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Revisiting carbon leakage

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  • Misch, Florian
  • Wingender, Philippe

Abstract

This paper estimates empirically carbon leakage rates that can result from unilateral carbon pricing policies. While carbon leakage is a key parameter in international climate policy discussions, including in the current debate on border carbon adjustment, it remains subject to significant uncertainty. We propose innovations along two lines. First, we exploit recently published panel data on country-and-sector-specific changes in effective energy prices to identify changes in domestic carbon emissions and other flows. This is in contrast to previous studies that have used historically limited variation in carbon prices or adherence to international climate agreements. Second, we present a simple accounting framework to derive short-term carbon leakage rates from unilateral policies using reduced-form elasticity estimates, thereby making our results more comparable to model-based estimates of carbon leakage. We show that carbon leakage rates differ across countries and could be larger than what existing estimates suggest. We also find that changes in domestic energy prices have sizeable effects on exports of embodied carbon, but not on imports.

Suggested Citation

  • Misch, Florian & Wingender, Philippe, 2024. "Revisiting carbon leakage," Energy Economics, Elsevier, vol. 140(C).
  • Handle: RePEc:eee:eneeco:v:140:y:2024:i:c:s0140988324004948
    DOI: 10.1016/j.eneco.2024.107786
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    More about this item

    Keywords

    Carbon leakage; CO2 content of trade; Emission spillovers; Competitiveness;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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