Trade’s emissions paradox: What it means for developing countries

International trade plays a complex role in shaping environmental outcomes. A new World Bank paper, “Trade’s Emissions Paradox: Cutting Greenhouse Gases, Raising Air Pollution,” prepared for the forthcoming flagship report “Reboot Development: The Economics of a Livable Planet,” brings a new perspective to the debate by revealing an important insight: while global trade has contributed to reducing greenhouse gas (GHG) emissions, it has also been associated with an increase in harmful air pollution in the form of PM2.5 ( tiny airborne particles less than 2.5 micrometers in diameter that can penetrate deep into the lungs and cause serious health problems). This paradox is particularly relevant for developing countries, which are often deeply integrated into global supply chains and already face significant environmental and health challenges as a result.

The Green Sourcing Effect and the Pollution Paradox

The paper’s central finding is that international trade, through what is called the “green sourcing effect,” has led to a reduction in global GHG emissions—by 0.9–2.2% annually from 2004 to 2021. This happens because high-income countries (HICs) – such as Germany, Canada, or the United States -tend to use cleaner technologies to manufacture products that are typically associated with high GHG emissions. When developing countries import these products instead of producing them locally with less efficient and more polluting technologies, the result is a net reduction in global GHG emissions. However, the same trade patterns have led to an increase in global PM2.5 emissions by up to 1% in most years. This is because upper-middle-income countries (UMICs), such as China, South Africa, or Brazil, which often have less efficient and more polluting technologies compared to HICs, are major exporters of PM2.5-intensive goods. Meanwhile, HICs are the main importers of these goods, shifting the burden of air pollution to the exporting countries.

In other words, trade is helping the world cut GHG emissions but is making air pollution worse, especially in countries with weaker environmental regulations and older technologies.
 

Figure 1. The impact of trade on global direct GHG and PM2.5 emissions

Why Is This Important?

This finding challenges the simplistic view that trade is either good or bad for the environment.

The paper shows that the environmental impact of trade is pollutant-specific and depends on the pollutants involved and the relative efficiency of the countries trading with each other. The paper also introduces the concept of “displaced emissions”—the emissions that are avoided in one country because it imports goods instead of producing them domestically, often at a higher environmental cost. This nuanced understanding is new and important for designing effective policies.

For developing countries, especially UMICs and lower-middle-income countries (LMICs), the findings are highly relevant for a number of reasons:

• Air pollution Burden: Many developing countries are major exporters of PM2.5-intensive goods. This means they are experiencing higher levels of air pollution, which directly affects public health, causing respiratory and cardiovascular diseases and premature deaths.
• Emissions Leakage: The paper points to the offshoring of pollution-intensive industries to countries with weaker environmental policies. This “emissions leakage” means that developing countries may attract polluting industries, increasing their environmental and health burdens.
• Less Efficient Production: If developing countries were to produce domestically what they currently import, emissions would likely be even higher due to less efficient technologies and weaker regulations.

Given these findings, policymakers in developing countries may want to recognize that the environmental impacts of trade are not uniform and that strategies to reduce GHG emissions may not automatically address other pollutants such as PM2.5. This calls for tailored approaches that target specific pollutants. Strengthening and enforcing air quality standards, particularly for export-oriented industries, can help mitigate PM2.5 emissions and improve public health outcomes. Policymakers could also provide incentives—such as subsidies, tax breaks, or improved access to finance—to encourage industries to adopt cleaner and more efficient technologies. Improving the energy mix and efficiency in the power sector is important, as indirect emissions from electricity and heat production significantly contribute to overall pollution. Collaboration with high-income countries to facilitate technology transfer and capacity building can help prevent emissions leakage and harmonize environmental standards. It is also important to ensure that trade agreements and policies include comprehensive environmental impact assessments that consider both GHG and PM2.5 emissions, as well as the “green sourcing effect.” Finally, investing in better data collection and reporting at the product and sector level will enable more targeted and effective policy interventions.
 

Turning the Paradox into Progress

The “emissions paradox” highlights the complex relationship between trade, GHG emissions, and air pollution. While trade can contribute to reducing global carbon and GHG emissions, it may also lead to increased local air pollution if not carefully managed. Policymakers in developing countries can consider strengthening environmental regulations, encouraging cleaner technologies, and ensuring that the benefits of trade are balanced with public health considerations.