The Measurement of CO2 Embodiments in International Trade

Efforts to reduce greenhouse gas (GHG) emissions which are linked to the global climate system such as the Kyoto Protocol might fail, if emission-restricted states relocate their carbon-intensive production activities to non-restricted countries where the primary production factors depend on more GHG-intensive sources. Such a relocation process and increased ‘carbon trade’ appear to be contrary to the GHG reductions envisioned in international agreements. This study addresses the issue of carbon embodiments in trade using internationally-comparable OECD data sources (Input-Output, Bilateral Goods Trade and CO2 emissions) for 41 countries/regions by 17 industries. Simulation results under base case scenarios for the mid-1990s and the early 2000s suggest that “trade deficits” of CO2 emissions are observed in 21 OECD countries in the early 2000s and that for 16 countries, the magnitude of the trade deficit increased in the late 1990s. While a third (860 Mt CO2) of the global increase in production-based emissions took place within the non-OECD economies in the late 1990s, more than half of the consumption-based emission (1550 Mt CO2) is still attributable to OECD consumption. The sensitivity simulations imply that an increase in global trade intensity has an increasing impact on embodied emissions while technology transfers from carbon-intensive countries to high carbon-intensive countries reduce global emissions and carbon trade gaps.