J. PETER NEARY
Department of Economics, University College Dublin and CEPR Belfield, Dublin, Ireland
(e-mail: jpneary@iol.ie)
Accepted 4 August 2005
Abstract. I review and extend three approaches to trade and environmental policies: competitive
general equilibrium, oligopoly and monopolistic competition. The first two have
surprisingly similar implications: deviations from first-best rules are justified only by constraints
on policy choice (which motivates what I call a ‘‘single dividend’’ approach to environmental
policy), and taxes and emissions standards differ in ways which reflect the Le
Chatelier principle. I also show how environmental taxes may lead to a catastrophic relocation
of industry in the presence of agglomeration effects, although not necessarily if there is a
continuum of industries which differ in pollution intensity.
Key words: environmental policy, international trade policy, location and economic geography,
pollution abatement, strategic trade policy
JEL classifications: O13, L13, F12