The geography of trade and the environment: the case of CO2 emissions

The geography of trade and the environment: the case of CO2 emissions

According to recent theoretical developments, there are three key channels through which trade affects the environment: the first is via its effect on the scale of economic activity, the second is via a composition effect and the third is via a technical effect. This paper argues that, in addition to these traditional factors, the geography of international trade flows does matter.

The paper clarifies that since transport activity is a source of pollution, trading with close countries does not have the same implications as trading with distant ones. However, this geographical distance effect can be offset by a transport sector effect, i.e. the use of different modes, techniques and scale of transport. In this respect, when distances increase, it is expected that transport companies use less energy-intensive modes of transport.

The document tests these two opposite effects for carbon dioxide (CO2) emissions in a set of 149 countries as well as for different economic groups over the period 1986 to 2003. The main findings show a U-shaped relation between distance and CO2 emissions: an increase in distance first decreases CO2 emissions but only up to a certain level; for long distances, the relation is reversed.

All things considered, the authors underline the possible high costs in terms of CO2 emissions of globalised trade as opposed to regionalised trade flows.