Carbon emissions control and trade liberalization: coordinated approaches to Taiwanʹs trade and tax policy

In recent years, several studies have emerged on the possible reconciliation between trade and environmental policies. However, little attention has been devoted to inquiring about the economic implications of the linkages of these policies in the newly industrialized countries (the so-called NICs). In this paper, we investigate the joint effects of trade and environmental policies on the Taiwan economy. The estimates are derived from a five-household, 18-sector computable general equilibrium model calibrated to a 1995 social accounting matrix. Our empirical results based on Taiwanʹs data show that tariff elimination can significantly reduce the costs of carbon emissions control and possibly offset welfare reductions due to implementation of a carbon tax. Our findings reveal that the coordination of trade liberalization with the introduction of targeted environmental policies enhances factor relocation towards competitive industries; they are broadly consistent with those cases of developing countries reported in previous studies.