LAUSR

Although European countries have made great efforts to reduce their territorial carbon emissions, global emissions are still growing. Multinational enterprises (MNEs) operating within Europe, as transnational institutions, can make significant contributions in translating European efforts into global emissions reduction. Here, we estimate the carbon footprint of the foreign multinationals’ affiliates (FMNEs) operating within the European Union (EU) in 2015 as a first assessment of the MNEs’ potential regarding European and global carbon emissions reduction targets. Our findings show that FMNEs generate 17% of the total carbon footprint of the EU but only 12% of the total value added. Thus, the net impacts of FMNE are considered to be in environmental deficit because their adverse environmental impacts are relatively higher than their positive economic ones. Calculations are made under the assumption that FMNEs produce using the same technology as their domestic peers; therefore, the carbon/economic imbalance found is attributed to the FMNEs’ distribution across sectors. The participation of FMNEs in carbon‐intensive industrial sectors are remarkably high in low‐income EU members; therefore, the effective reduction of the carbon footprint in those countries is largely conditioned by the decisions of foreign MNEs’ headquarters. Furthermore, those countries are more vulnerable to capital leakages in the case where a European carbon tax was to be imposed. We conclude by discussing the economic and policy implications of the country‐level inequality of MNEs’ environmental impacts within the EU.