Regulatory interventions to combat the climate crisis are at the top of the global policy agenda and governments around the world have introduced policies to reduce carbon emissions via carbon taxes, or cap and trade systems, and other regulatory tools. An important but underexplored question concerns the global spillover effects of these policies. A particular concern is “carbon leakage” – the shift of greenhouse gas emissions from one country to another because of stricter regulation; such carbon-leakage effects could undermine the global policy goal of reducing emissions.

This paper studies how taxing carbon emissions by firms in the developed world spills over to developing countries through carbon leakage. The research exploits the cap-and-trade system of the European carbon market, domestic environmental taxes in Europe, and environmental policy stringency in OECD countries and identifies the local effects on carbon leakage using location-specific data on multinational firms’ operations and environmental pollution in Africa. In broad terms, the paper analyses the potential externalities of environmental policy in the developed world on developing countries.

Shedding light on the spillover effects of carbon-reduction policies in developing countries is particularly important, given that carbon-leakage effects could lead to an increase in inequality. This research will create a publicly available database on multinational companies’ global operating footprint paired with localised information on greenhouse gas emissions. This data will be made available for future researchers and allow users to assess global companies’ transparency in ESG matters and their potential carbon footprint; thus the dataset can be an invaluable tool for policymakers and practitioners in formulating emissions-reduction policies.