with Harald Fadinger, Chiara Forlati, Sabine Stillger and Ulrich J. Wagner. July 2025. CEPR Discussion Paper 18645
Carbon leakage undermines the effectiveness of unilateral carbon pricing. Taxes on import-embedded emissions, like the EU’s CBAM, prevent leakage but their product coverage is limited due to strong information asymmetries. We propose an alternative policy (LBAM) that sterilizes carbon leakage without requiring information on foreign carbon intensities. In a quantitative trade model, LBAM tariffs significantly improve over the EU’s CBAM in terms of global emissions and EU welfare. Importantly, LBAM avoids large welfare losses among EU trading partners that would result if CBAM were extended to all sectors. Combining LBAM tariffs with equivalent export subsidies reinforces these advantages.
See the VOX.EU column here.
with C. Forlati, F. Pintus, F. Babonneau, L. Campagnolo, E. Delpiazzo, C. Elsner, A. Haurie, L. Hermville, R. Key, K. Kostas, H. Neumeier, A. Nikas, P. Rocchi, O. Schenker, G.P. Tranchanas, M. Vielle, A.W. Yalew. August 2026.
This systematic review revisits the trade–environment nexus through the scale–composition–technique framework and synthesizes evidence from aggregate cross-country studies, firm-level analyses, and multi-region input–output approaches. By integrating literatures that are often studied separately—including the Pollution Haven, Pollution Halo, and Porter Hypotheses, Environmental Kuznets Curve dynamics, emissions accounting, global value chains, and international transport—we provide a unified interpretation of how trade affects environmental outcomes. A central finding is that many seemingly conflicting results in the literature arise because different empirical traditions focus on distinct manifestations of the composition and technique effects. In particular, composition effects associated with pollution relocation driven by environmental regulation differ fundamentally from those associated with specialization within global value chains, implying that their environmental consequences depend on the source of comparative advantage underlying production reallocation. At the same time, the literature increasingly identifies technique effects as a key determinant of environmental outcomes with more recent firm-level evidence highlighting the importance of innovation, technological upgrading, endogenous abatement, and technology diffusion in shaping emissions intensity. Overall, the review suggests that the environmental consequences of trade are determined by the evolving balance between composition and technique effects rather than by trade openness itself. This insight is particularly relevant as global value chains are increasingly reconfigured by geopolitical fragmentation, industrial policies, and decarbonization strategies, whose environmental consequences will depend on whether they weaken technology diffusion and cleaner production or instead promote specialization toward less pollution-intensive activities and locations.leakage undermines the effectiveness of unilateral carbon pricing.
Oil Price Shocks: Demand vs Supply in a Two-Country Model
MNB w.p. 2008/5, September 2008.