Carbon Offshoring: Evidence from French Manufacturing Companies:Evidence from French Manufacturing Companies

Concerns about carbon offshoring, namely the relocation of dirty tasks abroad, undermine the efficiency of domestic carbon mitigation policies and might prevent governments from adopting more ambitious climate policies. This paper is the first to analyse the extent and determinants of carbon offshoring at the firm level. We combine information on carbon emissions, imports, imported emissions and environmental policy stringency based on a unique dataset of 5,000 French manufacturing firms observed from 1997 to 2014. We estimate the impact of imported emissions on firm’s domestic emissions and emission intensity using a shift-share instrumental variable strategy. We do not find compelling evidence of an impact of carbon offshoring on total emissions, but show that emission efficiency improves in companies offshoring emissions abroad, suggesting that offshored emissions are compensated by an increase in production scale. The effect is economically meaningful with a 10% increase in carbon offshoring causing a 4% decline in emission intensity. However, this effect is twice as small as that of domestic energy prices and, importantly, does not appear to be driven by a pollution haven motive.