The impact of decarbonization on trade

In this paper we explore the impact of decarbonization on international trade and development employing a recursive dynamic Computable General Equilibrium (CGE). We develop three long run stylized climate change scenarios: (i) Global Inaction (GI); (ii) Divided World (DW); and (iii) Cooperation towards Net Zero (CNZ). The CNZ scenario encompasses comprehensive measures resulting in a significant reduction in emissions to approximately 10 billion tons by 2050, contrasting with escalating emissions under GI and stagnation under DW. The analysis shows that the share of energy trade in total trade would fall substantially in CNZ, from 11% to 3%. Furthermore, the share of energy exported falls drastically since electricity is less tradable than fossil fuels. Exports of fossil fuel dependent countries will shift from fossil fuels to emission intensive trade exposed sectors and sophisticated manufacturing.