Meicong Liang, Fei Teng* Institute of Energy, Environment and Economy THE GLOBAL IMPACT OF INTERNATIONAL TRADE ON EMBODIED CARBON EMISSSIONS: EVIDENCE FROM AN INPUT-OUTPUT ANALYSIS Meicong Liang, Fei Teng* Institute of Energy, Environment and Economy Tsinghua University

OUTLINE 01 02 03 04 Introduction Data and Methodology Results and analysis 04 Conclusions 02

01 Introduction PART ONE

BACKGROUND Climate change and is undeniable: Paris Agreement Rapid development in global economy is accompanied Embodied emissions occurred across border Emission principle “Pollution Haven hypothesis”& Optimal Allocation Climate change and global warming are undeniable, since last century, great efforts have been done to combat that. Newly signed Paris Agreement is encouraging, humankind are even working hard on 1.5 degree. While at the same time global economy is blooming with international trade. The isolation of production and consumption of international good make it possible of embodied emissions. And how to define the responsibility of emission has always been a hot issue. 04

EXISTING STUDIES Input-output theory by Leontief in 1930s SRIO - Single Region Input-Output model MRIO – Multi Region Input-Output Model GTAP- Global Trade Analysis Project Focus on re-distribution Studies in embodied emission, is mostly based on the input-output analysis, proposed on 1970’s by Leontief. Widely used for energy and environment SRIO： MRIO： whose fundamental difference is the discrimination of production technologies between imported products and domestic products. The SRIO model considers that the imported product has the same production technology as the domestic ones, while the MRIO model uses the production technology of the importing country for the imported product to assure higher accuracy of results. early researches limited by the availability of data and mainly adopt SRIO models to conduct the calculation of embodied emissions for single country. Since 2000, with maturity and popularity in the global trade analysis project (GTAP) and other databases, MRIO models gradually became the primary tool in this field. Glen peter 2008; 5.3 billion tons in 2001 05

CHARACTERISTIC While existing researches paid much attention on the redistribution of current global carbon dioxide emissions according to different principles and calculation methods. Few concern about the extent to which international trades influence global emissions, that is, how much emission has been brought to the world by international trade, and whether growing international trade has led to increment in global emissions or helped reduce emissions. A static global MRIO model Latest GTAP9 database: 2011, 140 regions, 57 sectors This article redistributes global carbon emissions based on trade flows, and also calculates new global emissions under the assumption of trade closure. 06

02 Data and Methodology PART TWO

Obvious gap in global emission METHODOLOGY Obvious gap in global emission For region p X 𝑝 = 𝐼− 𝐴 𝑝 −1 ∗ 𝑌 𝑝 Y 𝑝 = Con 𝑝 + 𝐸𝑥𝑝 𝑝 − 𝐼𝑚𝑝 𝑝 For MRIO 𝑋 1 𝑋 2 𝑋 3 ⋮ 𝑋 𝑛 = 𝐴 1𝑑 𝐴 12 𝐴 13 … 𝐴 1𝑛 𝐴 21 𝐴 2𝑑 𝐴 23 … 𝐴 2𝑛 𝐴 31 𝐴 32 𝐴 3𝑑 … 𝐴 3𝑛 ⋮ ⋮ ⋮ ⋱ ⋮ 𝐴 𝑛1 𝐴 𝑛2 𝐴 𝑛3 … 𝐴 𝑛𝑑 𝑋 1 𝑋 2 𝑋 3 ⋮ 𝑋 𝑛 + Y 1𝑑 + Σ 𝑞≠1 Y 1𝑞 Y 2𝑑 + Σ 𝑞≠2 Y 2𝑞 Y 3𝑑 + Σ 𝑞≠3 Y 3𝑞 ⋮ Y 𝑛𝑑 + Σ 𝑞≠n Y 𝑛𝑞 There exists an obvious gap on the carbon emission inventory between GTAP database and other mainstream database, for example IEA,EDGAR,CAIT emission database. For the same country and region in both databases, the total emissions of the GTAP database are adjusted to be aligned with the corresponding IEA emissions; and the proportion of single country’s emissions in each sector remains the same as in GTAP database. For the rest regions we separate remaining emission in IEA dataset into the rest countries and regions in GTAP database according to their initial emission proportion in GTAP. According to the input-output theory, for one single country or region p，the row balance in its competitive input-output table can be expressed as follows For the global MRIO model, a country or region's imports may have many sources, and export products can also be shipped to different countries. Based on that the internal input-output relations in the global MRIO model should be adjusted to 08

METHODOLOGY The non-competitive input-output balance of region p can be expressed as: 𝐴 𝑝 = A 𝑝𝑑 + 𝐴 𝑝𝑚 X 𝑝 = A 𝑝𝑑 ∗ 𝑋 𝑝 + 𝐶𝑜𝑛 𝑝𝑑 + 𝐸𝑥𝑝 𝑝 𝐼𝑚𝑝 𝑝 = A 𝑝𝑚 ∗ 𝑋 𝑝 + 𝐶𝑜𝑛 𝑝𝑚 For region p in MRIO X 𝑝 = A 𝑝𝑑 ∗ 𝑋 𝑝 + 𝑌 𝑝𝑑 + 𝑝≠𝑞 𝐴 𝑝𝑞 ∗ 𝑋 𝑞 + 𝑌 𝑝𝑞 Emission of region p Ems 𝑝 = F 𝑝 ∗ 𝑋 𝑝 = F 𝑝 ∗ I− A 𝑝𝑑 −1 ∗ 𝑌 𝑝𝑑 + 𝑝≠𝑞 𝐴 𝑝𝑞 ∗ 𝑋 𝑞 + 𝑌 𝑝𝑞 Emission of imports for region p Ems 𝑝𝑚 = 𝑝≠𝑞 𝐹 𝑞 ∗ 𝐴 𝑞𝑝 ∗ 𝑋 𝑝 + 𝑌 𝑞𝑝 the direct consumption coefficient matrix of a country can be refined to A 𝑝 = 𝐴 𝑝𝑑 + 𝐴 𝑝𝑚 , where 𝐴 𝑝𝑑 and 𝐴 𝑝𝑚 represent the direct consumption coefficient matrix of domestic product and import products respectively. 09

METHODOLOGY In the absence of international trade, the total output of region p X 𝑝 ′= I−A 𝑝 −1 ∗ 𝐶𝑜𝑛 𝑝𝑑 + 𝐶𝑜𝑛 𝑝𝑚 Its corresponding emission Ems 𝑝 ′ is Ems 𝑝 ′ = F 𝑝 ∗ I−A 𝑝 −1 ∗ 𝐶𝑜𝑛 𝑝𝑑 + 𝐶𝑜𝑛 𝑝𝑚 Under the assumption of international trade closure, global emission will be 𝐸𝑚𝑠 𝑤𝑑 = 𝑝=1 𝑛 Ems 𝑝 ′ = F 𝑝 ∗ I−A 𝑝 −1 ∗ 𝐶𝑜𝑛 𝑝𝑑 + 𝐶𝑜𝑛 𝑝𝑚 10

03 RESULTS AND ANALYSIS PART THREE

EMISSION CHANGES THROUGH REGIONS In 2011, the actual carbon dioxide emission worldwide is 30.2 billion tons. The largest emitter is China, with 8.465 billion tons, while the United States ranks at the second place with 5.2 billion tons. China and the United States account for almost half of total global emissions. With the absence of international trade, global carbon emissions will increase by 2.1 billion tons to 32.3 billion tons, an increase of 6.9%. Only 45 of the world's 140 countries and regions will generate fewer emissions, with a total emission reduction of 900 million tons. Figure 1 shows the specific emission changes in major emitters with the absence of international trade. Emission powers such as China, the United States, Russia and Japan, who have huge emissions and considerable trade volume, are significantly influenced by the international trade closure in regard to the absolute emissions, while not obvious on emission change ratio. Of the world's 20 largest emission powers, only seven countries would emit 10% more in the absence of international trade. Iran and India rank in highest position considering the increase rate respectively with 20.9% and 23.97%. ↓ ↑ 12

EMISSION CHANGES THROUGH SECTORS From the sector point of view, in the absence of international trade, the 57 sectors present a general trend of carbon emission increasing. As the combined consequence of descent effect and ascent effect, 2.1 billion tons of emissions will be emitted. Among the 57 sectors, only 16 of them would present mitigation and the total amount of emission reduction is 583 million tons, concentrating on the land and pipeline transport sector, water transport sector and air transport sector. The three transportation sectors will reduce 575 million tons of carbon dioxide emission, accounting for 98.6% of overall descent effect. There are 41 sectors that will cause more emissions without international trade. Among them 8 sectors’ emission increment is more than 100 million tons, 5 of them are energy sectors, and the rest ones are other non-metallic mineral products, Manufacturing and non-ferrous metal manufacturing. 13

04 CONCLUSIONS PART FOUR

CONCLUSIONS The international trade can help to reduce some of the unnecessary carbon dioxide emissions, to a certain extent, the disappearance of international trade reshapes the current global emission pattern. Major emitters would undergo great changes in the absolute amount of emissions, while slight changes in the change ratios.. While minor emission countries react inversely. The assumption of inter-national trade closure will directly result in a violent decline in service need in global transportation, accounting for 98.7% of the total emission reductions. The main emission increase derives from the production of energy products produced locally in order to compensate for the import supply gap. The increase in emissions from the energy products sector accounts for 71.1% of the total increase in growing sectors. 15

CONCLUSIONS Without the assistance of international trade and worldwide commodity circulation, it can be arduous for countries to maintain the domestic balance between energy supply and demand. Another finding derived from this paper is that industrial sectors, especially manufacturing sector, are much less affected by the absence of international trade, which is quite away from the prevailing general perception. From the global perspective, the development of international trade can not only optimize the allocation of global resource endowments, promote the full use of production factors and take the comparative advantage to improve production efficiency, but also can play a positive role in reducing greenhouse gas emissions. 16

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