International Trade and the Environment

The project addresses the trade-environment nexus from 3 different angles: the impact of environmental commitments in modern preferential trade agreements on overall trade, on the composition of trade flows as well as on welfare; their impact on CO2 emission levels embodied in traded goods, and the trade-related consequences from internalising environmental costs of international transport. It adds to a still scant empirical literature on these issues and presents new empirical findings based on new methodological approaches. The analysis accounts for the heterogeneity of environmental commitments in preferential trade agreements by introducing a new categorisation of environmental provisions that explicitly focuses on the legal enforceability of such measures. Our work on transport externalities, for the first time, links work on the quantification of external costs of transport to international trade and allows to quantify the real income effects from internalising the costs of CO2 emissions in international trade activities. The methodology combines structural gravity estimation of trade elasticities with a general equilibrium trade model.