A more recent version of this paper has been published in the Journal of Environmental Economics and Management

Does unilateral climate change policy cause companies to shift the location of production, thereby creating carbon leakage? In this paper, the authors analyse the effect of the European Union Emissions Trading System (EU ETS) on the geographical distribution of carbon emissions by multinational companies. The empirical evidence is based on unique data for the period 2007–2014 from the Carbon Disclosure Project, which tracks emissions of multinational businesses by geographical region within each company. Because they already operate from multiple locations, multinational firms should be the most prone to carbon leakage.

The data includes regional emissions of 1,122 companies, of which 261 are subject to EU ETS regulation. The authors find no evidence that the EU ETS has led to a displacement of carbon emissions from Europe towards the rest of the world, including to countries with lax climate policy and within energy-intensive companies. A large number of robustness checks confirm this finding.

Overall, the paper suggests that modest differences in carbon prices between countries do not induce carbon leakage.

This version of the paper updates earlier versions, published originally in 2015 and updated in January and July 2019.

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