Border regulation and greenhouse gas emissions from EU-UK food trade

Abstract

Recent years have seen an increase in global trade. Despite well-known welfare benefits, trade in goods is also an important contributor of greenhouse gas emissions. Environmental regulation of trade is complex, because environmental domestic regulation can drive the relocation of these emissions abroad (carbon leakage); while environmental import restrictions can increase domestic greenhouse gas emissions by stimulating the production of high‑carbon goods (inverse leakage). In this article, we micro-simulate the impact at the border of a carbon tariff on food trade, modelling UK food imports from the European Union using a gravity model. In this exercise, we implement a Carbon Border Adjustment Mechanism, which charges for the difference in carbon emissions of a good between importer and exporter. Yearly country-level greenhouse gas emissions are calculated using a top-down life-cycle assessment approach known as environmentally-extended multi-regional input-output analysis. Results show that a British food Carbon Border Adjustment Mechanism would cut annual emissions imported from the European Union by around 25 % through trade reallocation. The findings indicate that carbon border regulation is an important tool for promoting more sustainable food systems.