Close ties: how trade dynamics and environmental regulations shape international dependence on oil

Federica Cappelli () and Giovanni Carnazza
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Federica Cappelli: Università degli studi di Ferrara
Giovanni Carnazza: Università di Pisa

No 125, SEEDS Working Papers from SEEDS, Sustainability Environmental Economics and Dynamics Studies

Abstract: The European Union's energy security is increasingly challenged by its heavy dependence on imported oil, which exposes the region to geopolitical risks and market vulnerabilities. This study explores the role of trade dynamics in exacerbating this dependency, leading to what we term trade lock-in. Additionally, we assess the effectiveness of environmental policies in reducing oil import dependence, investigating whether these policies foster a shift toward greener investments (divestment effect) or inadvertently drive increased oil extraction (green paradox effect). We use network analysis to represent the international oil trade network and use this information in an econometric framework covering the period from 1999 to 2019, accounting for the presence of cross-sectional dependence. We identify two main factors that lock energy systems into an oil-based path: technological (represented by the level of energy intensity) and trade (represented by the existence of privileged trade relations with major oil-exporting countries) lock-ins. Furthermore, we find evidence of the divestment effect for some specific environmental policy instruments, but the effect is not uniform across instruments characterised as either demand-pull or technology-push. Finally, we find that an efficient eco-innovation system can effectively reduce oil import dependence only in countries with a comparative advantage in exporting clean technologies.

Keywords: oil dependence; network analysis; environmental policy; technological change; European Union (search for similar items in EconPapers)
JEL-codes: F18 O32 Q32 Q37 Q48 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2025-01, Revised 2025-01
New Economics Papers: this item is included in nep-eec, nep-ene, nep-env, nep-int and nep-net
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http://www.sustainability-seeds.org/papers/RePec/srt/wpaper/0125.pdf First version, 2025 (application/pdf)
http://www.sustainability-seeds.org/papers/RePec/srt/wpaper/0125.pdf Revised version, 2025 (application/pdf)

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