Are Carbon Leakages Traceable to EU Environmental Policy Stringency? Empirical Evidence from Agricultural Imports in Selected EU Countries from Their External Trading Partners

Abstract This study examines whether European Union (EU) environmental policy stringency generates trade-induced carbon leakage in agriculture. Unlike studies on energy-intensive manufacturing, evidence for agricultural trade remains scarce despite its importance in EU climate policy. Using bilateral panel data from 2003 to 2024 for five major EU agri-food importing countries and their leading external agricultural trading partners, we estimate pooled OLS and fixed effects models, quantile regressions, an instrumental variables (IV) strategy. We use EU agricultural emissions as an instrument for EU environmental policy stringency. The first stage confirms strong instrument relevance. In the second stage, a 1-point tightening of EU environmental policy increases agricultural emissions in partner countries by 3.25 Mt of CO2-equivalent, indicating a causal leakage channel through higher EU agri-food imports. The highest emission increases occur in high-fertilizer use systems abroad. The quantile regressions show that the leakage effect is strongest for exporting countries that are already high emitters. Overall, the evidence is consistent with pollution-haven hypothesis. Policy implications highlight the need for EU climate diplomacy, improved measurement and verification systems, and targeted trade-related climate measures for sustainable development. JEL codes: Q56, Q58, F18, Q17