• Environmental and Resource Economics Review
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• v.21 no.3
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• pp.519-542
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• 2012

In this paper, we empirically analyzed whether carbon leakage really happened in EU by comparing before and after the period of EU ETS. We regarded foreign direct investment outflows as indicator of carbon leakage and analyzed panel regression between production cost including environment cost and this FDI variable. Also we consider foreign market potential to analyze market oriented FDI. According to this analysis, carbon leakage was observed in some models for manufacturing industry. However carbon leakage did not prove consistently in a variety of models and it is hard to speak carbon leakage was happened in EU ETS. Notwithstanding relatively short time series of data, in the view of the fact that carbon leakage was tested in some models, Korea also should keep in mind the possibility of carbon leakage and design emission trading scheme.