ABSTRACT
Participation in multilateral and multi-country pollution abatement treaties is often a contentious matter owing to the gaps between domestic and international gains associated with it. The present chapter shows that the welfare implications of cross-country carbon trade could vary considerably across participating and non-participating countries and that it is a function of gains from trade. We show that through direct trade-related impacts, non-participating countries suffer welfare loss when they choose to ignore environmental consequences. We establish that the justification to be a party to multilateral negotiations can independently be motivated by selfish benefits associated with standard gains from trade. Using a standard three-country model of trade in commodities and emissions, we capture the effects of non-participation in environmental treaties for some countries. The present effort is a step toward coupling trade and environmental concerns for countries engaging in multilateral negotiations.
