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Trade sanctions in international environmental policy: Deterring or encouraging free riding?

Could trade sanctions improve environmental cooperation by reducing countries’ incentives to free ride? While carbon tariffs are a widely debated environmental policy, their ability to facilitate climate cooperation remains unclear. We examine game-theoretic models of environmental cooperation with and without trade sanctions. While trade sanctions prevent free riders from obtaining unfair competitive advantages, we show that they can also impede environmental cooperation. Most importantly, since trade sanctions reduce the cost of unilateral policy, they prevent environmentally inclined countries from credibly threatening to suspend cooperation if other countries defect. We use these findings to illuminate outcomes in normatively important cases such as ozone depletion and overfishing, and discuss how they cast a shadow of doubt on the use of carbon tariffs to enforce climate cooperation.