EE Seminar : Firms' Supply Chain Adaptation to Carbon Taxes

Fri, 17 Apr 2026 11:00:00 +0200

Speaker: Isabelle Méjean
Address: UMR CEE-M Institut Agro de Montpellier / INRAE - Bat. 26 - Centre de documentation Pierre Bartoli 2 Place Viala 34000 Montpellier

This paper studies how firms adjust input sourcing in response to climate policy. Using the EU Emissions Trading System (ETS) as a natural experiment and French product level import and production data, we show that firms increasingly shifted imports of ETS-regulated inputs to non-EU countries over the 2010s as the policy became more stringent, indicating carbon leakage. This leakage is economically significant: the share of ETS-regulated products sourced from outside the EU rose by 4.3 percentage points after the ETS was implemented. Motivated by these empirical findings, we estimate a heterogeneous firm model using pre-ETS data. Simulating the model under a e100 carbon tax reproduces observed leakage, raises domestic prices and modestly reduces French emissions. Adding a carbon tariff similar to the EU’s Carbon Border Adjustment Mechanism (CBAM) reverses the leakage but further increases prices. The combined ETS+CBAM regime is seven times more effective than the ETS alone in reducing emissions.

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EE Seminar : Firms' Supply Chain Adaptation to Carbon Taxes