Interactions between trade and environmental policies in the Czech economy

Pollution charges are directly applied on exported and domestic, but not imported commodities. We investigate how environmental taxation affects foreign trade in the Czech Republic. Using computable general equilibrium modeling with bottom-up approach, we consider a small-open economy with endogenous unemployment, fixed exchange rate, ten types of taxes and six air-pollutants. Emission reduction is possible through substitution with less polluting inputs, a reduction of output, or abatement. The results show that the imports should not be affected, except coal and electricity. Exports will increase in the light and the biomass industries. The overall effect on the trade balance is slightly negative.