Environmental and Resource Economics: A Canadian Retrospective
B. Copeland and M. Scott Taylor
Canadian Journal of Economics, Vol. 50(5), December 2017, 1381-1413.
This paper gives a brief overview of contributions to environmental and resource economics in Canada. We concentrate on work from the past 25 years, but we also highlight earlier pathbreaking work. Canadians have made fundamental contributions to many aspects of the field, especially in resource economics, non-market valuation, and international environmental economics. Our focus is on academic work by scholars in Canada,1 but we put this in the context of the development of the field internationally. Given space constraints, we cannot be comprehensive and so the review discusses big picture trends, along with a selective overview of leading contributions. We also had to limit the scope of the article and so do not cover energy economics and mainly consider fisheries when discussing renewable resource economics.
Important related work:
Arrow, K. and A. C. Fisher (1974) “Environmental preservation, uncertainty, and irreversibility,” Quarterly Journal of Economics 88:312-319.
Aufhammer, M. (2009) “The Field of Environmental and Resource Economics: A Google Scholar Perspective,” Review of Environmental Economics and Policy 3(2), 251-69.
Barrett, S. (1994) “Strategic environmental policy and international trade,” Journal of Public Economics 54(3), 325-38.
Broadway, R., and M. Keen (2010) “Theoretical perspectives on resource tax design,” The Taxation of Petroleum and Minerals: Principles, Problems, and Practice 24, 13-74.
Böhringer, Christoph, Jared C. Carbone and Thomas F. Rutherford (2016) “The Strategic Value of Carbon Tariffs,” American Economic Journal: Economic Policy, 8(1), 28-51.
Grossman, G.M., and A. B. Krueger (1993) “Environmental impacts of a North American free trade agreement,” The Mexico-U.S. free trade agreement, ed. Peter M. Garber. Cambridge, MA: MIT Press.
Hendricks, K., R. Porter and C. A. Wilson (1994) “Auctions for Oil and Gas Leases with an Informed Bidder and a Random Reservation Price,” Econometrica, 62(6) 1415-44.
Shapiro, J.S., and R. Walker (2015) “Why is pollution from U.S. manufacturing declining? The roles of trade, regulation, productivity, and preferences,” NBER Working Paper 20879.
Trade and the Environment: New Methods, Measurements, and Results*
J. Cherniwchan, B. Copeland, and M. Scott Taylor
The Annual Review of Economics, Vol. 9, August 2017, 59-85.
We review recent research linking international trade to the environment, with a focus on new results and methods. The review is given structure by a novel decomposition linking changes in emissions to changes in productive activity at the plant, firm, industry, and national levels. While some new results have emerged from the application of a Melitz-style approach to trade and the environment, its full potential has not yet been exploited. We discuss existing empirical and theoretical work, introduce three new hypotheses, and suggest paths for future researchers to follow.
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Unmasking the Pollution Haven Effect
A. Levinson and M. Scott Taylor
International Economic Review, Vol. 49, No. 1, February 2008, 223-254.
We use theory and empirics to examine the effect of environmental regulations on trade flows. A simple model demonstrates how unobserved heterogeneity, endogeneity, and aggregation issues bias standard measurements of this relationship. A reduced-form estimate of the model, using data on U.S. regulations and trade with Canada and Mexico for 130 manufacturing industries from 1977 to 1986, indicates that industries whose abatement costs increased most experienced the largest increases in net imports. For the average industry, the change in net imports we ascribe to regulatory costs amounting to 10% of the total increase in trade volume over the period.
Important related work:
Becker, R. A., and J. V. Henderson (2000) “Effects of Air Quality Regulations on Polluting Industries,” Journal of Political Economy, 108, 379-421.
Feenstra, R. C. (1996) “NBER Trade Database, Disk1: U.S. Imports, 1972-1994: Data and Concordances,” NBER Working Paper 5515.
Greenstone, M. (2002) “The Impacts of Environmental Regulations on Industrial Activity: Evidence from the 1970 and 1977 Clean Air Acts and the Census of Manufactures,” Journal of Political Economy, 110, 1175-219.
Jaffe, A. B., S. R. Peterson, P. R. Portney, and R. N. Stavins (1995) “The Industrial Pollution Projection and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?” Journal of Economic Literature, 33, 132-63.
List, J. A., W. W. McHone, D. L. Millimet, and P. G. Frederiksson (2003) “Effects of Environmental Regulations on Manufacturing Plant Births: Evidence From a Propensity Score Matching Estimator,” Review of Economics and Statistics, 85, 944-52.
Free Trade and Global Warming: A Trade Theory View of the Kyoto Protocol
B. Copeland and M. Scott Taylor
Journal of Environmental Economics and Management, Vol. 49, No. 2, March 2005, 205-234.
This paper demonstrates how several important results in environmental economics, true under mild conditions in closed economies, are false or need serious amendment in a world with international trade in goods. Since the results we highlight have framed much of the ongoing discussion and research on the Kyoto protocol, our viewpoint from trade theory suggests a re-examination may be in order. Specifically, we demonstrate that in an open trading world, but not in a closed economy setting:(1) unilateral emission reductions by the rich North can create self-interested emission reductions by the unconstrained poor South; (2) simple rules for allocating emission reductions across countries (such as uniform reductions) may well be efficient even if international trade in emission permits is not allowed; and (3) when international emission permit trade does occur it may make both participants in the trade worse off and increase global emissions.
Important related work:
Andreoni, J. (1988) “Privately provided public goods in a large economy: the limits of altruism,” Journal of Public Economics, 35, 57-73.
Barrett, S. (1994) “Self-Enforcing International Environmental Agreements,” Oxford Economics Papers, 46, 878-94.
Card, D. “The Impact of the Mariel Boatlift on the Miami Labor Market,” Industrial and Labor Relations Review, 43, 245-257.
Fullerton, D. and G. E. Metcalf (1997) “Environmental Taxes and the Double-Dividend hypothesis: did you really expect something for nothing,” NBER Working Papers 6199.
Goulder, L. (1995) “Environmental taxation and the double dividend: a reader’s guide,” International Tax and Public Finance, 157-83.
Manne, A. S. and R. G. Richels (1991) “Global CO2 emission reductions: the impacts of rising energy costs,” Energy, 12, 87-107.
Unbundling the Pollution Haven Hypothesis
M. Scott Taylor
Advances in Economic Analysis and Policy, Vol. 4, No. 2, February 2004, 1-26.
The “Pollution Haven Hypothesis” (PHH) is one of the most hotly debated predictions in all of international economics. This paper explains the theory behind the PHH by dividing the hypothesis into a series of logical steps linking assumptions on exogenous country characteristics to predictions on trade flows and pollution levels. I then discuss recent theoretical and empirical contributions investigating the PHH to show how each contribution either questions the logical inevitability, or the empirical significance of one or more steps in the pollution haven chain of logic. Suggestions for future research are also provided.
Important related work:
Barrett, S (1994) “Strategic Environmental Policy and International Trade,” Journal of Public Economics, 54(3), 325-38.
Heal, G (1994) “Formation of International Environmental Agreements,” Trade, Innovation, Environment, ed. C. Carraro, Dordrecht, Netherlands: Kluwer Academic Publishers.
Kahn, M. E. and Y. Yoshino (2004) “Testing the Pollution Havens Hypothesis Inside and Outside of Regional Trading Blocs,” Advances in Economic Analysis and Policy, 4(2), article 4.
Levinson, A (1996) “Environmental Regulations and Industry Location: International and Domestic Evidence,” Fair Trade and Harmonization: Prerequisites for Free Trade, eds. J. N. Bhagwati and R. E. Hudec, Cambridge, MA: MIT Press.
Trade and the Environment: Theory and Evidence
B. Copeland, and M. Scott Taylor
Princeton University Press, eds. Gene M. Grossman and Oliver Gourinchas, Princeton, July 2003.
Is Free Trade Good for the Environment?
W. Antweiler, B. Copeland, and M. Scott Taylor
American Economic Review, Vol. 91, No. 4, September 2001, 877-908.
This paper investigates how openness to international goods markets affects pollution concentrations. We develop a theoretical model to divide trade's impact on pollution into scale, technique, and composition effects and then examine this theory using data on sulfur dioxide concentrations. We find international trade creates relatively small changes in pollution concentrations when it alters the composition of national output. Estimates of the trade-induced technique and scale effects imply a net reduction in pollution from these sources. Combining our estimates of all three effects yields a somewhat surprising conclusion: freer trade appears to be good for the environment.
Trade and Transboundary Pollution
B. Copeland and M. Scott Taylor
American Economic Review, Vol. 85, No. 4, September 1995, 716-737.
This paper examines how national income and trading opportunities interact to determine the level and incidence of world pollution. The authors find that free trade raises world pollution if incomes differ substantially across countries; if trade equalizes factor prices, human-capital-abundant countries lose from trade, while human-capital-scarce countries gain; international trade in pollution permits can lower world pollution even when governments' supply of permits is unrestricted; international income transfers may not affect world pollution or welfare; and attempts to manipulate the terms of trade with pollution policy leave world pollution unaffected.
Important related work:
Bergstrom, T. C., Lawrence Blume and Hal R. Varian (1986) “On the Private Provision of Public Goods,” Journal of Public Economics, 29(1), 25-49.
Dean, J. M. (1992) “Trade and the Environment: A Survey of the Literature,” International trade and the environment, ed. Patrick Low, Washington, DC: World Bank.
Dixit, A. and Victor Norman (1980) Theory of international trade. Cambridge, MA: Cambridge University Press.
Dornbusch, R., Samuel Fischer, and Paul Samuelson (1980) “Heckscher-Ohlin Trade Theory with a Continuum of Goods,” Quarterly Journal of Economics, 95(2), 203-24.
Trade and the Environment: A Partial Synthesis
B. Copeland and M. Scott Taylor
American Journal of Agricultural Economics, Vol. 77, No. 3, August 1995, 765-771.
There is an emerging consensus in the environmentalist community opposing free trade. While some economics view this as simple another outlet for protectionism, recent work has begun to move beyond the rhetoric to probe more deeply into the theoretical and empirical relationships between international trade and environmental quality. The purpose of the present paper is twofold. We first integrate some of the existing literature by using the simple concepts of general equilibrium pollution supply and demand. Our survey of the trade and environment literature is more analytical, but admittedly less comprehensive, than those of Dean; and Beghin, Roland-Holst, and van der Mensbrugghe. In conducting the survey we find that under a wide variety of assumptions about the institutional response to pollution, the theoretical models predict that (all else equal), pollution-intensive industries tend to migrate to countries with weaker pollution regulations.
North-South Trade and the Environment
B. Copeland and M. Scott Taylor
Quarterly Journal of Economics, Vol. 109, No. 3, August 1994, 755-787.
A simple static model of North-South trade is developed to examine linkages between national income, pollution, and international trade. Two countries produce a continuum of goods, each differing in pollution intensity. We show that the higher income country chooses stronger environmental protection, and specializes in relatively clean goods. By isolating the scale, composition, and technique effects of international trade on pollution, we show that free trade increases world pollution, an increase in the rich North's production possibilities increases pollution, while similar growth in the poor. South lowers pollution, and unilateral transfers from North to South reduce worldwide pollution.
Important related work:
Baumol, W. J. and Wallace E. Oates (1988) The Theory of Environmental Policy, Cambridge: Cambridge University Press.
Grossman, G. M. and Alan B. Krueger (1991) “Environmental Impacts of a North American Free Trade Agreement,” NBER Working Paper No. 3941.
Lucas, R. E. B., David Wheeler, and Hemamala Hettige (1992) “Economic Development, Environmental Regulation and the International Migration of Toxic Industrial Pollution: 1960-1968,” International Trade and the Environment: World Bank Discussion Papers, ed. Patrick Low, Washington, DC: World Bank.
International Trade and the Environment: A Framework for Analysis
B. Copeland and M. Scott Taylor
The National Bureau of Economic Research, Working Paper No: 8540, January 2001.
This paper sets out a general equilibrium pollution and trade model to provide a framework for examination of the trade and environment debate. The model contains as special cases a canonical pollution haven model as well as the standard Heckscher-Ohlin-Samuelson factor endowments model. We draw quite heavily from trade theory, but develop a simple pollution demand and supply system featuring marginal abatement cost and marginal damage schedules familiar to environmental economists. We have intentionally kept the model simple to facilitate extensions examining the environmental consequences of growth, the impact of trade liberalization, and strategic interaction between countries.
A Simple Model of Trade, Capital Mobility, and the Environment
B. Copeland and M. Scott Taylor
The National Bureau of Economic Research, Working Paper No: 5898, January 1997.
This paper examines the interaction between relative factor abundance and income-induced policy differences in determining the pattern of trade and the effect of trade liberalization on pollution. If a rich and capital abundant North trades with a poor and labor abundant South, then free trade lowers world pollution. Trade shifts the production of pollution intensive industries to the capital abundant North despite its stricter pollution regulations. Pollution levels rise in the North while those in the South fall. These results can be reversed however if the North-South income gap is "too large," in this case, the pattern of trade is driven by income-induced pollution policy differences across countries. Capital mobility may raise or lower world pollution depending on the pattern of trade.