Pollution Offshoring and Emission Reductions in EU and US Manufacturing

Abstract

Between 1995 and 2008, the European Union and the United States raised environmental standards and concurrently experienced important reductions in emissions from manufacturing despite a rise in output. Levinson (2009) finds that the offshoring of polluting industries to countries with lower environmental standards played only small role in the cleanup of US manufacturing, which was largely due to improvements in production technique. But there is no evidence of whether US patterns hold in other developed economies. I provide the first analysis of the pollution intensity of EU production and imports to examine which forces drove the EU cleanup. I find that concerns about the effect of pollution offshoring were unfounded in the European Union, not because the effect was small like in the United States, but because the patterns of specialization of EU production and imports were actually exactly opposite to what pollution offshoring would predict. Starting in the early 2000s, EU manufacturing increasingly produced more pollution-intensive goods while imports became progressively less pollution-intensive, especially from low-income countries. The "brown" specialization of EU production is difficult to explain, but about a quarter can be matched by increased demand for EU exports of polluting goods. However, similar to the US cleanup, changes in production and imports were overwhelmed by improvements in production technique, which were the main drivers of the cleanup of manufacturing.

Keywords: Trade and environment, Environmental account and accounting, Technological innovation, Input output table

JEL Classification: D57, F18, Q55, Q56