On the Interaction between Trade Liberalization of Environmental Goods and Services and the Factor markets when reducing CO2 Emissions: A CGE evaluation for Argentina, Brazil and Chile

MARIA PRISCILA RAMOS; OMAR OSVALDO CHISARI

Cordoba y La Cumbre

Conferencia; XIV Arnoldshain Seminar; 2016

The 2001 Doha Declaration singled out trade liberalization of EnvironmentalGoods and Services (EGS) as a way to achieve sustainable development bycreating a triple-win situation for trade, development, and the environment.We use CGE models to evaluate the consequences of tariffs eliminations onEGS for three upper-middle income Latin American countries (Argentina,Brazil and Chile), under different assumptions of the functioning of thelabor market (full employment, constant nominal wages and constant realwages with unemployment) and also on different degrees of capital mobility.Our main results show that there is a trade-off between the labor marketworkings and the impact on carbon emissions through tariffs elimination onEGS, without a unique pattern of behavior across countries when addinggreater capital mobility. Following Brock and Taylor [1], we also decomposethe change in carbon emissions in the scale and the composition effects. Wefind that mitigation of climate change through the tariff cuts on EGS mainlycomes from changes in the composition effect rather than the scale effectwhich continue to increase under trade liberalization. A greater compositioneffect in most of countries could become compatible a the carbon reductionobjective with a lower unemployment, where a greater proportion of mobilecapital across sectors could help in this process to a greener economy.