“Multiple Dividends with Climate Change Policies: Evidence …
107
analyse the change in carbon intensity of GDP and trade, and eventually to break
down the total change in CO 2 emissions in the three effects (scale, composition and
technique) for a better understanding of this ETR.
Thus, first comparing the CO 2 emission change rate with the GDP growth rate, we
can say that the carbon intensity of GDP has fallen even when total CO 2 emissions
slightly increase under the EGA. This result is preferred to the reduction in total
CO 2 emissions at the expense of GDP, trade or employment costs as observed when
applying a carbon tax under unemployment conditions (also assumed here) without
any tax compensation (Fig. 3).
Figure 6 makes it possible to analyse the EGS trade liberalization scenario in
terms of carbon intensity and socio-economic dividends. Pointing out the different
technological assumptions, we can see that when the use of latent greener technologies is allowed, the impact on the socio-economic dividends magnifies. The change
in technology to a less polluting one makes it possible to identify a technique effect
(−2.24%), which, added to the composition effect (−2.51%) induced by the change
in relative prices between EGS- and non-EGS products, counterbalances almost 60%
of the scale effect (8.58%) due to a greater level of activity.
Like in the carbon tax scenarios, the degree of capital mobility across sectors
also impacts on the results. Greater inter-sectoral capital mobility combined with
latent ecological technologies retains the increase in all indicators (even in total CO 2
emissions); however, the relation between CO 2 emission and GDP growth rates still
favours GDP leading to a less carbon-intensive economy. This effect is due to the
easy capital reallocation to the EGS sectors which also require foreign capital when
installing the greener technology. In this case, the addition of the composition and
technique effects (−5.51% and −1.45%, respectively), which reduces emissions,
compensates almost the entire scale effect (6.65%) that increases them.
Even though the scenarios with latent technologies are preferable in terms of
lower carbon intensity (Fig. 6), the increase in exports reveals an important pressure
on the external balance to finance the foreign new technology (19% increase in real
exports). This pressure is reduced when allowing for a freer allocation of capital
across sectors but remains high anyway (13.7% increase in exports). This external
result could be the real constraint for the signature of an EGA by countries like
Argentina.
In short, we can say that a trade reform based on an environmental purpose, such
as the EGA, could appear as an ETR option for developing economies to maximize
socio-economic dividends while retaining the carbon emission increase, only if the
need for exports to finance the imported technology remains reasonable.
Main Findings and Final Remarks
There is no doubt that we have to fight climate change. We have the alternative
of reducing emissions or protecting our welfare with more adaptation to its consequences. But the cost of reducing emissions reveals itself as higher than expected,
107
analyse the change in carbon intensity of GDP and trade, and eventually to break
down the total change in CO 2 emissions in the three effects (scale, composition and
technique) for a better understanding of this ETR.
Thus, first comparing the CO 2 emission change rate with the GDP growth rate, we
can say that the carbon intensity of GDP has fallen even when total CO 2 emissions
slightly increase under the EGA. This result is preferred to the reduction in total
CO 2 emissions at the expense of GDP, trade or employment costs as observed when
applying a carbon tax under unemployment conditions (also assumed here) without
any tax compensation (Fig. 3).
Figure 6 makes it possible to analyse the EGS trade liberalization scenario in
terms of carbon intensity and socio-economic dividends. Pointing out the different
technological assumptions, we can see that when the use of latent greener technologies is allowed, the impact on the socio-economic dividends magnifies. The change
in technology to a less polluting one makes it possible to identify a technique effect
(−2.24%), which, added to the composition effect (−2.51%) induced by the change
in relative prices between EGS- and non-EGS products, counterbalances almost 60%
of the scale effect (8.58%) due to a greater level of activity.
Like in the carbon tax scenarios, the degree of capital mobility across sectors
also impacts on the results. Greater inter-sectoral capital mobility combined with
latent ecological technologies retains the increase in all indicators (even in total CO 2
emissions); however, the relation between CO 2 emission and GDP growth rates still
favours GDP leading to a less carbon-intensive economy. This effect is due to the
easy capital reallocation to the EGS sectors which also require foreign capital when
installing the greener technology. In this case, the addition of the composition and
technique effects (−5.51% and −1.45%, respectively), which reduces emissions,
compensates almost the entire scale effect (6.65%) that increases them.
Even though the scenarios with latent technologies are preferable in terms of
lower carbon intensity (Fig. 6), the increase in exports reveals an important pressure
on the external balance to finance the foreign new technology (19% increase in real
exports). This pressure is reduced when allowing for a freer allocation of capital
across sectors but remains high anyway (13.7% increase in exports). This external
result could be the real constraint for the signature of an EGA by countries like
Argentina.
In short, we can say that a trade reform based on an environmental purpose, such
as the EGA, could appear as an ETR option for developing economies to maximize
socio-economic dividends while retaining the carbon emission increase, only if the
need for exports to finance the imported technology remains reasonable.
Main Findings and Final Remarks
There is no doubt that we have to fight climate change. We have the alternative
of reducing emissions or protecting our welfare with more adaptation to its consequences. But the cost of reducing emissions reveals itself as higher than expected,