Trade Agreements and Trade-Embedded Carbon: An Environmental Provisions Perspective

Achieving sustainable growth in the global economy and promoting low-carbon development can be achieved by concluding trade agreements that advance trade liberalisation progressively. The study looks at how far environmental rulers go in trade deals between different countries, by examining what these agreements actually say. Combining this analysis with trade-embedded carbon data from 35 sub-sectors across 60 countries from 2009 to 2023, the effect of the depth of environmental rulers in trade deals on trade-embedded carbon is the focus of this empirical study and its underlying mechanisms. Research findings indicate that strengthening environmental clauses significantly reduces carbon emissions embedded in trade. This result remained consistent after undergoing a series of robustness tests and employing instrumental variable methods to address endogeneity issues. Mechanism tests reveal that the carbon reduction effect of environmental clauses can be achieved through two channels: green technology cooperation between countries and increased carbon productivity. Heterogeneity tests indicate that provisions in trade agreements that are more environmentally focused can have a greater effect on reducing embedded carbon in non-technology-intensive areas and pollution-intensive sectors, particularly for developing countries. Provisions relating to the environment in bilateral trade agreements demonstrate greater effectiveness in curbing trade-embedded carbon. This paper concludes that a more in-depth knowledge of the way environmental provisions are created in trade agreements, an accurate assessment of the impact, effectiveness and applicable scenarios of these provisions, and the promotion of targeted policy measures for future provisions relating to the environment and trade agreements and the global transition to green, low-carbon trade, will provide policy references and development guidance.