How different climate policies affect carbon leakage through trade

This paper provides novel empirical evidence on how the stringency of climate policies affects carbon emission leakage in the manufacturing sector through international trade. It examines a comprehensive set of climate policy instruments—market-based, non-market-based, and technology-support measures—and applies an empirical gravity model to estimate carbon leakage rates across 14 manufacturing sectors and 49 countries from 2000 to 2020. The analysis shows that unilateral increases in climate policy stringency lead to higher emissions embodied in imports. Market-based instruments such as carbon taxes and emissions trading systems drive this effect by raising both import volumes and the carbon intensity of imports. By contrast, technology-support and non-market-based policies tend to reduce the carbon intensity of imports. Sectoral differences also emerge, with high-emission-intensity sectors facing greater leakage risks due to stronger import responses to policy tightening. The paper is among the first to provide empirically derived leakage rates for country–sector pairs within a unified framework linking domestic emission reductions to changes in emissions abroad. The median leakage rate is relatively low at around 3%, but the average reaches 14%, reflecting considerable heterogeneity across country-sector pairs. Small open economies and emission-intensive sectors such as basic metals exhibit significantly higher leakage rates.