Unity Pollutes

When governments focus narrowly on emission cuts, they unintentionally fuel production and pollution, highlighting a perverse twist in cooperative policy

- Parth Singh

Every few months, world leaders gather under the banners of global cooperation, hoping to find collective solutions to collective problems. The underlying belief is that working together makes everyone better off. But what if that is not always true? A study from the Delhi School of Economics suggests that some forms of environmental cooperation can actually make pollution worse.

In their 2025 paper, “Environmental Taxation and Trade Policy: The Role of International Coordination in the Presence of Local Pollutants”, published in Environmental and Resource Economics, Madhuri H Shastry and Uday Bhanu Sinha examine what happens when countries that trade with each other coordinate their environmental policies to tackle purely local pollution.

Their model involves three countries—two exporters and one importer. The exporters produce a single good that creates local pollution where it is made. The importer buys the good without suffering any environmental harm. Each exporting government can impose an emission tax to limit pollution or offer export subsidies to keep its industries competitive. The question the authors ask is what happens when these two governments try to cooperate.

If the countries cooperate broadly to improve their combined welfare, pollution falls and both sides are better off. But if they cooperate narrowly, focusing only on cutting emissions, the outcome flips where taxes fall, production rises and total pollution increases.

When Cooperation Backfires