Asymmetric industrial energy prices and international trade

This paper measures the response of bilateral trade flows to differences in industrial
energy prices across countries. Using a panel for the period 1996-2011 including 42
countries, 62 sectors and covering 60% of global merchandise trade, we estimate the
short-run effects of sector-level energy price asymmetry on trade. We find that changes
in relative energy prices have a statistically significant but very small impact on imports.
On average, a 10% increase in the energy price difference between two country-sectors
increases imports by 0.2%. The impact is larger for energy-intensive sectors. Even in
these sectors however, the magnitude of the effect is such that changes in energy price
differences across time explain less than 0.01% of the variation in trade flows. Simulations
based on our model predict that a €40-65/tCO2 price of carbon in the EU ETS would
increase Europe’s imports from the rest of the world by less than 0.05% and decrease
exports by 0.2%.