Trade flows, carbon leakage, and the EU Emissions Trading System

Maria Wang*, Tero Kuusi

*Corresponding author for this work

Research output: Contribution to journalArticleScientificpeer-review

Abstract

The EU Emission Trading System (EU ETS) has been shown to have reduced emissions in the participating countries and industries since its adoption in 2005. However, there is less evidence on the shifting of production outside EU to avoid emission controls. We study this so-called carbon leakage with gravity analysis of international trade flows and carbon intensities of trade. We utilize the gravity model on a sectoral level and study its implications empirically. Our findings with new OECD data indicate that some carbon leakage has in fact occurred due to the EU ETS, resulting in higher carbon content of imports to the EU. At the same time, we show that the EU ETS has induced lower carbon content of exports from the EU. In further analysis, we show that the carbon leakage we find has caused a moderate increase in total carbon content embodied in the EU's trade, despite the decreases in exported carbon.

Original languageEnglish
Article number107556
Peer-reviewed scientific journalEnergy Economics
Volume134
ISSN0140-9883
DOIs
Publication statusPublished - 20.04.2024
MoE publication typeA1 Journal article - refereed

Keywords

  • 511 Economics
  • Carbon leakage
  • Emission trading
  • EU ETS
  • Gravity model
  • Trade flows

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