Why is carbon leakage for energy-intensive industry hard to find?

Shon Ferguson and Mark Sanctuary

Environmental Economics and Policy Studies, 2019, vol. 21, issue 1, No 1, 24 pages

Abstract: Abstract A number of researchers have found that imports by pollution heavy industries do not increase in response to tighter pollution policy. We empirically evaluate the impact of an sudden and unexpected increase in Swedish electricity prices in the 2000s on the imports of intermediate inputs by Swedish manufacturers. We find that imports declined as domestic electricity prices rose for firms with the most electricity-intense in-house production. We rationalize these findings by developing a simple model of trade in intermediate inputs, which illustrates that energy-intense firms may decrease imports if it is sufficiently difficult to substitute between domestic- and foreign-sourced inputs as domestic energy prices rise. The offshoring mechanism which we identify can help to reconcile conflicting empirical results in the carbon leakage and pollution haven literature, and also has implications for determining the extent to which energy intense trade-exposed sectors should be exempt from domestic climate change policy.

Keywords: Carbon leakage; Pollution haven; Energy; Importing (search for similar items in EconPapers)
JEL-codes: D21 F14 F18 Q40 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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DOI: 10.1007/s10018-018-0219-8

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