Effect of a Full Internalization of External Costs of Global Supply Chains on Production, Trade and Transport

Abstract

A major obstacle for internalization of external costs is the uncertainty about the economic impacts on different economic sectors and regions of the world. This chapter presents a recent study into the effects of a full internalization of external effects of supply chains worldwide. Besides redistribution of production and trade, the authors also calculate changes in global transport flow patterns. The method rests on a two-stage model for global impact assessment: a spatial computable general equilibrium (SCGE) model and a global multimodal routing model for transport flows. The chapter first introduces the definition of externalities maintained in the study, provides a detailed description of external costs in supply chains, and develops a number of detailed examples to explore where these effects are created. Then, it introduces the modeling approach and the policy scenarios, and distinguishes between first mover, collaborative and sole mover scenarios for the Netherlands and Europe.

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