The “scale” effect refers to the impact on greenhouse gas emissions from the increased output or economic activity resulting from freer trade. The general presumption is that trade opening will increase economic activity and hence energy use. Everything else being equal, this increase in the scale of economic activity and energy use will lead to higher levels of greenhouse gas emissions.
The “composition” effect refers to the way that trade liberalization changes the mix of a country’s production towards those products where it has a comparative advantage. This re-allocation of resources within a country is how trade improves economic efficiency. The effect on greenhouse gas emissions will depend on the sectors in which a country has comparative advantage. The composition effect will result in less greenhouse gas emissions if the expanding sectors are less energy intensive than the contracting sectors. Whether the composition effect results in higher or lower greenhouse gas emissions is therefore difficult to predict in advance.