“Can Electricity Trade Reduce Carbon Emissions without Harming Economic Growth?”

Chiu Yu Ko, National University of Singapore

Fwu-chang Yan, Hubei University of Economics

An open-economy model is studied by considering two types of final goods manufactured with clean and dirty intermediate goods, respectively, along with electricity. It is shown that electricity trade may reduce the demand for electricity generated from fossil fuels. Under fossil fuels dependency, lower demand for the electricity generated from fossil fuels may cause the constriction of dirty intermediate goods sector relative to clean intermediate goods sector by lowering the profit rate of fossil fuels suppliers. Sustained growth can take place with carbon reduction if there is sufficiently high electricity generated from alternative energy to stabilize electricity supply.