From Policy to Trade Flows: Understanding the Economic Consequences of Environmental Provisions on Oil and Gas Markets

This paper investigates how the depth of environmental provisions embedded in regional trade agreements (RTAs) influences oil and gas trade flows, focusing on whether the intensity—rather than just the presence—of such provisions alters the behaviour of energy‐importing countries. Using a novel panel dataset, our three‐stage empirical strategy first employs a Poisson pseudo‐maximum likelihood (PPML) gravity model to assess baseline trade effects. We then apply generalised propensity score matching (GPSM) to identify the marginal impact of policy intensity, producing a dose–response analysis. Finally, a general equilibrium (GE) gravity model simulates broader macroeconomic implications. The empirical results consistently show a statistically significant negative relationship between environmental commitment and oil and gas imports. The dose–response analysis confirms that higher levels of commitment progressively reduce trade flows, while a counterfactual simulation for an India–Middle East scenario reveals negative gross domestic product (GDP) impacts for the signatories and trade diversion effects that benefit non‐participating energy exporters. This study goes beyond a basic binary analysis by measuring the effects of policy intensity. In doing so, it provides new insights on the balance between strict environmental regulations and the need for energy security, offering practical guidance for policymakers.