Research On Environmental Distortion Effects And Rectifying Mechanisms In China's Energy-intensive Goods Trade

Comparative benefits are the essential motive for international trade, and also the keystone of academic research. However, traditional trade theories tend to ignore the increasingly significant environmental effects of trade and their impacts on comparative benefits, which makes them inadequate for the explanation of realities. With environmental resources becoming more and more scarer, some scholars make a breakthrough in their analyses on trade's environmental effects. Nevertheless, they barely consider the distortion in prices of environmental resources and the resulting market failure, which in all probability will cause distortions in many aspects of trade realities including environmental effects and comparative benefits. In view of the above, this paper studies the environmental distortion effects of trade theoretically and empirically on the basis of price distortion and typical goods, namely energy-intensive goods which intensively use environmental resources during production and meanwhile take up a large portion of trade volume.According to present research, the environmental effects of energy-intensive goods trade can be decomposed into scale effect, composition effect and technique effect. Further, this paper demonstrates the importance of technique effect as well as its sources and influencing factors. It is argued that trade parties can achieve and augment positive technique effect by certain measures aimed to raise income level, perfect market economy and strengthen cleaner technology R&D and human capital accumulation as well as establishing market prices of environmental resources.Even so, the effectiveness of these measures is subject to the restriction of price distortion. Based on theoretical analyses and magnitude estimations of environmental effects in circumstances of distorted prices, it is found that a distortion in the composition effect of China's energy-intensive goods trade has come into being, which will further impede the generation and expansion of positive technique effect. As a result, China is undergoing a distortion in trade's environmental effects, which is defined as Environmental Distortion Effect I . Furthermore, while trade changes the scarcity of environmental resources in a distorted way, the environmental costs of using these resources will be affected. On account of the production factors of energy-intesive goods, relevant environmental costs can be defined as the composition of opportunity costs of energy use and factor costs of environmental capability. The former is related to low energy efficiency of China's energy-intensive industries, while the latter is concerned with high pollution and its intensive use of environmental capability, the scarcity of which is reflected by prices of large-scale continuous competitive emission trading. Based on this definition, this paper estimates China's increasingly huge environmental costs of producing and exporting energy-intensive goods. Since such costs are barely covered in production costs and product prices, China is virtually making a great loss rather than slender profits from the export of these goods. It is found that China is suffering from a distortion in comparative benefits when exporting these goods, which is defined as Environmental Distortion Effect II.Theoretically, it is essential to establish sound market prices of environmental resources and gradually internalize environmental costs so as to rectify the above environmental distortion effects. However, being a price-taker on the international market for energy-intensive goods and showing negative elasticity of export value with regard to export price, China may well lose some gains from export while internalizing environmental costs and raising export price. A dilemma will come into being between rectifying environmental distortion effects and achieving gains from trade. Its tradeoff, however, suggests that the specific measures to internalize environmental costs should solve the above dilemma and urge enterprises to generate endogeneous incentives of adopting such measures.To this end, it makes sense that Chinese energy-intensive industries take the initiative to utilize and develop the Clean Development Mechanism. By means of coupling with specialized innovation and application of cleaner techonology, and introducing industry association or enterprise alliance as well as enterprises specialized in CDM deal under government's planning and coordination, a developed mode of CDM characterized by multiple incentive compatibility can be established. By virtue of this developed mode, China will be able to rectify price distortion while in the meantime achieve win-win and symbiotic benefits with relevant parties including importers and specialized enterprises. Hereby, the foregoing environmental distortion effects can be rectified in an economic and sustainable way.To sum up, this paper aims to make progress in the following apects. Firstly, it furthers research on trade's environmental effects by demonstrating the importance of techinique effect and its influencing factors, as well as its potential relation to compositon effect. Secondly, on the grounds of price distortion in reality, it studies stage by stage the environmental distortion effects in China's energy-intensive goods trade, and the dilemma between rectifying distortions and achieving gains from trade. Lastly, it advances an economic and sustainable rectifying mechanism characterized by multiple incentive compaitibility. All these original analyses help improve trade theories and strengthen their explanatory power of realities. Meanwhile, they are also beneficial for the benign interaction among energy-intensive goods trade, cleaner techonology innovation and application as well as environmental protection, and therefore have realistic significance to China's enhancement of comparative benefits.