Trade and the Environment: An Application of the WIOD Database

The WIOD database allows for improved empirical analysis on a wide range of important environmental research questions. In this paper we demonstrate the scientific potential of the WIOD database and give answers for very urgent policy questions on the impacts of international trade and structural change on the environment, and vice versa. The debate about the impacts of international trade and structural change on the environment has been – and is still – very heated especially because of its political importance. This holds in particular true for the European Union. Its stringent climate and environmental policy measures are often regarded as potentially harmful for the competitiveness of the energy-intensive European manufacturing sectors. Therefore, structural change has been identified to have a significant impact on environmental issues just because of its potential impact on international trade patterns. Whether such concerns can be justified or not will be discussed in this application of the WIOD database.In a first step, we decompose the development of both local pollutants (as e.g. SO2) as well as global pollutants (as e.g. CO2) by using a simple index decomposition technique. In a next step we are going to conduct a pollution accounting exercise by fully exploiting one of the core features of the WIOD database: the connection of bilateral trade flows and the detailed pollution coefficients in each country. This allows us, compared to other relevant studies, to avoid critical assumptions about the impacts of trade on the environment. In a further step, the paper connects the details of the environmental accounts with the time-series of the input-output tables in order to correct to domestic pollution coefficients.We provide insights into the driving forces of structural change and its close relationship to international trade in the presence of environmental policy. Our preliminary results show, that European climate policy has been offset by trade for the case of global pollutants. However, this possible shift in production has led to a significant clean-up in major developing countries. We expect that this could be due to technology transfers and spillover effects.