Trade Costs, CO2, and the Environment

This paper quantifies how international trade affects CO 2 emissions and analyzes the welfare consequences of regulating the CO 2 emissions from shipping. To this end, the paper describes a model of trade and the environment, compiles new data on the CO 2 emissions from shipping, and estimates key parameters using panel data regressions. Results show that the benefits of international trade exceed trade's environmental costs due to CO 2 emissions by two orders of magnitude. While proposed regional carbon taxes on the CO 2 emissions from shipping would increase global welfare and increase the implementing region's GDP, they would also harm poor countries. (JEL F18, H23, H87, L92, Q54, Q56)