Scandinavian Working Papers in Economics

Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science

No 2024/3: Climate Policy and Trade in Polluting Technologies

Shon M. Ferguson () and Roweno J.R.K. Heijmans ()
Additional contact information
Shon M. Ferguson: Dept. of Economics, Swedish University of Agricultural Sciences, Postal: Swedish University of Agricultural Sciences, Department of Economics, Box 7013, 750 07 Uppsala, Sweden
Roweno J.R.K. Heijmans: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway

Abstract: This paper studies international trade in equipment used in the combustion of fossil fuels. Informed by a theoretical analysis, we identify a type of technology leakage hitherto unexplored in the literature: a country’s export of combustion equipment tends to increase, all else equal, in the stringency of its climate policy. We test this prediction by estimating the impact of carbon pricing on international trade in combustion equipment using detailed data on bilateral trade and domestic carbon prices for the period 1995–2021. Our estimates reveal a robust positive association between the stringency of climate policies and exports of combustion equipment, providing clear evidence for the existence of technology leakage. We argue that standard policies to mitigate carbon leakage are unlikely to prevent technology leakage, raising novel policy questions.

Keywords: Emissions pricing; cap-and-trade; carbon leakage; international trade in technologies

JEL-codes: F14; F18; Q37; Q54; Q58

Language: English

30 pages, January 30, 2024

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