Does industry concentration matter for pollution haven effects?

Produced as part of the Governments, markets and climate change mitigation CCCEP research programme theme

Working Paper 90


This paper focuses on the role of firm’s market power and industry concentration in a still debated issue of pollution haven effects or carbon ‘leakage’, represented as increased trade flows in the most polluting sectors from the developing world spurred by regulations in developed countries.

A firm in a relatively competitive industry with less market power has no option to transfer costs of environmental regulations to consumers and may be more likely to resort to ‘importing pollution’ from places with lax environmental standards that insure cheaper inputs as a result of such regulations at home.

This paper finds that a degree of industry’s concentration has an effect on firms’ margins of products that were affected by the EU ETS policy in 2005 and that are imported from the developing world. Firms in more competitive industries increased their imports of products affected by the EU ETS from the developing world post 2005 more than firms in a less competitive setting.