The Effects of EU Carbon Taxes on the UK Food Trade Market and Emissions : A Micro-Simulation with a Structural Gravity Model

The world’s economy has changed radically in recent years, becoming much more integrated. This integration is particularly relevant in the generation and management of global public goods, and global environmental threats like greenhouse gases (GHG). In fact, despite the contribution of trade in reducing poverty levels around the world, concerns remain regarding the impact of trade on the environment. To this extent, carbon taxes can be a very important tool to reduce global carbon emissions. In this paper, the ex-ante effects of a (hypothetical) carbon tax on the prices of imported food products on trade flows and carbon emissions are modelled. To analyse the effects of carbon taxes on the UK trade market, a structural gravity model is developed, which models trade flows by country size, distance, import prices and a multilateral resistance term that captures the level of integration of a country into the world economy. This study shows that the imposition of EU carbon taxes would reduce UK emissions derived from the European import of dairy and meat products by 37.8 MtCO2-eq with some positive nutritional outcomes. This reduction comes at the cost of lower trade flows, especially related to meat, dairy and coffee products. The analysis requires further investigation to accurately estimate the environmental outcomes related to the entire food sector