Sato, Misato
(2012)
Carbon emissions and bilateral trade.
PhD thesis, The London School of Economics and Political Science (LSE).
Abstract
International trade adds a thick layer of complexity to climate change mitigation efforts. Questions such as “Who is responsible for the emissions from China’s export sectors?” and “Will
strengthening domestic climate policy measures lead to relocation of industry and emissions to
countries with lax regulation?” are intensely discussed, both in policy and academic circles.
Robust evidence on these issues remains limited, however. Many studies have quantified the
volumes of embodied carbon in international trade using complex models, but the results appear
very sensitive to the model specification, and conflicting results are reported across different
studies. Similarly, the evidence on trade impacts from emissions reduction policies has so far
relied largely on model simulations.
This thesis combines two strands of work. The first part focuses on embodied carbon quantification. It critically reviews and compares the results and methods of existing work then goes
on to conduct a first quantification exercise of global embodied carbon in bilateral trade at the
product level.
The second part measures the response of bilateral trade to industrial energy prices. It estimates
the effect of energy price differences on bilateral trade flows, using a panel dataset covering over
80% of global merchandise trade over 16 years. These estimations are used to infer the effect of
carbon price differences on trade.
The first part reveals a complex mapping of global embodied carbon flows, contrary to the
simplified picture portrayed by previous studies using aggregated models. Embodied carbon is
found to be particularly concentrated in certain products and in regional trade. It suggests that
rather viewing it as an Annex I vs non Annex I issue, grouping countries according to patterns
of production and consumption may be more relevant in discussions surrounding climate policy
and trade.
The second part of the thesis finds evidence that trade tends to develop more between countries
with different energy prices. However, this effect is small in magnitude and focused on a few
sectors. The findings suggest that measures to ’prevent’ carbon leakage may have limited impact
on most sectors, and should be targeted to those most likely to face adverse trade impacts.
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