Conference Agenda

The European Union Emissions Trading System (EU ETS) sets a common carbon price for covered emissions, yet EU member states continue to apply overlapping national policies. This paper studies how such regulatory differences shape region- and sector-specific implicit carbon prices and, through trade linkages within the Single Market, reallocates industrial production and CO2 emissions across the EU. Using a quantitative trade-and-environment model with key parameters estimated from German firm-level data, we recover implicit carbon price paths for 2005–2019 and relate them to EU ETS futures and energy prices. Our findings reveal a decline in implicit carbon prices across the EU, with a sharper reduction in Germany than in the rest of the EU. Both this common decline and the German-EU divergence are associated with higher emissions in Germany. In a counterfactual in which the rest of the EU follows Germany’s implicit carbon price path, German industrial CO2 emissions would have been substantially lower, with offsetting increases in the rest of the EU. These intra-EU production and emissions shifts are consistent with Germany becoming the European pollution haven. We discuss whether this pattern reflects allocative efficiency under emissions trading or distortions caused by overlapping national policies.