Intertemporal Trade and the Integrated Assessment of Climate Change Mitigation Policies

Within this paper, we discuss problems of integrating intertemporal trade into an economy-energy-environment model. Modeling intertemporal trade provides additional flexibility in achieving economic development as well as environmental sustainability targets, that likely corresponds to real-world flexibility. However, based on simulations with an economic growth model in an environment of free trade and perfect competition, model output is challenged by empirical data. This paper demonstrates how, based on trade theoretical concepts, model results and empirical data are reconciled with each other and the Lucas-Paradox can be resolved. Within a climate policy context, the question arises to what extent climate policy assessments are sensitive against the integration of intertemporal trade and the way intertemporal trade is modelled. From simulation results it transpires that global and regional mitigation costs are quite insensitive to the inclusion of intertemporal trade.

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