Can Environmental Regulations Drive International Trade? Lessons for Asia from the European Union’s Performance of Buildings Directive

International trade is one of the key mechanisms for the diffusion of energy-efficient technologies. Yet, little is known about how environmental regulations, such as those aimed at increasing energy efficiency, affect international trade in environmental or green goods. This paper studies the case of the Energy Performance of Buildings Directive, which was adopted in 2010 by the European Union. We use pooled ordinary least square and Poisson estimators to empirically test whether and how differences in implementation affected trade in relevant products. We find strong evidence that those EU member states that implemented the directive to a large extent had substantially higher import volumes of environmental products at possibly lower prices. For certain environmental products, exports equally increased. Our paper is the first to show that the implementation of environmental regulation can spur international trade in environmental products. These findings can provide important lessons for Asia and help transform it into a more competitive, prosperous, and greener region.