The impact of climate legislation on trade-related carbon emissions, 1997–2017

There is considerable anxiety about the international impact of unilateral action on climate change. Environmentalists are concerned that it leads to ‘carbon leakage’, that is, the migration of high-emissions activities from relatively tight regulatory environments to more lenient jurisdictions. Industry representatives worry about competitiveness, in terms of the associated loss of jobs and market share. However, despite 30 years of academic analysis, there is little consensus on the likely magnitude, or indeed the sign, of carbon leakage. This paper provides an empirical ex post account of the impact of national climate change policy and legislation on international carbon emissions between 1997 and 2017, using data from the Climate Change Laws of the World database. It uses the difference between countries’ production emissions (the amount of carbon emitted within country boundaries) and consumption emissions (the amount of carbon embedded in national consumption) to derive the carbon trade balance of 98 countries – in other words, the difference between their carbon imports and exports.