Speaker：Prof. Dy, Kenneth Bicol (Department of Economics, Tunghai University)
Topic：Unpacking Carbon Leakage along the Global Value Chains
Speaker：Prof. Dy, Kenneth Bicol (Department of Economics, Tunghai University)
Time：Sep 11 (Friday) , 2026, 10:40-11:30
Place： 4F-427, Assembly Building I
Abstract
Carbon leakage is the main critique of climate policies, yet its sources remain poorly understood. With global value chains (GVCs), leakage may arise not only from the relocation of dirty production across countries, but also from changes in production staging, sourcing patterns, and the balance between upstreamness and downstreamness. We develop a multi-country quantitative trade and environment model that distinguishes between upstream and downstream trade. Calibrated to the OECD Inter-Country Input-Output table, we trace how climate policy reallocates embodied carbon across countries and production stages using a carbon-accounting decomposition. We find that carbon pricing induces a shift from intermediate goods exports to final goods exports and local consumption of final goods. This uncovers that global production lines, faced with carbon pricing, will tend towards shorter value chains. This may be due to cost minimizing behavior of the market to lower the overall carbon price burden on the entire production chain. WE also find that the share of emissions due to local sourcing decrease in countries with carbon pricing. When the European Union implements carbon border adjustment mechanism, it does not completely reverse the situation back to the status quo. On the contrary, the shortening of emissions value chain deepens further as traded goods become more expensive and regions around the globe become less economically dependent on one another (joint with Paul I. Ko, Yan-Jyuan Li, and Han Yang).