Decarbonization or Carbon Outsourcing? The Effect of Commodity Price Movements Across Industries

Using a panel of nine manufacturing industries in 43 economies over the period 1990-2015, we examine how international commodity price movements affect carbon emissions across industries. We find that commodity price movements are associated with larger reductions in emissions intensity in physical-capital-intensive industries, whereas the emissions response does not vary systematically with human capital intensity. The results are economically meaningful and robust. The evidence points to cross-industry reallocation as the dominant adjustment channel, with commodity price movements associated with lower value-added growth in physical-capital-intensive industries, whereas the evidence for within-industry emissions-efficiency improvements is weaker. We further show that industries experiencing larger declines in domestic emissions intensity also exhibit larger increases in emissions embodied in imports, suggesting some relocation of emissions-intensive production across borders. Overall, commodity price movements appear to support domestic decarbonization while raising concerns about carbon outsourcing.