Statements by Barack Obama on his travels through Asia have lowered expectations that December’s global summit on climate change in Copenhagen will lead to binding cuts in carbon emissions. The urgency of dealing with climate change means that many countries are drawing up national policies to limit emissions. Yet in a globalised world, where production is increasingly mobile across national borders, some worry that there is a fundamental tension between the effectiveness of such policies and a commitment to open trade.

These carbon-reduction policies, such as America’s proposed cap-and-trade scheme, typically put a price on carbon in the hope that this will force producers to bear the costs that their activities impose on the climate. But if different countries cut emissions by different amounts, as is likely, then the price of carbon will vary across nations. If so, manufacturers in countries with tighter environmental rules will face added costs which foreign competitors do not. This could in turn prompt them to relocate some of their production to “carbon havens”, where the cost of polluting is lower. If enough production emigrates, global emissions might even increase.

The likely scale of relocations may be overstated. A new study by economists at the World Bank and the Peterson Institute for International Economics, a think-tank in Washington, DC, finds that some production would migrate, but that the net increase in emissions in poor countries would be small.

Just as bananas are best grown in warmer places, imposing a higher carbon price does not compel German manufacturers of capital goods to decamp to China. Also, the increased output of some energy-intensive goods in poorer countries draws some productive resources away from other industries there. Overall, the authors find that if Europe and America were to reduce emissions by 17 per cent from their 2005 levels by 2020, the additional increase in developing-country emissions would be only 1 per cent. Global emissions would still be almost 10 per cent lower than if nothing had been done. So rising global emissions due to carbon leakage are hardly as big a worry as some make them out to be.

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