The impact of emissions trading schemes on trade

In 2026, the European Union will introduce a Carbon Border Adjustment Mechanism (CBAM) as a means to encourage its trade partners to lower their greenhouse gas emissions. This move is expected to reshape trade flows within the EU. Angelo de Santis and colleagues studied the phased introduction of the European Union's Emissions Trading Scheme (ETS), which placed a price on greenhouse gas emissions, and its effect on European trade.

The ETS was launched in 2003 and was anticipated to increase the cost of imports from countries that also had an ETS in place. However, the change in imports from within the EU following the ETS implementation appeared to be driven more by a reduction in bureaucracy and enhanced regulatory alignment than by the cost of carbon pricing.

Consequently, imports from within the EU increased following the rollout of the ETS phases, even though the scheme imposed a price on carbon. Exports from within the EU did not experience any significant change in response to the ETS introduction, indicating no 'cost penalty' for European exporters. It is possible that this shift in imports from within the EU is part of a broader pattern of increased EU integration.

Nevertheless, when comparing imports in sectors affected by the ETS with imports in sectors not affected, the researchers determined that the increase was specifically due to the ETS, with sectors impacted by the ETS showing a much greater increase in intra-EU imports compared to sectors not affected.