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Abstract Understanding carbon emissions embodied in trade is an important prerequisite for the effective formulation of climate mitigation policies. Based on input–output analysis and panel regression models, this study proposes a multi-step forecasting procedure to simulate carbon emissions embodied in bilateral trade. We calculate carbon emissions embodied in the trade between China and Australia during 2000–2014 and forecast the same for the period 2015–2022 under four different development scenarios. The results show that, during 2000–2014, net carbon outflow from China to Australia increased from 2.2 to 15.5 Mt CO 2 , concentrated in textile and heavy manufacturing sectors. The simulation results show that, the forecasts of "R&D focus" and "GDP focus" scenarios constitute the lower and upper bounds of embodied emissions, and the latter is more than two times of the former in 2022 both for embodied emissions in Australia's exports and China's exports. Finally, conclusions are drawn and policy implications are discussed. Highlights • A multi-step forecasting procedure of carbon emissions embodied in trade is proposed. • Carbon emissions embodied in China–Australia trade during 2000–2014 are analyzed. • A scenario analysis is conducted for emissions embodied in China–Australia trade. [ABSTRACT FROM AUTHOR]