Comprehensive Economic and Trade Agreement and air pollution

This paper uses data on emissions per capita of two air pollutants carbon dioxide (CO₂₎ and greenhouse gasess (GHGs) to investigate the potential impact of the European Union (EU)-Canada Comprehensive Economic and Trade Agreement (CETA) on their emission levels. We use the EDGAR database for the emissions of CO₂ per capita measured in milligrams per capita, and employ the United Nations Framework Convention on Climate Change (UNFCCC) database for the emissions of GHGs per capita measured in Tg CO₂ equivalent per capita. The data for our trade variables, gross domestic product (GDP), population and other control variables comes from the international monetary fund (IMF) (2018) database. We use a panel dataset of 28 EU members and Canada over 1989 – 2016 time period. We use several econometric techniques. First, we employ the usual fixed and random effects approaches. Second, we use specifications that are robust to contemporaneous cross-sectional dependence and to serial correlation effects, respectively. Moreover, we run various robustness check to make sure the results, stand especially when endogeneity may pose an issue. This study shows that the implementation of CETA may generally help in the fight against global warming. We show that a one percent increase in the bilateral trade between Canada and a typical EU member may help reduce annual per capita emissions of CO₂ and GHGs in a typical CETA member by about 3.0 and 3.3 percent, respectively. However, results also show that CETA may increase annual per capita emissions of CO₂ in Canada by about 2.0 percent per year. These results stand because the factor endowment hypothesis (FEH) and the pollution haven hypothesis based on population density variations (PHH2) dominate the pollution haven hypothesis based on national income differences (PHH1).