In this paper, we discuss the endogenous formation of
self-enforcing climate coalitions linked to the issue of a free
trade agreement. As a framework, a strategic trade model is
employed in which countries may discourage greenhouse
gas emissions by means of an import tariff on dirty goods. In
addition, countries can set an emissions cap being effective
on a permit market. Our main focus, however, is on the
utilization of terms of trade privileges provided to members of
a preferential free trade area. We propose evidence for that
the welfare gains of trade liberalization are strongly
promoting the formation of climate coalitions. In the
parametrical simulation of the model, global emissions as
well as climate change damages are found significantly
reduced compared to the BAU scenario while global welfare
is found significantly higher.