International trade and climate policy: the role of firm heterogeneity

Effective policies to reduce greenhouse gas emissions are indispensable to combat climate change. As a substantial share of emissions is embodied in internationally traded goods, climate policy and trade are closely intertwined. This dissertation leverages firm-level data and general equilibrium modeling to generate novel insights into this relationship. The four original research articles of this dissertation are categorized into two parts. The first part focuses on micro-level evidence. Chapter 2 highlights the relevance of accounting for emissions embodied in domestically and internationally sourced intermediate inputs at the firm-level, specifically when comparing the emission intensities of exporting to non-exporting firms. It further shows how the interdependency between exporting and international sourcing shapes firm-level emission intensities. Chapter 3 provides empirical evidence on how cost compensation for firms exposed to carbon pricing affects their competitiveness and incentives to reduce emissions. The second part turns to the aggregate, general equilibrium consequences of carbon pricing and trade liberalization. While adopting a macro perspective, it emphasizes how microlevel firm heterogeneity shapes aggregate outcomes. Chapter 4 analyzes the impact of carbon pricing and accompanying tools to protect exposed firms on real income and global emissions. Chapter 5 studies the effect of trade liberalization on global emissions and how different approaches to modeling firm heterogeneity affect this result.