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Carbon footprints and the role of international trade in climate policy Do developed countries out-source carbon emissions to developing countries? Glen Peters Center for International Climate and Environmental Research Oslo (CICERO),

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Carbon footprints and the role of international trade in climate policy

Do developed countries ‘out-source’ carbon emissions to developing countries?

Glen Peters Center for International Climate and Environmental Research – Oslo (CICERO), glen.peters@cicero.uio.no

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Carbon footprints and the role of international trade in climate policy

Do developed countries ‘out-source’ carbon emissions to developing countries?

Glen Peters Center for International Climate and Environmental Research – Oslo (CICERO), glen.peters@cicero.uio.no

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Value added and the role of international trade in policy

Do developed countries ‘out-source’ labour to developing countries?

Glen Peters Center for International Climate and Environmental Research – Oslo (CICERO), glen.peters@cicero.uio.no

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  • Background and framing
  • Defining “carbon leakage”
  • Research Questions
  • Methodology
  • GTAP-MRIO
  • Model comparisons
  • Applications
  • Chronological perspective

Outline

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BACKGROUND AND FRAMING

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Growth rate 1990-1999 1% per year Growth rate 2000-2010 3.1% per year Growth rate 2010 5.9% yr Growth rate 2009

  • 1.3% per year
  • 2010:

Emissions: 9.1 PgC Growth rate: 5.9% 1990 levels: +49% 2000-2010 Growth rate: 3.1%

Global Carbon Emissions from Fossil-Fuels, Cement, and Flaring

UNFCCC Kyoto KP ratified UNFCCC perhaps not meeting its objectives?

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The Kyoto Protocol has been a success!

The Kyoto Protocol View

…

  • r not?

Developing countries critical in the future Developed Countries (Annex B) Developing Countries (non-Annex B) Legend: Production (bottom, solid) Consumption (top, dotted)

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Success or disaster?

  • Method of accounting critical to the outcome
  • Production/Territorial
  • Consumption for global pollutants?
  • Increase in net import five times greater

than emission reductions (1990-2008)

  • Is this “carbon leakage”?
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  • Strong carbon leakage
  • Increase in emissions in non-Annex B

countries as a result of mitigation policies in Annex B

  • Weak carbon leakage (carbon migration):
  • Increased production in non-Annex B to

meet consumption in Annex B

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  • Static CGE analysis
  • Put a carbon tax in Annex B countries
  • Estimate emission reductions in Annex B

compared to emission increase in non- Annex B

  • Highly dependent on assumptions
  • Generally small (~5-20%, possibly >100%)
  • Difficult to measure (other factors)
  • Perhaps a few %

Strong Carbon Leakage

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  • Dynamic analysis (usually historic)
  • Increase in emissions in non-Annex B due to

consumption in Annex B

  • Not directly measurable
  • Based on data (usually MRIO)
  • Robust results, offsets emission reductions
  • Policy drivers not considered
  • Forward look studies difficult

– Who predicted the growth of China?

Weak Carbon Leakage

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Outsourcing vs Offshoring

  • Outsourcing
  • Get someone else to do the production
  • Offshoring (c.f., Pollution Havens)
  • Relocate activities
  • Strong carbon leakage (CGE changes)
  • Changes driven by change in tax regime
  • Weak carbon leakage (any change)
  • Changes driven by existing conditions
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  • What are the global repercussions of

economic activity?

  • Exported and imported emissions
  • Static analysis, many studies now
  • Are emission reductions offset by

increases in imported emissions?

  • Dynamic, backward looking analysis
  • Policy drivers are a different question

Broad research questions

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METHODOLOGY

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WIOD - Groningen, 26/04/12

GTAP-MRIO

  • Based on the GTAP database

– Constructed for CGE analysis of agriculture and trade policies – 1997 (78 regions), 2001 (87), 2004 (112,129), 2007 (129) – 57 sectors

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WIOD - Groningen, 26/04/12

  • “True” MRIO, no survey information
  • GTAP does not construct MRIO, but the

“components” of an MRIO

– Other MRIO’s construct an unbalanced MRIO, and then balance

  • Extremely fast to construct and solve

– 1sec to construct MRIO from inputs – 6sec to normalise and invert MRIO

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  • Emissions embodied in bilateral trade (EEBT)
  • Domestic emissions to produce exports
  • Simple, fast, transparent
  • GTAP-MRIO exogenous int. transport
  • GTAP-MRIO endogenous int. transport
  • True “carbon footprint”
  • Considers global supply chains

Three modes of operation

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  • Same issues as in value added
  • Emissions embodied in bilateral trade (EEBT)
  • Full MRIO model (global supply chains)

Three modes of operation

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UNCERTAINTY

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  • Obvious assumption
  • …but, not supported by data
  • Sources of uncertainty
  • Input emissions data
  • Definitions of “carbon footprint”
  • MRIOT
  • Smaller than most would think

“Results are too uncertain”

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10 20 30 40 50 60 1960 1970 1980 1990 2000 2010 Carbon dioxide (MtCO2)

CDIAC Statistics Norway

Norwegian emissions

Emissions data is highly uncertain

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Dutch emissions

120 130 140 150 160 170 180 190 200 1970 1980 1990 2000 2010

Energy emissions (MtCO2)

EDGAR CDIAC IEA_RA IEA_SA NAMEA* UNFCCC

Range in estimates is about 12%

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Difference: GTAP vs EDGAR

Allocation of emissions data to sectors highly uncertain

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Input Emissions

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Input Emissions

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Definitions: EEBT vs MRIO

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Model variation

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Model variation

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Netherlands

150 200 250 300 350 1990 1995 2000 2005 2010

Territorial (MtCO2)

Peters et al (2011) Wiebe et al (2012) Boitier (WIOD) 150 200 250 300 350 1990 1995 2000 2005 2010

Consumption (MtCO2)

Peters et al (2011) Wiebe et al (2012) Boitier (WIOD)

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Netherlands

25 50 75 1990 1995 2000 2005 2010

Net import (MtCO2)

Peters et al (2011) Wiebe et al (2012) Boitier (WIOD) 1.00 1.05 1.10 1.15 1.20 1.25 1.30 1990 1995 2000 2005 2010

Ratio

Peters et al (2011) Wiebe et al (2012) Boitier (WIOD)

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Model Comparisons

  • What causes largest differences?
  • 20%, Variations in input emissions
  • 5%, Definition of the Carbon Footprint
  • >1%, Different MRIOT (needs work)
  • We may give users the wrong impression

about uncertainty

  • Must ensure we show results consistently
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APPLICATIONS

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Production – Consumption = -0.5GtCO2 Update: Production – Consumption = 1.3GtCO2

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Key Findings (2001):

  • 5.3 GtCO2 (22%)

embodied in trade

  • Annex B Consumption

0.8 GtCO2 higher than Production (6%)

  • OECD Consumption 1.3

GtCO2 higher than Production (9%)

  • OECD, 1.3 GtCO2
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Key Findings (2004):

  • 6.2 GtCO2 (23%) embodied in trade
  • Annex B Consumption 1.6 GtCO2 higher than Production (12%)
  • OECD Consumption 2.1 GtCO2 higher than Production (16%)
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Changes over time

500 1000 1500 2000 2500 3000 3500 1994 1996 1998 2000 2002 2004 2006

Net Emission Transfer into OECD countries (MtCO2)

OECD Peters et al (2011) WIOD (Boitier) Wiebe et al (2012)

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Shares over time

  • Compare to territorial emissions, studies

more consistent (OECD outlier)

  • Longer, more consistent study needed

~1995 ~2000 ~2005 OECD 11 16 13 Peters et al (2011) 8 12 16 WIOD (Boitier) 8 12 17 Wiebe et al (2012) 14 17 23

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WIOD - Groningen, 26/04/12

  • World split into

– 113 countries and regions – 57 sectors – 1990-2008, now 2010

  • Focus on

– Net emission transfer (exports minus imports) – Annex B (developed) vs. non-Annex B (developing)

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WIOD - Groningen, 26/04/12

  • “Proxy” method

– Construct 2 sector IOT using GDP data

  • GDP by expenditure gives time series
  • Detailed IOTs in 1997, 2001, 2004, (now 2007) give

“proxy” data on imports to industry and emission intensities

  • Time series of trade data (GTAP)

– Motivation is for quick analysis to analyse trends

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WIOD - Groningen, 26/04/12

Globally: Emissions from the production of traded goods and services 1990: 4.3 Gt CO2 (20% of global emissions) 2008: 7.8 Gt CO2 (26%)

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Net transfer in 2008 was five times achieved Kyoto Reductions …and our method is conservative

Trade offset Kyoto reductions

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Aggregated results

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WIOD - Groningen, 26/04/12

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Light manufacturing dominates

Non-energy intensive manufacturing is most relevant in carbon leakage debates

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WIOD - Groningen, 26/04/12

Key Findings (2004):

  • 10.2 GtCO2 (37%)

embodied in extraction

  • 6.4 GtCO2 (23%)

embodied in production Extraction to Production Production to Consumption Extraction to Consumption

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Next steps?

  • What is causing the changes?
  • Climate policy? No, unlikely
  • Reduced trade barriers and costs?
  • Wage differentials?
  • General development?
  • China?
  • What to do about it?
  • Is it necessary to know the cause?
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Policy implementation?

  • Consumption-based approaches are

complementary to production-based

  • Step 1: Measure consumption-based

emissions and track progress

  • Step 2: Design policy instruments to

address issues

  • Step 3: Track progress
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Numerous policy instruments

  • Consumption links to production
  • Coal in China is still critical
  • Use information in consumption-based

estimate for more robust policies

  • Identify problem areas, implement policy, …
  • Different tax or policy regimes
  • Current policy approximates consumption
  • Give additional focus on consumption
  • Consumers need to play a role too!
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Future Directions

  • Robust data and methods to prepare for

potential policy applications

  • Systematic model comparisons (MIPs)
  • Robust studies over time
  • Policy instruments, implications and costs
  • Understanding networks, vulnerability
  • Adding environmental extensions
  • Co-benefits
  • E.g., value added versus emissions
  • E.g., water, energy, carbon nexus
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WIOD - Groningen, 26/04/12

Thank you glen.peters@cicero.uio.no