This paper contributes to the literature on the trade liberalization – climate change nexus by investigating the impact of the current free trade agenda of the European Union (EU) on the effectiveness of a possible greenhouse gas (GHG) reduction policy for its agricultural sector. For the analysis we implement scenarios with a carbon tax on non-CO2 emissions and trade liberalization both individually and combined in CAPRI, a global partial equilibrium model for agriculture.

Scenario results indicate that the simulated trade liberalization by itself has only modest effects on agricultural GHG emissions by 2030. Pricing agricultural non-CO2 emissions in the EU triggers the adoption of mitigation technologies, which contributes to emission reductions. Emission leakage, however, partially offsets the EU emission savings as production increases in less emission-efficient regions in the world. The combination of agricultural trade liberalization and carbon pricing increases emission leakage and, therefore, further undermines global mitigation gains. Our results hinge on the key assumptions that future trade agreements between non-EU countries are not considered and that the climate actions are limited to the EU only. Despite these limitations we conclude that, from a global GHG mitigation perspective, trade agreements should address emission leakage, for instance by being conditional on participating nations adopting measures directed towards GHG mitigation.

Link to article: https://www.sciencedirect.com/science/article/pii/S0306919217305821