalysis,"FondazioneENIEnricoMatteiDiscussionPa-perNo.
53/94.
Vogel,David,1995,TradingUp:ConsumerandEnvironmentalRegulationinaGlobalEconomy,HarvardUniversityPress.
WorldBank,1992,DevelopmentandtheEnvironment,WorldDevelopmentRe-port.
Xing,Y.
andC.
Kolstad,1996,"EnvironmentandTrade:AReviewofTheoryandIssues"EconomicsDepartmentWorkingPaper2-96,UniversityofCali-fornia,SantaBarbara.
76EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILAppendixI-Addressingacritiqueoftheuseofthetrade/GDPmeasureinenvironmentalequationsSqualli(2008)arguesthatthemeasureof"openness"thatisusedinFrankel-Rose(2003)andKellenberg(2008)andtheseotherstudiesisnottheappropriatevariable.
Theword"openness"seemstocon-notedeliberatepolicydecisions,suchasremovaloftariffs.
Squallipointsout,correctly,thattrade/GDPratiosdon'tcapturethisnotionofopenness,andinparticularthatlargecountriessuchastheUnitedStates,Japan,ChinaandGermanyrankverylowonthelistbythismeasure,eventhoughtheyareamongthemoreliberalizedofcoun-tries.
Hewantstomodifythetrade/GDPratiobymultiplyingitbythecountry'sshareofworldtrade,withtheresultthatlargecountriesarenotpenalized,andonlythenputtheresultingvariable("compositetradeshare")intotheenvironmentalequation.
Butheappearstohavewanderedastray.
Itiswell-knownthatcountries'trade/GDPratiosdependinverselyontheirsize(smallercountriesaremoredependentontradebecausetheylackbothalargeenoughinternalmarkettoexploiteconomiesofscaleanddiverseenoughfactorendowmentstomanagewithoutcompara-tive-advantage-basedtrade).
Itisalsowell-knownthatcountries'trade/GDPratiosdependongeographicdeterminantssuchaslandlockedness,remotenessfromtheworld'smajoreconomies,andsoforth.
Onecouldtrytoadjustforallthesefactorsifonetrulywantedameasureofoveralltradepolicy.
Butrecallthatthedebateisbetweenthehypothesisthathigh-tradecountriesexperiencedownwardpressureonenvironmentalregulationduetocompetitivenessconcerns(racetothebottom)andthehypothesisthathigh-tradecountriesenjoypositiveenvironmentalbenefitssuchasinnovation(gainsfromtrade).
Itdoesnotmatterforthispurposewhethertheleveloftradeisthewayitisduetocountrysize,geography,ordeliberatefree-tradepolicy.
EnvironmentalEffectsofInternationalTrade77AppendixIIEstimationofDeterminantsofEnvironmentalDegradationfor1995,2000and20041.
F-R'04:theFrankel&Rose(2004)result2.
F-R'08:updatewithPennWorldTable6.
2,andnewenvironmentaldata:3.
NewCO2countryemissiondatafromWBWDI----NationalCO2emissions(metrictonspercapita)4.
NewSO2countryemissiondata:fromWRIandEDGAR----NationalSO2emissions(metrictonsp.
c.
)5.
NewPM10countryleveldata:fromWBWDI----PM10countrylevel(microgramspercubicmeter)6.
WaterPollution:fromWBWDIOrganicwaterpollutantemissions(kgperdaypercapita)Standarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table5:DeterminationofEnvironmentalDegradation,OLSandIV,1995(1)(2)(3)(4)(5)(6)(7)(8)VARIABLESCO2CO2PM10WaterCO2SO2PM10WaterOLSIVTrade/GDP0.
003*0.
000-0.
0000.
0020.
020**0.
005-0.
0000.
009(0.
002)(0.
002)(0.
001)(0.
002)(0.
008)(0.
007)(0.
005)(0.
008)LogrealGDPpercapita-2.
544*0.
3900.
3942.
569***2.
545*-0.
1440.
4232.
324**(1.
291)(0.
839)(0.
525)(0.
896)(1.
341)(1.
109)(0.
768)(0.
884)LogrealGDPp/csquared-0.
0740.
032-0.
039-0.
113**-0.
0780.
060-0.
040-0.
106**(0.
077)(0.
050)(0.
032)(0.
052)(0.
079)(0.
066)(0.
045)(0.
052)Polity(democracy)0.
000-0.
0050.
0010.
019**0.
0050.
004-0.
0030.
059***(0.
009)(0.
006)(0.
003)(0.
009)(0.
008)(0.
006)(0.
004)(0.
019)LogofAreapercapita-0.
0020.
142***-0.
0150.
0086*0.
1080.
182***-0.
015-0.
025(0.
067)(0.
054)(0.
041)(0.
049)(0.
077)(0.
065)(0.
045)(0.
090)Observations152153152911311321318478EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILStandarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table6:DeterminationofEnvironmentalDegradation,2000(1)(2)(3)(4)(5)(6)(7)(8)VARIABLESCO2CO2PM10WaterCO2CO2SO2PM10OLSIVTrade/GDP0.
0020.
001-0.
0020.
0020.
0060.
002-0.
0020.
013(0.
001)(0.
002)(0.
001)(0.
002)(0.
004)(0.
005)(0.
003)(0.
009)LogrealGDPpercapita3.
084***0.
0570.
2395.
719***2.
895***-0.
4830.
4665.
373***(0.
753)(0.
972)(0.
561)(1.
633)(0.
837)(1.
002)(0.
650)(1.
484)LogrealGDPp/csquared-0.
105**0.
045-0.
027-0.
283***-0.
095*0.
076-0.
040-0.
271***(0.
044)(0.
057)(0.
034)(0.
089)(0.
049)(0.
059)(0.
038)(0.
084)Polity(democracy)-0.
005-0.
0000.
0000.
021*-0.
0010.
003-0.
0010.
037*(0.
004)(0.
006)(0.
002)(0.
012)(0.
004)(0.
004)(0.
003)(0.
021)LogofAreapercapita-0.
0190.
139**-0.
002-0.
095*0.
0500.
163***-0.
0070.
073(0.
055)(0.
060)(0.
040)(0.
050)(0.
050)(0.
060)(0.
039)(0.
150)Observations1531561566814915215268EnvironmentalEffectsofInternationalTrade79Standarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table7:DeterminationofEnvironmentalDegradation,OLSandIV,2004(1)(2)(3)(4)VARIABLESCO2SO2PM10WaterTrade/GDP0.
001-0.
0010.
001-0.
005(0.
001)(0.
002)(0.
007)(0.
007)LogrealGDPpercapita2.
242*0.
2862.
591**0.
450(1.
148)(0.
981)(1.
122)(1.
043)LogrealGDPp/csquared-0.
062-0.
036-0.
081-0.
043(0.
065)(0.
055)(0.
064)(0.
059)Polity(democracy)0.
0070.
0050.
0060.
004(0.
007)(0.
005)(0.
009)(0.
006)LogofAreapercapita-0.
039-0.
064-0.
034-0.
137(0.
068)(0.
073)(0.
145)(0.
145)Observations6869676880EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILStandarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
11.
F-R'04:theFrankel&Rose(2004)result2.
F-R'08:updatewithPennWorldTable6.
2,andnewenvironmentaldata:3.
NewCO2countryemissiondatafromWBWDI----NationalCO2emissions(metrictonspercapita)4.
NewSO2countryemissiondata:fromWRIandEDGAR----NationalSO2emissions(metrictonsp.
c.
)5.
NewPM10countryleveldata:fromWBWDI----PM10countrylevel(microgramspercubicmeter)6.
WaterPollution:fromWBWDIOrganicwaterpollutantemissions(kgperdaypercapita)Table1A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,OLS,1990(1)(2)(3)(4)(5)(6)(7)VARIABLESCO2,'04CO2,*08SO2,'04SO2,'08PM,'04PM10,'08WaterEmis'08Trade/GDP0.
017**-0.
001-0.
306***0.
002-0.
3740.
001-0.
000(0.
008)(0.
002)(0.
079)(0.
002)(0.
337)(0.
001)(0.
001)LogrealGDPpercapita-17.
879***0.
133287.
250**-11.
086566.
6519.
667-10.
848(4.
365)(12.
909)(118.
806)(11.
659)(336.
189)(7.
509)(9.
997)LogrealGDPp/csquared1.
329***0.
232-16.
584**1.
418-35.
566*-1.
1441.
430(0.
284)(1.
576)(6.
781)(1.
435)(19.
056)(0.
920)(1.
226)LogrealGDPp/ccubic-0.
012-0.
0550.
043-0.
058(0.
063)(0.
058)(0.
037)(0.
049)Polity(democracy)-0.
016*-0.
011**-6.
579***0.
002-6.
697*-0.
0010.
013***(0.
009)(0.
005)(2.
049)(0.
003)(3.
416)(0.
005)(0.
005)LogofAreapercapita0.
155-0.
091-2.
921**0.
154**-13.
024**-0.
015-0.
093(0.
155)(0.
101)(1.
394)(0.
067)(6.
292)(0.
039)(0.
076)Observations102130411323813186Appencix3:EstimationofDeterminantsofEnvironmentalDegradationAllowingCubicIncomeEnvironmentalEffectsofInternationalTrade81Standarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table2A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,1990,TradeIV(1)(2)(3)(4)(5)(6)(7)VARIABLESCO2,'04CO2,*08SO2,'04SO2,'08PM,'04PM10,'08WaterEmis'08Trade/GDP-0.
0110.
025**-0.
2200.
007-1.
3110.
004-0.
003(0.
022)(0.
012)(0.
394)(0.
008)(1.
012)(0.
006)(0.
007)LogrealGDPpercapita-15.
201***0.
010245.
369-22.
864578.
784**12.
040-10.
796(3.
462)(23.
716)(186.
551)(14.
525)(251.
316)(10.
170)(12.
969)LogrealGDPp/csquared1.
165***0.
084-14.
3352.
790-35.
826**-1.
4601.
460(0.
215)(2.
898)(10.
287)(1.
774)(14.
590)(1.
242)(1.
584)LogrealGDPp/ccubic-0.
001-0.
1080.
057-0.
061(0.
117)(0.
071)(0.
050)(0.
064)Polity(democracy)-0.
0220.
004-6.
265***0.
003-7.
242**0.
0000.
019*(0.
018)(0.
011)(2.
148)(0.
007)(2.
674)(0.
005)(0.
011)LogofAreapercapita0.
0320.
069-0.
7480.
209***-16.
548*0.
012-0.
137(0.
234)(0.
109)(7.
760)(0.
070)(9.
447)(0.
049)(0.
085)Observations9711738118351188082EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILStandarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table3A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,OLSandIV,1995(1)(2)(3)(4)(5)(6)(7)(8)VARIABLESCO2SO2PM10WaterCO2,IVSO2,IVPM10,IVWater,IVOLSIVTrade/GDP0.
003*0.
000-0.
0000.
0020.
020**0.
007-0.
0010.
009(0.
002)(0.
002)(0.
001)(0.
002)(0.
008)(0.
007)(0.
005)(0.
008)LogrealGDPpercapita-15.
904*-14.
543**9.
730**-1.
891-1.
683-42.
327***16.
805*7.
106(8.
856)(6.
326)(4.
229)(12.
066)(16.
704)(13.
227)(9.
317)(11.
320)LogrealGDPp/csquared2.
234**1.
899**-1.
206**0.
4250.
4345.
172***-2.
025*-0.
682(1.
091)(0.
793)(0.
540)(1.
436)(2.
023)(1.
601)(1.
128)(1.
361)LogrealGDPp/ccubic-0.
095**-0.
077**0.
048**-0.
021-0.
020-0.
204***0.
079*0.
023(0.
044)(0.
033)(0.
023)(0.
056)(0.
081)(0.
064)(0.
045)(0.
054)Polity(democracy)0.
003-0.
004-0.
0000.
018*0.
0050.
005-0.
0040.
059***(0.
009)(0.
006)(0.
003)(0.
010)(0.
008)(0.
006)(0.
004)(0.
019)LogofAreapercapita-0.
0150.
131**-0.
008-0.
089*0.
1070.
175***-0.
013-0.
026(0.
068)(0.
054)(0.
041)(0.
050)(0.
078)(0.
064)(0.
045)(0.
089)Observations1521531529113113213184EnvironmentalEffectsofInternationalTrade83Standarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table4A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,OLSandIV,2000(1)(2)(3)(4)(5)(6)(7)(8)VARIABLESCO2SO2PM10WaterCO2,IVSO2,IVPM10,IVWater,IVOLSIVTrade/GDP0.
0020.
001-0.
0020.
0020.
0060.
002-0.
0020.
014(0.
001)(0.
002)(0.
001)(0.
002)(0.
004)(0.
005)(0.
003)(0.
009)LogrealGDPpercapita4.
041-13.
18812.
560**13.
8540.
698-20.
389*13.
847**26.
492(8.
882)(10.
973)(6.
169)(18.
493)(9.
262)(10.
796)(7.
000)(23.
528)LogrealGDPp/csquared-0.
2211.
651-1.
521**-1.
2400.
1712.
488*-1.
661*-2.
757(1.
077)(1.
330)(0.
760)(2.
116)(1.
116)(1.
302)(0.
844)(2.
774)LogrealGDPp/ccubic0.
005-0.
0640.
060*0.
037-0.
011-0.
096*0.
065*0.
096(0.
043)(0.
053)(0.
031)(0.
080)(0.
044)(0.
052)(0.
034)(0.
108)Polity(democracy)-0.
0050.
001-0.
0000.
023**-0.
0010.
004-0.
0010.
043*(0.
004)(0.
006)(0.
002)(0.
012)(0.
004)(0.
004)(0.
003)(0.
024)LogofAreapercapita0.
0190.
133**0.
003-0.
092*0.
0490.
154**-0.
0010.
090(0.
055)(0.
061)(0.
039)(0.
047)(0.
050)(0.
060)(0.
039)(0.
162)Observations153156156681491521526884EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILStandarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table5A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,2004(1)(2)(3)(4)VARIABLESCO2PM10CO2PM10Trade/GDP0.
001-0.
0010.
000-0.
005(0.
001)(0.
002)(0.
007)(0.
007)LogrealGDPpercapita-11.
7097.
967-7.
8017.
782(16.
796)(10.
527)(15.
219)(13.
826)LogrealGDPp/csquared1.
592-0.
9481.
148-0.
911(1.
989)(1.
253)(1.
795)(1.
635)LogrealGDPp/ccubic-0.
0650.
036-0.
0480.
034(0.
078)(0.
049)(0.
070)(0.
064)Polity(democracy)0.
0120.
0030.
0100.
002(0.
009)(0.
006)(0.
010)(0.
007)LogofAreapercapita-0.
046-0.
060-0.
047-0.
130(0.
072)(0.
073)(0.
146)(0.
148)Observations68696768EnvironmentalEffectsofInternationalTrade85Standarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table6A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,Panel(1)(2)(3)(4)(5)(6)(7)(8)VARIABLESCO2SO2PM10WaterCO2,FESO2PM10,IVWaterRandomEffectsFixedEffects,TimeTrade/GDP0.
002***-0.
000-0.
000-0.
0010.
002***-0.
0000.
001***0.
000(0.
000)(0.
001)(0.
000)(0.
000)(0.
000)(0.
001)(0.
000)(0.
001)LogrealGDPpercapita-2.
518***-4.
9500.
833-16.
761***-0.
4383.
9941.
669**-12.
169***(0.
913)(4.
038)(0.
832)(2.
552)(0.
899)(4.
524)(0.
653)(2.
579)LogrealGDPp/csquared0.
475***0.
655-0.
0642.
215***0.
181-0.
572-0.
245***1.
538***(0.
112)(0.
505)(0.
104)(0.
304)(0.
111)(0.
579)(0.
082)(0.
307)LogrealGDPp/ccubic-0.
022***-0.
025-0.
000-0.
093***-0.
009*0.
0260.
011***-0.
061***(0.
043)(0.
053)(0.
031)(0.
080)(0.
044)(0.
052)(0.
034)(0.
108)Polity(democracy)0.
0000.
002-0.
000-0.
0010.
0010.
0020.
000-0.
000(0.
000)(0.
002)(0.
000)(0.
001)(0.
000)(0.
002)(0.
000)(0.
001)LogofAreapercapita-0.
341***0.
101*0.
500***-0.
003-0.
669***-1.
088**-0.
105**-0.
684***(0.
020)(0.
052)(0.
027)(0.
035)(0.
050)(0.
434)(0.
053)(0.
098)Observations536944121471951536944121471951Numberofcid15715815813615715815813686EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCILStandarderrorsinparentheses.
***p<0.
01,**p<0.
05,*p<0.
1Table7A:Cubic-IncomeDeterminantsofEnvironmentalDegradation,5yearPanel(1)(2)(3)(4)(5)(6)(7)(8)VARIABLESCO2SO2PM10WaterCOSO2PM10,IVWaterRandomEffectsFixedEffects,TimeTrade/GDP0.
002***0.
001-0.
001-0.
0000.
003***0.
0010.
001*0.
001(0.
001)(0.
001)(0.
001)(0.
001)(0.
001)(0.
002)(0.
000)(0.
001)LogrealGDPpercapita-5.
870***-4.
0802.
177-19.
306***-1.
1678.
5322.
026-15.
108**(2.
184)(6.
517)(2.
877)(5.
216)(2.
197)(7.
679)(2.
057)(5.
879)LogrealGDPp/csquared0.
923***0.
604-0.
2282.
536***0.
281-0.
992-0.
2921.
803***(0.
267)(0.
793)(0.
351)(0.
621)(0.
270)(0.
938)(0.
251)(0.
694)LogrealGDPp/ccubic-0.
040***-0.
0250.
006-0.
106***-0.
0130.
0380.
014-0.
069**(0.
011)(0.
032)(0.
014)(0.
024)(0.
011)(0.
038)(0.
010)(0.
027)Polity(democracy)0.
0010.
002-0.
001-0.
0010.
003*0.
0040.
000-0.
000(0.
001)(0.
003)(0.
001)(0.
002)(0.
001)(0.
003)(0.
001)(0.
002)LogofAreapercapita-0.
174***0.
107**0.
123***-0.
074*-0.
663***-1.
911***-0.
425***-0.
774***(0.
035)(0.
053)(0.
037)(0.
043)(0.
110)(0.
429)(0.
115)(0.
208)Observations11184634634941118463463494Numberofcid157158158136157158158136EnvironmentalEffectsofInternationalTrade8788EXPERTREPORTNO.
31TOSWEDEN'SGLOBALISATIONCOUNCIL