Does Carbon Pricing Affect InternationalCompetitiveness? Implications for Carbon Leakage

Shoko Goto and Kenji Takeuchi

Discussion papers from Graduate School of Economics , Kyoto University

Abstract: This study explores the impacts of carbon pricing on the international competitiveness of manufacturing sectors. We develop a simple theoretical framework to examine the link between carbon pricing and changes in market shares that may lead to carbon leakage. The framework distinguishes between direct and indirect impacts by considering shifts from domestic to foreign inputs in the production of final goods. Using the European Union Emissions Trading System as an empirical setting, we estimate the effects of carbon pricing on the home country’s market share in both targeted input sectors and non-targeted output sectors. Our results show that unilateral carbon pricing slightly weakens the competitiveness of the home country in the markets of the targeted sectors, potentially increasing the risk of carbon leakage. In contrast, competitiveness in non-targeted sectors is largely unaffected. Overall, the findings suggest that unilateral carbon pricing primarily influences the targeted sectors, with no compelling evidence of spillover effects on non-targeted sectors.

Keywords: Carbon pricing; Competitiveness; Carbon leakage; Trade (search for similar items in EconPapers)
JEL-codes: F18 H23 Q54 Q56 (search for similar items in EconPapers)
Pages: 48
Date: 2026-04
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Persistent link: https://EconPapers.repec.org/RePEc:kue:epaper:e-25-002-v2

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