Extra‐regional trade and consumption‐based carbon dioxide emissions in the European countries: Is there a carbon leakage?

Abstract

The European countries are committed to making Europe the first carbon‐neutral continent by 2050 under the carbon leakage debates. Carbon leakage occurs when carbon‐intensive production relocates to environmentally unregulated countries. The trade channel of carbon leakage refers that the carbon‐loaded products finally come back through imports and increase consumption‐based carbon emissions in the decarbonization‐committed countries. This study probes the effects of extra‐imports (imports from non‐European countries) share on per capita consumption‐based carbon dioxide emissions (CCEpc) in the panel of 31 European countries from 1995 to 2018. After identifying cross‐country dependence, unit root, heterogeneity, and cointegration, the study applies the common correlated effects mean group (CCEMG) and augmented mean group (AMG) estimators, followed by the Emirmahmutoglu‐Kose causality test. The results reveal a carbon leakage pattern that extra‐imports share has both associative (positive) and causal (one‐way) effects on CCEpc. Other results unveil a strong decarbonization contribution from enhancing renewable energy supply against the carbonization forces of growing extra‐exports (exports to non‐European countries) share, real gross domestic product, and comparative advantage in high‐tech manufactures, while population density's influence is statistically insignificant. Some policy implications including carbon‐adjusting border taxes on trade are drawn for regional and global mitigation undertakings.

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