Exploring the NDC-misspecification Margins due to the Trade-induced Spillover and Feedback Effects for Top-three Emitters

The study offers an insightful comparative static analysis of national energy savings, emphasising the intricate interactions between trade-induced spillover effects and feedback dynamics. Developing an interregional input–output (IRIO) model, it focuses on the world’s three largest carbon-emitting economies: China, the USA and India. Through a series of compelling simulation scenarios rooted in a tripartite energy-saving climate treaty, the research uncovers significant revelations. These simulations shed light on the profound impact that carbon-constraining initiatives in non-free-rider economies can have on the energy consumption of free-rider economies. Remarkably, the findings illustrate that the USA, in all simulated scenarios, achieves substantial energy savings by shifting its production activities to China and India. On the other hand, China capitalises on the energy demands transferred from India and the USA, resulting in noteworthy energy savings. India emerges as a non-free-rider economy capable of conserving energy when the USA behaves as a free rider; however, it struggles to achieve similar savings when it operates as a free rider itself. This analysis not only highlights the intricate web of energy interactions among these economies but also underscores the potential for cooperative efforts in tackling global energy challenges, ultimately paving the way for a more sustainable future. JEL Codes: C67, F64, Q43, Q48