Working Papers in Economics, Department of Economics, University of Bergen
Interaction between trade liberalization and climate change policy: an application to Norwegian agriculture
(), Ivar Gaasland
() and Erling Vårdal
Abstract: We examine strategies for complying with trade
liberalization and GHG emission cuts in agriculture using Norway as an
empirical example. Trade liberalization implied by the Doha draft agreement
on agriculture in the WTO will not have a major impact on the sector’s
Trade missions, since the likely impact on production is small.
Consequently, more effective trade liberalization or the imposition of
carbon taxes are required if emissions are to be reduced significantly.
Both of these policy options reduce agricultural activity (trade
liberalization more so than carbon taxes) and increase economic welfare.
The impact of a proposed emission cut of 30% depends substantially on
whether credits (offsets) are allowed for carbon sequestration on land
taken out of agricultural production. Aggregate production can be kept
15-20 per cent higher when carbon offsets are possible. Furthermore, the
impact on factor intensity is reversed in that emissions per unit of land
in agriculture increase in the offset case. The results suggest that under
a continuation of high support for agriculture, when land can be used for
carbon sequestration activities and when the resulting carbon offset can be
credited to agriculture’s GHG emissions account, there may be a strong
tendency to intensify agricultural production, leading to higher emissions
from agricultural production.
Keywords: GHG emissions; Trade liberalization; Carbon tax; (follow links to similar papers)
JEL-Codes: C61; Q17; Q54; (follow links to similar papers)
16 pages, June 2011, Revised December 1, 2011
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