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The Effects of NAFTA on the Environment

Abstract:
This paper reviews the impacts of NAFTA on the environment. Discussion focuses on the degree to which economic conditions in Canada, Mexico, and United States are consistent with the assumptions on which the benefits of free trade are based. Specifically, we discuss how NAFTA may exacerbate or alleviate the environmental impacts of economic activity via environmental externalities, the rate and efficiency of resource extraction, increased income, increased trade and transportation, and harmonizing environmental policy among nations at different levels of economic development. Because of difficulties in comparing different types of environmental impacts, we do not offer a conclusion about the overall effect of NAFTA on the environment, positive or negative. Rather, we argue that NAFTA must preserve the rights of all affected parties to intervene so that the costs and benefits associated with a particular project that arises out of increased trade can be evaluated on a case by case basis in the same imperfect way that such issues are addressed within the confines of a single nation.

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Energy Specializations: Energy and the Environment – Policy and Regulation

JEL Codes:
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Environmental policy, NAFTA, Externalities, Economic efficiency

DOI: 10.5547/ISSN0195-6574-EJ-Vol14-No3-10


Published in Volume14, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.