EU enlargement and environmental policy



Non-technical summary

The Eastern European Associates have committed themselves to reduce their
emissions of greenhouse gases in 2010 according to their targets set in the Kyoto Protocol.
Furthermore since 1993 trade liberalization has taken place between all associated countries
and the EU as agreed in the Europe Agreements. There is meanwhile a bulk of literature
providing quantitative evidence on the economic effects of the full integration of the Central
and East European Countries into the EU (Francois 1997, Baldwin, Francois and Portes 1997)
as well as the Kyoto Protocol (Weyant 1999 and IPCC 2001). However, there is a lack of
quantitative research on the linkage of trade and the environment in the context of the EU
enlargement. As a burden from the previous system the CEE countries inherited a
significantly damaged environment. The cheap and subsidized energy, lack of market pricing
and weak budget constraints distorted the efficient allocation of the available resources and
led to overuse and excessive pollution (Klarer and Moldan 1997). In addition to the
implementation of other international environmental treaties (e.g. Kyoto Protocol, Sulfur
protocol), a pre-condition for the EU membership for the CEEC is the adoption and
implementation of the EU environmental acquis. This might become a considerable burden
for several countries, when others than the cost-efficient ways will be followed. The
following questions arise: “What are the common repercussions of the trade and
environmental policies?” “Is it justified to search for a certain combination of both measures,
in order to exploit the advantages of each one?” The theoretical literature on the linkage
between trade and environment points out especially the spillover effects of the countries’
environmental policy action. These studies deal mainly with the impacts of abatement policies
on industrial competitiveness and carbon leakage i.e. the reallocation of industries. The
international spillovers are mainly transmitted through changes in the terms of trade. The
adoption of mitigation policies directly increases the costs of energy consuming industries and
might cause a reduction of international competitiveness and thus might negatively affect the
energy intensive industries. Unilateral abatement action then may result in a movement of
carbon emissions to non-abating countries. This so-called “carbon leakage effect” raises
serious doubts on the environmental effectiveness of unilateral action.

For our analysis of the interactions of different environmental policies under the
Kyoto Protocol and trade liberalization between the EU and the CEECs in the process of the
EU eastern enlargement we use a comparative static multi-sectoral, multi-regional



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