Intertemporal trade and the Integrated Assessment of climate change mitigation policies

Within this paper, we discuss problems and solutions of integrating intertemporal trade into an economy-energy-environment model. Modeling intertemporal trade provides additional flexibility in achieving economic development as well as environmental sustainability targets, that likely corresponds to real-world flexibility. However, model output is challenged by empirical data. This paper demonstrates attempts how, based on trade-theoretical concepts, empirics and model results are reconciled with each other. Model results are provided by simulations with an economic growth/Integrated Assessment model in an environment of free trade and perfect competition. Within a climate policy context, the question arises to what extent climate policy assessments are sensitive against the integration of intertemporal trade and the way intertemporal trade is modelled. From simulation results it transpires that global and regional mitigation costs are quite insensitive to the inclusion of intertemporal trade and to trade-related adjustments as long as changes in the baseline development are taken into account.