We analyze non-cooperative environmental policy when the only strategic interac-tion between countries is through bilateral transboundary pollution, i.e., countries areclosed or small open economies. When countries set pollution taxes simultaneously,there is no carbon leakage. However, in the...

We analyze the effects of free trade on environmental policies in a strategic setting withtransboundary pollution. Trade liberalization can result in a race to the bottom in environmentaloutcomes, making both countries worse off. With command and control policies(quotas), there is no race to the...

 We analyze the effects of trade liberalization on environmental policies in a strategic setting when there is transboundary pollution. Trade liberalization can result in a race to the bottom in environmental taxes, which makes both countries worse off. This is not due to the terms of trade...