Trade’s Emissions Paradox: How Global Commerce Cuts CO₂ but Raises Air Pollution

A recent working paper from the World Bank’s Planet Vertical unit and Economic Policy Global Department, funded by the Korea Green Growth Trust Fund, exposes a striking contradiction at the heart of global commerce: international trade helps reduce greenhouse gas (GHG) emissions globally but worsens local air pollution in the form of PM2.5. The study, authored by Ebad Ebadi and Enrique Aldaz-Carroll, draws on data from the Global Trade Analysis Project (GTAP) between 2004 and 2021. Using emissions and trade data from 133 countries across 39 sectors, the research captures nearly the entire global economy and zeroes in on what it calls the “green sourcing effect”, the emissions avoided when countries import goods instead of producing them using more polluting domestic methods.

Exporting Pollution: A Rising Trend in Trade Emissions

The study finds that exports are playing an increasingly pollution-intensive role in global trade. In 2004, exports accounted for just 13 percent of annual GHG emissions and 13 percent of PM2.5 emissions. By 2021, those figures had more than doubled to 31 percent and 25 percent, respectively. This stark rise reflects a global trend toward offshoring pollution-heavy industries to countries with weaker environmental protections. China is the largest exporter of both GHG and PM2.5 emissions, owing to its vast output of energy-intensive goods. The United States, Russia, the UAE, and Canada also rank among the top GHG exporters, while Brazil and India join China atop the PM2.5 list. While high-income countries dominate GHG-intensive exports, middle- and lower-income countries are more prominent exporters of PM2.5-heavy goods, largely due to more lenient pollution controls and older technologies.

Displaced Emissions: How Trade Can Help the Climate

Yet trade can also mitigate climate change by shifting production to greener countries. The study introduces the concept of “displaced emissions”, which are avoided when imports come from countries with lower emission intensity. From 2004 to 2021, international trade helped prevent between 390 and 954 million metric tons of CO₂-equivalent emissions each year, amounting to a 0.9 to 2.2 percent reduction in global GHG emissions annually. This green-sourcing effect is most visible when high-income countries produce goods for export to developing countries. Because HICs tend to employ more energy-efficient and less polluting technologies, their exported goods generally have a smaller carbon footprint than if the importing countries had produced them locally. Countries like India, China, and Chile significantly contributed to global emission reductions by importing more from such efficient exporters.

The Air Pollution Trade-Off: PM2.5 on the Rise

However, the story is very different when it comes to PM2.5, a dangerous air pollutant linked to millions of premature deaths worldwide. In contrast to the climate-friendly GHG trends, international trade has consistently led to increased global PM2.5 emissions, by as much as 1 percent annually. This is mainly because upper-middle-income countries such as China, India, and Brazil, which often have higher emission intensity, export PM2.5-heavy goods to wealthier nations that use cleaner production methods. As a result, while trade shifts carbon-intensive production to greener nations, it pushes particulate pollution in the opposite direction, from cleaner to dirtier production hubs. This imbalance poses serious health risks, especially in countries with limited institutional capacity to regulate and mitigate air pollution.

When indirect emissions, such as those from power generation or upstream supply chains, are also considered, the contrast becomes even more dramatic. While the GHG reduction benefits shrink, the increase in PM2.5 becomes more pronounced. In 2021, the difference between direct and full-scope (direct and indirect) PM2.5 emissions was over 500 gigagrams, underscoring the importance of cleaner electricity grids. Even firms using efficient production processes may indirectly emit more if their energy sources are coal- or oil-based, showing how deeply the power system influences trade’s pollution footprint.

Balancing Global Trade with Environmental Justice

Beyond national borders, the emissions paradox has deep implications for global environmental equity. Countries like India and Brazil reduce global emissions by importing greener goods, but their exports, made with more polluting technologies, add to the global PM2.5 load. Meanwhile, the sectors most responsible for trade-related GHG emissions include electronics, chemicals, and electrical equipment, while PM2.5 emissions are heavily driven by chemical and mineral products. The study also finds that while some nations act as net reducers of global GHGs, others, especially wealthy importers, are contributing to more localized air pollution elsewhere. This raises difficult questions about how to balance economic globalization with public health and environmental fairness.

The authors acknowledge certain limitations in their analysis. Due to data constraints, the study does not include emissions from shipping or air transport, nor does it examine services trade. Additionally, the analysis uses average sectoral emissions, which may obscure important firm-level variations. Still, the research provides one of the most comprehensive global estimates to date of how trade affects the environment in both positive and negative ways.

Ultimately, the study concludes that trade is not an environmental villain nor a hero, but rather a powerful mechanism that can both reduce climate impacts and intensify local pollution if left unchecked. It calls for greater international cooperation to harmonize environmental regulations, promote clean technology, and ensure that trade policy reflects both climate and health goals. By confronting the emissions paradox head-on, policymakers can design trade systems that deliver both economic opportunity and environmental sustainability.