Decomposing Patterns of Emission Intensity in the EU and China: How Much Does Trade Matter?

We use data from the World Input-Output Database to examine channels through which CO2 emissions are embodied within, and imported into, the European production in 2005 and in 2009. We use an input?output price model to simulate the effect that a rise in the price of emissions trading system (ETS) allowances would have on the final price of goods. We find a reduction in emission intensity, which was greatest in those sectors regulated under ETS. Finally we examine the trade between China and the EU to study possible increases in carbon leakage. Results show that emissions embodied in imported intermediate goods have increased in all sectors.