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Does the EU ETS Cause Carbon Leakage in European Manufacturing?

Discussion Papers 1689, 33 S.

Helene Naegele, Aleksandar Zaklan


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Published in: Journal of Environmental Economics and Management 93 (2018), S. 125-147


Carbon leakage is an issue of major interest in both academic and policy debates about the effectiveness of unilateral climate policy addressing global externalities. The debate is particularly salient in Europe, where the EU Emissions TradingSystem (EU ETS) covers emissions of many traded sectors. In a first step, we review how carbon leakage and the pollution haven effect are defined and identified in the literature. In a second step, we evaluate whether the emission cost introduced by the EU ETS has caused carbon leakage in European manufacturing. We compute trade flows in embodied carbon and value, using GTAP trade and input-output data and administrative data from the EU ETS. We evaluate theeffect of four measures of environmental stringency on both net trade flows and bilateral trade flows. We do not find evidence that the EU ETS has caused carbon leakage.

JEL-Classification: F18;Q58;Q54
Keywords: Carbon leakage, pollution haven, EU ETS, cap-and-trade, CO2 emissions, policy evaluation
Frei zugängliche Version: (econstor)