Carbon leakage through supply chain adjustments

Hanyi Wang

No 10/2025, IDOS Discussion Papers from German Institute of Development and Sustainability (IDOS)

Abstract: This paper examines carbon leakage through supply chain recalibration in response to European carbon policies. Using input-output data and a high-frequency identification approach for carbon policy shocks, this paper investigates whether stringent carbon regulations in Europe affect the imports of carbon-intensive inputs from major emerging economies lacking similar policies. The findings reveal a temporary increase in the rate of change of imports from emerging countries relative to all inputs in the carbon-intensive sectors following carbon policy shocks, with effects peaking after two years before dissipating. While not directly quantifying emissions transfer, this study suggests some evidence of short-term input substitution patterns consistent with carbon leakage through international supply chains.

Keywords: trade & investment; climate change (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:diedps:316405

DOI: 10.23661/idp10.2025

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