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Does Carbon Pricing Affect International Competitiveness? Implications for Carbon Leakage

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  • Shoko GOTO
  • Kenji TAKEUCHI

Abstract

This study explores the impacts of carbon pricing on the international competitiveness of manufacturing sectors. A simple theoretical framework is developed to examine the link between carbon pricing and the market share of imported goods that may potentially lead to carbon leakage. We analyze the direct and indirect impacts by considering the shift from domestic to foreign inputs in the production of output goods. Using the European Union Emissions Trading System as an empirical setting, we estimate the effects of carbon pricing on imports and total value in both targeted and non-targeted sectors. The analysis of bilateral trade flows reveals that unilateral carbon pricing slightly weakens the competitiveness of the importing country in the target sector markets, potentially increasing the risk of carbon leakage. Conversely, the policy does not affect competitiveness in non-targeted sectors. The results suggest that unilateral carbon pricing directly influences the targeted sectors, but no evidence exists of spillover effects on non-targeted sectors.

Suggested Citation

  • Shoko GOTO & Kenji TAKEUCHI, 2025. "Does Carbon Pricing Affect International Competitiveness? Implications for Carbon Leakage," Discussion papers e-25-002, Graduate School of Economics , Kyoto University.
    • Handle: RePEc:kue:epaper:e-25-002
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    References listed on IDEAS

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    1. ZhongXiang Zhang, 2015. "Energy and climate economics and policy," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 17(2), pages 179-183, April.
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    More about this item

    Keywords

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    JEL classification:

    • 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
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • F18 - International Economics - - Trade - - - Trade and Environment

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