We incorporate a stochastic cost for emissions into Venables’ widely-used model of international trade for a single product. Region 1 has climate policy and Region 2 does not. Each region has a distinct variable cost of production, emissions-intensity of production, and demand function. There is a specified cost per unit to transport goods between the regions. Initially, all firms know the distribution of the emissions cost, which will effectively increase the unit cost of production in Region 1. A firm may
establish a production facility in Region 1 or Region 2, and incurs a fixed cost to do so. Then all firms realize the emissions cost and choose quantities to produce and export in a Cournot equilibrium. The long run equilibrium number of firms building production facilities in each region is uniquely determined by each having net zero expected profit.