FEEM Research Seminar on “Market Structure and the Environmental Implications of Trade Liberalization: Russia’s Accession to the World Trade Organization”
12:00 - 13:30
This seminar has received funding from the People Programme (Marie Curie Actions) of the European Union's Seventh Framework Programme FP7-PEOPLE-2013-IRSES under REA grant agreement n° 609642 and is based on a paper co-authored by Christoph Böhringer, Thomas F. Rutherford, David G. Tarr and Natalia Turdyeva.
We investigate the environmental impacts of Russia’s WTO accession with a computable general equilibrium model of the Russian economy in which we track emissions of CO2 and six other pollutants. Our model assesses environmental impacts in a framework which represents imperfectly competitive firms, foreign direct investment, endogenous productivity effects and emissions. Decomposition of model results reveals that despite the fact that WTO accession allows Russia to reduce pollution through “technique effects,” accession can increase environmental pollution due to a shift toward dirty industries (the “composition effect”) and an expansion of output and pollution (the “scale effect”). Environmental impacts from of trade reform are far more pronounced in an increasing returns to scale (IRTS) model as compared to a constant returns to scale (CRTS) which are commonly adopted for analysis of trade and environmental policies. Given Russia’s commitment to combat climate change, we evaluate three complementary policies to limit CO2 emissions along with WTO accession: cap and trade; emission intensity standards; and energy efficiency standards. With the IRTS model, there are net gains from WTO accession combined with any of our three policies. With a more traditional CRTS model, however, there are no net gains from WTO accession combined with the two less efficient emission abatement regulations. Gains from trade liberalization in the IRTS framework are sufficiently great that trade liberalization can pay for substantial decreases in pollution.