Green trade as a competing policy choice for mitigating production-based and consumption-based emissions in G7 economies.

Green trade has emerged as a promising pathway for mitigating climate change; however, its specific impacts on different types of emissions have not been sufficiently examined. While existing studies often explore the overall effects of green trade on CO2 emissions, they fail to differentiate between the distinct roles of green exports and green imports and their specific impacts on production-based CO2 (PCO2) and consumption-based CO2 (CCO2). This study addresses this critical gap by investigating the disaggregated impacts of traditional and green trade on PCO2 and CCO2. To achieve this objective, this study collects annual data from the period from 2000 to 2020 from G-7 economies. The study applied fully modified ordinary least squares (FMOLS) to empirically analyse the results. Dynamic ordinary least squares (DOLS) was applied to test the robustness of the findings. The results revealed that traditional exports increase PCO2 levels because their production methods require high amounts of energy. In contrast, green exports play a significant role in reducing PCO2. Similarly, while traditional imports exacerbate CCO2 because of the embedded carbon in carbon-intensive goods, green imports help reduce CCO2 by lowering the reliance on pollution-heavy imports. Our results highlight the pivotal role of green trade in mitigating global carbon emission. This study demonstrates that green exports and imports are instrumental in reducing PCO2 and CCO2, thus providing solid evidence for the formulation of trade policies that align economic growth with sustainable environmental practices. Green trade has emerged as a powerful mechanism for the fight against climate change.