G LOBAL I NTEGRATION AND C ARBON F LOW IN EU AND R EST OF THE W ORLD - PowerPoint PPT Presentation

G LOBAL I NTEGRATION AND C ARBON F LOW IN EU AND R EST OF THE W ORLD : A 2- REGIONAL I NPUT -O UTPUT F RAMEWORK Amarendra Sahoo, Arjan de Koning, Reinout Heijungs Institute of Environmental Sciences (CML) Leiden University

We appraise carbon flows for EU and ROW due to inter-regional consumptions and productions interdependencies .  Domestic production (producer’s responsibility)  Consumption (consumer’s responsibility)  Consumer’s responsibility when consumption is internalized to generate induced effect  A two-regional IO multiplier analysis with different scenario settings

D ATA B ASE  EXIOBASE data base on supply-use table for the year 2000.  43 countries and one rest of the world.  129 x 129 industry sectors each for EU and ROW.  Environmental and material extensions for.

M ETHODOLOGY Carbon flow is evaluated with the help of fossil carbon contents and the Leontief multipliers. Fossil carbon content of product groups is calculated on the basis of mass balance approach along with IO transaction matrix (Heijungs et al, 2012).  An activity requires products as well as environmental extraction, e.g. crude oil, gas etc. for its use and may have emissions containing fossil carbons, e.g. CO 2 , CO and CH 4 .

C ARBON CONTENT OF A PRODUCT : MASS BALANCE APPROACH Emissions to environment Carbon Product 1 Environment product al extraction supply Carbon product inputs Carbon Product 2 product supply Emissions to environment

Carbons contents of products( Kg C/Million Euro) Source: Heijungs et al. (2012) EU ROW Industry x Industry Industry x Industry Coal and lignite, peat 18257038 19284233 Crude petroleum 4099526 508621 Natural gas 3970953 7123296 Other petroleum, gaseous materials 1488240 1484728 Coke oven products 6079870 2552079 Motor spirit (gasoline) 2901028 3047804 Kerosene, kerosene type jet fuel 25530933 1484756 Gas oils 2668794 2557002 Fuel oils n.e.c. 2003605 2465284 Petroleum gases, other gaseous 2529451 2533838 Other petroleum products 842318 1925405 Chemicals, chemical products 100731 144853 Manufacture of gas; distribution of gaseous fuels 1490456 2015885 Retail sale of automotive fuel 23702 9964

M ETHODOLOGY ( CONTD .) Carbon contents are calculated by combining monetary input-output transaction matrix along with physical satellite account containing emissions and resource uses, and carbon contents of the environmental extensions. We Calculate carbon flows applying the carbon contents on IO transaction matrix for EU and ROW. Two-regional IO linked by intermediate demand and final demand flows (trade link).

C ARBON CONTENT AND CARBON FLOW IN EU AND ROW N N EU Production ROW Production S S From production to final demand EU Final ROW Final Demand Demand

T WO - REGIONAL EXTENDED IO TABLE Two-regional IO table is modified to link factor income and consumption of the economy in order to account for induced effects. Consump - Consump Invest- Invest- Ind1 Ind2 Ind1 Ind2 - tions ment ment EU EU ROW ROW tions EU ROW EU ROW TOTAL Production Account (EU) Ind1 C EE1 C ER1 N EE1 N ER1 Y1 Ind2 C EE2 C ER2 N EE2 N ER2 Y2 Production Account (ROW) Ind1 C RE2 C RR1 N RE1 N RR1 Y3 Ind2 C RE2 C RR2 N RE2 N RR2 Y4 Income (EU) V E1 V E2 Y5 Income (ROW) V R1 V R2 Y6 Net Savings EU S E Y7 Net Savings ROW S R S RE Y8 TOTAL Y1 Y2 Y3 Y4 Y5 Y6 Y7 Y8

S CENARIOS Scenario 1 : Production- based carbon flow based on IO transaction matrix (direct flow) Scenario 2 : Consumption-based carbon flow based on direct, indirect inter-industry demand by activities for EU and ROW Scenario 3 : Consumption-based carbon flow based on induced consumption for EU and ROW

S CENARIO 1: P RODUCTION - BASED CARBON FLOW BASED ON IO TRANSACTION MATRIX 

S CENARIO 2: C ONSUMPTION - BASED CARBON FLOW Based on direct, indirect inter-industry demand by activities for EU and ROW (Proops et al, 1993; Papathanasopoulou, 2005). Fossil carbon directly or indirectly embodied in one unit of final production: We arrange with respect to exogenous demand and Leontief inverse matrix.

S CENARIO 2 ( CONTD .) 

S CENARIO 2 ( CONTD .) For EU: For ROW: 1. Fossil carbon flow with production of goods in EU to meet demand in EU:

S CENARIO 2 ( CONTD .) 2. Fossil carbon associated with production of exports goods in EU to meet final demand for imported goods from ROW: 3. Fossil carbon flow associated with industries in ROW that are imported to meet intermediate demand in EU destined for final demand: 4. Fossil carbon flow associated with industries in ROW to produce final goods that are imported by EU to meet imported final demand.

S CENARIO 2 ( CONTD .) Similarly we can define the components for ROW. Production and consumption based carbon flows for one region will be equal if we adjust and rearrange the components in the consumption- based accounting. Carbon flow for EU and ROW on the basis of production:

S CENARIO 3: CARBON FLOW BASED WITH INDUCED CONSUMPTION we conduct the same exercise as in scenario 2 But we internalize the economy’s consumption vector for both EU and ROW in the IO matrix by closing the leakages of value added income. Investment demands along with change in stocks become the final demand vectors. A matrix has now additional column and row vectors

S CENARIO 3 ( CONTD .) Multiplier equation is written as: Split the final demand vector into 2 columns

S CENARIO 3 ( CONTD .) Ignoring the last two rows and pre- multiplying the equation with the diagonal matrix of fossil carbon contents for EU and ROW:

O BSERVATIONS : S CENARIO 1  EU is responsible for 1047.3 million tonnes while ROW is for 9481.4 million tonnes, over 6 times more than EU’s carbon flow  Carbon flow due to direct EU consumption from ROW (both intermediate as well as final consumption) is 679.7 million tonnes, while for ROW from EU, it is only 93 million tonnes (7 times)  The production based carbon flow is mainly from the industry demand for the production activities (73% for EU and 78% for ROW)

O BSERVATIONS : S CENARIO 1 ( CONTD .)  93% of carbon associated with domestic production in EU is due to its domestic consumption purpose and almost the same percentage in case of ROW.  Highest contributor fossil carbon products: EU: ‘coal, lignite, peats’; `gas oil’; ‘motor spirit’ ROW: ‘crude petroleum’; ‘coal, lignite, peats’

O BSERVATIONS : S CENARIO 2  Carbon flow associated with overall EU consumption is 2049.5 million tonnes and for ROW is 8801.6 million tonnes (almost 4 times higher)  Difference in consumption-based and production-based carbon flow is on account of inclusion of embodied trade flows.  Carbon flows associated with direct and indirect EU consumptions produced in ROW is 906.7 million tonnes and ROW consumption produced in EU is 247.8 million tonnes (around 4 times)

O BSERVATIONS : S CENARIO 2 ( CONTD .)  82% of the carbon flow from goods produced in EU to meet domestic consumption in EU and 90% for ROW.  Carbon flow associated with the production to support domestic consumption for ROW is almost 96% of its total accounted consumption-based carbon flow and only around 4% is due to import demand from EU; 56% and 46% respectively for ROW.  Carbon products responsibility: ROW to EU: mainly ‘crude oil’ (499 mil.tonnes) EU to ROW: ‘gas oil’, ‘coal; lignite, peats’; ‘crude oil’

O BSERVATIONS : S CENARIO 3  Noticeable decline in carbon flow from goods produced in EU to meet final demand in EU (58%) compared to earlier scenarios; 86% for ROW  Carbon flows associated with production in ROW to support consumptions in EU is 1218 million tonnes and it is 570 million tonnes for ROW (higher than earlier scenarios)  Both the regions share the responsibility of fossil carbon flow if analysis based on induced consumption.

O VERVIEW  Production based fossil carbon flow: EU carries huge responsibility through imported products from ROW  Consumption perspective analysis reduces the responsibility of domestic production in contributing to fossil  carbon flow while assigning increasing responsibility to consumption  EU’s contribution of carbon flow in trade is the maximum due to its import consumption of crude petroleum, followed by natural gas and ‘coal, lignite, peats’.