Extra-regional trade and consumption-based carbon dioxide emissions in the European countries: Is there a carbon leakage?

The European countries are committed to making Europe the first carbon-neutral continent by 2050 under the carbon leakage debates. Carbon leakage occurs when carbon-intensive production relocates to environmentally unregulated countries. The trade channel of carbon leakage refers that the carbon-loaded products finally come back through imports and increase consumption-based carbon emissions in the decarbonization-committed countries. This study probes the effects of extra-imports (imports from non-European countries) share on per capita consumption-based carbon dioxide emissions (CCEpc) in the panel of 31 European countries from 1995 to 2018. After identifying cross-country dependence, unit root, heterogeneity, and cointegration, the study applies the common correlated effects mean group (CCEMG) and augmented mean group (AMG) estimators, followed by the Emirmahmutoglu-Kose causality test. The results reveal a carbon leakage pattern that extra-imports share has both associative (positive) and causal (one-way) effects on CCEpc. Other results unveil a strong decarbonization contribution from enhancing renewable energy supply against the carbonization forces of growing extra-exports (exports to non-European countries) share, real gross domestic product, and comparative advantage in high-tech manufactures, while population density's influence is statistically insignificant. Some policy implications including carbon-adjusting border taxes on trade are drawn for regional and global mitigation undertakings.