Import Competition and Firm-Level CO2 Emissions: Evidence from the German Manufacturing Industry

Using the German census of the manufacturing industry, I analyze the impact of import competition on carbon emissions per unit of deflated sales (emission intensity). I combine precise information on firm-level CO2 emissions with sector-level trade flows. Looking at the period 1995 until 2017, I focus on the impact of the rise of Eastern Europe and China while addressing the endogeneity of trade flows with an instrumental variable approach. The baseline results suggest that a 1pp increase in the import penetration ratio caused a reduction of the average firms’ emission intensity by approximately 0.3%. This result implies that the rise of the joint East kept the average firm emission intensity 6% below the level it would have had in the absence of the East’s rise. I do not find strong indication for reallocation of production towards more efficient firms. Finally, I supplement the analysis by examining the effect of export opportunities due to the East’s rise. The results indicate that exporting to the East increased sales and, through that channel, lowered emission intensities.