Trade's Emissions Paradox: Cutting Greenhouse Gases, Raising Air Pollution

Trade’s impact on emissions is not straightforward. Existing literature on trade and emissions primarily focuses on countries' net export emissions, often neglecting the emissions saved by importing products instead of producing them domestically. The environmental impact from trade is influenced by the balance between emissions generated from exporting goods and emissions avoided by not producing them domestically. This paper investigates the environmental impacts of trade, focusing on the spatial differences in production emissions. Our estimates indicate that direct emissions embodied in exports are significant and rising, accounting for 31 percent of annual greenhouse gas (GHG) emissions and 25 percent of annual particulate matter (PM2.5) emissions in 2021. However, considering the direct emissions saved through imports, trade results in a reduction of global GHG emissions annually by up to 2.2 percent from 2004 to 2021, as it allows countries with high emission intensity to import rather than produce domestically. This reduction is not observed in PM2.5 emissions, where trade leads to an increase of up to 1 percent. These findings highlight the discrepancy in emission intensities between exporting and importing countries, which influences the impact of trade on global emissions.