Conference Agenda

This paper provides novel empirical evidence on how the stringency of climate policies affects carbon emission leakage in the manufacturing sector through international trade. It examines a comprehensive set of climate policy instruments—market-based, non-market-based, and technology-support measures—and applies an empirical gravity model to estimate carbon leakage rates across 14 manufacturing sectors and 49 countries from 2000 to 2020. The analysis shows that unilateral increases in climate policy stringency lead to higher emissions embodied in imports. Market-based instruments such as carbon taxes and emissions trading systems drive this effect by raising both import volumes and the carbon intensity of imports. By contrast, technology-support and non-market-based policies tend to reduce the carbon intensity of imports. Sectoral differences also emerge, with high-emission-intensity sectors facing greater leakage risks due to stronger import responses to policy tightening. The paper is among the first to provide empirically derived leakage rates for country–sector pairs within a unified framework linking domestic emission reductions to changes in emissions abroad. The median leakage rate is relatively low at around 3%, but the average reaches 14%, reflecting considerable heterogeneity across country-sector pairs. Small open economies and emission-intensive sectors such as basic metals exhibit significantly higher leakage rates.

The European Emissions Trading System (EU ETS) exerts an increasing incentive to decarbonize the energy intensive sectors. For the iron and steel industry, a major abatement lever is a higher use of high-quality ferrous scrap, especially in electric arc furnaces (EAF). The supply for such scrap is however insufficient in the EU, eventually leading EU steel producers to import this scrap from foreign countries. With the the global demand for steel rising, high-quality scrap is becoming a most valuable material. In this paper, we assess the impact of the price of emission allowances on the imports and exports of ferrous scrap within the EU and with non-EU countries, according to scrap quality. We combine a gravity equation setting with a Difference-in-difference approach based a shift-share variable. We find that the differential impact of allowance price, based on EAF shares by country, is positive for imports of high-quality scrap from non-EU countries. It is also positive for exports of low-quality scrap to extra-EU countries. Both impacts are small but statistically significant. This confirms that ferrous scrap is becoming a strategically important material for the energy transition of EU steel industry.

Rare Earth Elements (REEs) are essential for modern technology and clean energy systems. They are critical in high-tech products, in renewable energy technology, and in advanced military applications. The applications of REEs align directly with the strategic objectives of the European Union, which include enhancing competitiveness and innovation, advancing the transition toward climate neutral Europe, and strengthening defense. Currently, European countries are highly dependent on a small number of countries for their REE supply, which explains the aim to secure and diversify critical mineral supply chains. Focusing on Europe, we analyze whether net-imports of REEs were reduced in the past because of increased geopolitical risks (GPR) in supplier countries. For this purpose, we adopt an aggregate GPR measure which combines information on GPR in supplier countries with bilateral trade data for REEs. We estimate the impact of GPR on net-imports of REEs using an instrumental variable approach to address endogeneity concerns. Our results indicate that during the periods 1994 and 2024, increased GPR in REE supplier countries is associated with increased risk-adjusted net-imports. The results indicate substantial amplifying effects of GPR shocks on net-imports. The results indicate that European countries have not diversified their supplier base despite increasing geopolitical risks.

Asymmetric implementation of environmental regulations across countries creates opportunities for carbon leakage, allowing firms in regulated jurisdictions to shift emissions-intensive activities abroad. This paper examines whether mandatory Environmental, Social, and Governance (ESG) disclosure policies can mitigate leakage by influencing supply chain behavior. I study the European Union’s Non-Financial Reporting Directive (NFRD), which requires large EU firms to report ESG metrics across their supply chains. Using OECD data combining Inter-Country Input-Output (ICIO) tables with International Energy Agency (IEA) emissions data from 2010–2020, I construct an industry-level measure of exposure to the NFRD for non-EU exporters. I find no evidence that exposure leads to changes in ESG disclosure, carbon performance, or local emissions in non-EU countries. However, exposure is associated with a substantial decline in carbon embedded in exports to the EU driven not by cleaner production, but by a reduction in export values. Additional results show that more exposed industries, particularly in middle-income countries, redirect exports away from the EU and toward less regulated markets. These findings suggest that ESG disclosure mandates may reduce carbon leakage at the border, but largely through trade reallocation rather than upstream decarbonization.

International environmental agreements have historically been plagued with low or unstable membership, weak regulations, and ineffective enforcement. In a seeming attempt to combat these deficiencies, we have witnessed in recent years a significant increase in the inclusion of environmental coordination provisions in preferential trade agreements (PTAs). This follows from the fact that environmental regulation or the lack thereof, impact the competitiveness of firms and thus have important implications for international trade. As such, a country entering a pure trade-only (or “shallow”) agreement with a country with weaker environmental regulations may weaken or delay stronger regulations in an attempt to manipulate trade markets at the expense of their partner countries. By adding environmental provisions to trade agreements (or “deep” trade agreements), countries can avoid this “beggar thy neighbor” policy manipulation by all member countries. In this paper, we investigate the relationship between PTAs and environmental policy. We show that shallow and deep trade agreements have very different implications on tariff setting for both member countries (on non-members) and non-members (on members), suggesting that globalization and world welfare are impacted differently by the nature of these agreements. To empirically examine these relationships, we construct a unique, large dataset with industry-level bilateral trade and tariff data with all preferential trade agreements which were in force (for at least one year) in the world over the period 1988-2019, as well as the nature of the agreement and the number of unique environmental “norms” or provisions within each agreement.