Production in manufacturing firms in high income countries is generally becoming cleaner. Some of this trend has been shown to be due to adoption of new technologies, but carbon offshoring — i.e. when dirty production at home is replaced with imports of carbon-intensive products from abroad — may be an additional factor. If so, this is concerning, since it risks undermining climate policies by simply moving emissions to countries with laxer regulations. Leveraging rich Swedish firm-product level data between 2005–2014, and employing a combination of shift-share instrumental variables and a difference-in-difference estimation approach, I find a compelling paradox: a 10% increase in the import of emission-intensive goods can result in firms' production processes becoming 5% cleaner but increases transport emissions by 2%. This suggests that carbon offshoring does not only shift emissions elsewhere but also generates new ones via transportation. Additionally, I show that the type of offshoring, such as foreign direct investment (FDI), has a much larger emissions-reducing effect than offshoring in the form of imports of inputs not produced in-firm.

We examine how local import competition — measured across different spatial dimensions within Sweden — affects the CO₂ emission intensity of manufacturing firms. Leveraging detailed geographic data on the location of all Swedish manufacturing firms, we provide evidence that increased local import competition leads to lower emissions at the firm level, with the effect diminishing as the distance between producers and importers increases. Our findings indicate that relying on national-level measures of import competition may significantly underestimate the true environmental impact of trade shocks. We identify two primary mechanisms: (i) a pro-competitive efficiency-enhancing effect, where firms experience gains in total factor productivity, increasing value-added, lower marginal costs, and higher markups; and (ii) a product-mix effect, where firms reallocate production away from emission-intensive goods toward cleaner alternatives. Additionally, we find some evidence of firms relying on carbon offshoring as a response to import competition, as well as investment in pollution abatement, suggesting firms adopt a mix of strategies to deal with increasing import competition.

Carbon pricing is a cornerstone of climate policy, yet its firm-level incidence remains poorly understood. This paper provides causal evidence on how energy price shocks affect emissions, productivity, employment, and price-setting behavior. I combine matched employer–employee and firm-level data from Sweden (2006–2014) with a shift-share instrumental variable and a dynamic difference-in-differences design that exploits variation in exposure to energy tax reforms. Higher energy prices lead to substantial reductions in energy use and CO₂ emissions, confirming the environmental effectiveness of carbon pricing. However, these gains come with economically meaningful adjustments: firms experience declines in productivity and employment, alongside incomplete cost pass-through to output prices. The incidence is highly heterogeneous—low-productivity firms and high-skilled workers bear disproportionate costs, while more productive firms are better able to absorb shocks. These findings reconcile conflicting views in the literature by showing that carbon pricing generates significant environmental benefits but uneven economic impacts across firms and workers. The results highlight the importance of complementary policies to mitigate distributional effects while preserving incentives for emissions reduction.