open access publication

Article, 2023

Carbon leakage in a small open economy: The importance of international climate policies

In: Energy Economics, ISSN 0140-9883, 1873-6181, Volume 117, Page 106447, 10.1016/j.eneco.2022.106447

Contributors (3)

Beck, Ulrik R [1] Kruse-Andersen, Peter Kjær (0000-0002-0378-9321) (Corresponding author) [2] Stewart, Louis B. [3]


  1. [1] Kraka, Denmark
  2. [2] University of Copenhagen
  3. [NORA names: KU University of Copenhagen; University; Denmark; Europe, EU; Nordic; OECD]
  4. [3] Danish Research institute for Economic Analysis and Modelling (DREAM), Denmark


A substantial literature investigates carbon leakage effects for large countries and climate coalitions. However, little is known about leakage effects for a small open economy within a climate coalition. To fill this gap in the literature, we incorporate international climate policies relevant for a small open EU economy into the general equilibrium model GTAP-E. We focus our analysis on Denmark, but we show that our framework can be applied to any EU economy. We find substantial leakage associated with an economy-wide CO 2 e tax. This result is strongly affected by EU climate policies. We also present sector-specific leakage rates and find large sectoral differences.


Denmark, EU climate policy, EU economies, GTAP, analysis, carbon leakage, carbon leakage effects, climate coalitions, climate policy, coalition, countries, differences, e-tax, economy, effect, framework, gap, importance, international climate policy, largest country, leakage, leakage effects, leakage rate, literature, open economy, policy, rate, results, sectoral differences, small open economy, substantial leakage, substantial literature, tax