open access publication

Article, 2023

Carbon leakage in a small open economy: The importance of international climate policies

ENERGY ECONOMICS, ISSN 0140-9883, 0140-9883, Volume 117, 10.1016/j.eneco.2022.106447


Beck, Ulrik R. [1] Kruse-Andersen, Peter K. 0000-0002-0378-9321 (Corresponding author) [2] Stewart, Louis B. [3]


  1. [1] Kraka, Copenhagen, Denmark
  2. [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD];
  3. [2] Univ Copenhagen, Dept Econ, Copenhagen, Denmark
  4. [NORA names: KU University of Copenhagen; University; Denmark; Europe, EU; Nordic; OECD];
  5. [3] Danish Res Inst Econ Anal & Modelling DREAM, Copenhagen, Denmark
  6. [NORA names: Miscellaneous; Denmark; Europe, EU; Nordic; OECD]


A substantial literature investigates carbon leakage effects for large countries and climate coalitions. However, little is known about leakage effects for a small open economy within a climate coalition. To fill this gap in the literature, we incorporate international climate policies relevant for a small open EU economy into the general equilibrium model GTAP-E. We focus our analysis on Denmark, but we show that our framework can be applied to any EU economy. We find substantial leakage associated with an economy-wide CO2e tax. This result is strongly affected by EU climate policies. We also present sector-specific leakage rates and find large sectoral differences.


Carbon leakage, Climate policy, Computable general equilibrium, Trade and the environment

Data Provider: Clarivate