Searching for carbon leaks in multinational companies

Produced as part of the Evaluating the performance of climate policies CCCEP research programme theme

Does climate change policy lead companies to shift the location of production, thereby creating carbon leakage? We examine the impact of the European Union Emissions Trading System (EU ETS) on the geographical distribution of carbon emissions within multinational companies based on data from the Carbon Disclosure Project for the period 2007-2014. Because they already operate from multiple locations, multinational firms should be the most prone to carbon leakage. Our data includes regional emissions of 1785 companies, of which 142 are subject to EU ETS regulation. We find no evidence that the EU ETS has induced a displacement of carbon emissions from Europe towards the rest of the world. Our results suggest that claims that the EU ETS would cause carbon leakage might have been exaggerated.