The Political Economy of Strategic Environmental Policy When Waste Products Are Tradeable

A particularly contentious environmental issue between nations, and between regions within nations, is the policy attitude toward the disposal of waste, such as in landfills, and other potentially harmful industrial by-products like spent nuclear fuel. An international and interregional policy issue arises because many of these unwanted products are themselves tradeable commodities. For example, Germany used to export plastic refuse to China until the political resistance of the Chinese population forced a suscession of the trade in 1995 (Fischer and Petschow, 2000). More ominously, North Korea has agreed to accept up to 200,000 barrels of nuclear waste from Taiwan, in exchange for tens of millions of dollars (New York Times, Feb. 7, 1997).. More generally, the OECD estimated in 1985 that about 350 million tons of hazardous waste are generated worldwide and Yakowitz (1987) estimated that ten percent of this might be exported, although proposed shipments far exceed this amount (Vallette, 1990). The trade includes at least fifty countries and is worldwide, typically from more developed to less developed countries and trusteeship territories. In this paper we explore the implications of the possibility of “trade in trash” on optimal environmental policy and on the ramifications of a stronger or weaker environmental lobby across regions or nations. Hence, we have constructed a multiple stage game composed of a market stage and a policy stage. Waste is generated as a by-product of production and, since we assume an international market for waste products to exist, might be exported to some less developed countries to get rid of any damages linked to waste treatment and disposal. Waste markets are imperfect, the assumption made is that waste exporters usually big industries like the chemical and nuclear industry or central processors for plastics wastes and such kinddo have power in the waste market while importers -small firms in less developed countriesare pure price takers. On the policy level countries are large to be able to affect the terms of trade for waste products. Thus, naturally, governments get involved into Nash tax competition where politicians are taken to maximise a political support function reflecting lobbying activities of environmentalists as well as industrialists. In general, we find that environmentalists do not necessarily succeed in pushing stricter environmental policies nor do industrialists in pushing weaker due to the fact that lobbying may be offset by the terms of trade effect.