Industrial CO2 emissions in China based on the hypothetical extraction method(HEM): Linkage analysis

1. Introduction Over the past decade, the tertiary industry (Service sector) has been the largest and the fastest growing sector in China The tertiary industry and have relatively low direct CO2 emission intensity In order to fully understand whether the observed economic structural change can help China reduce CO2 emission, the objective of this study is to explore the inter-industrial CO2 emission linkages.

Linkage? Theoretically, a sector's relationship with the rest of the economy, through its direct and indirect intermediate purchases and sales, is defined as the sector's linkages. When measuring linkages under the input–output framework, two methods have been dominantly used: the Classical Multiplier Method (Rasmussen, 1956; Chenery and Watanabe, 1958) the hypothetical extraction method (HEM,initially proposed by Strassert (1968) and later revised by Cella(1984) and Clements (1990)).

HEM? HEM improves over the Classical Multiplier Method by analyzing a sector's relevance through simulating the elimination of all linkages of this sector from the economy It is especially beneficial to use HEM to study the role of a sector within a multi-sectorial model and identifies sectors with greatest economic relevance (Guerra and Sancho, 2010). HEM has been used to study the economy-wide roles of individual sectors, such as agriculture sector (Cai and Leung,2004) and construction sector (Song et al., 2006) environment and resources such as water and energy use(Duarte et al., 2002; Guerra and Sancho, 2010) In this research, HEM has been applied to study Industrial CO2 emissions linkages in China

2. Methodology Bs represents a block of target sectors in the economy, while B−s represents the remaining blocks. The net backward linkage emission (NBLE) represents the requirements of CO2 emissions from B−s to obtain the final demand of Bs The net forward linkage emission (NFLE) is the real or net ‘emission exports' made by Bs,

3. Empirical analysis 3.1Demand and output emissions of CO2 (DE and OE)

What are the Fig. 2. tell us? The total DE and OE of CO2 (summation of values from all blocks) are both 7757.74 Mt. It is worth noting that the same result (7757.74 MtCO2) is arrived if only according to the whole consumption of fossil fuels in China and the carbon emission factor of each fuel source without using the input–output model. This is due to the certain amount of CO2 emitted from the whole economic system into the environment. However, the OE and DE varied from one block tothe other. The decomposition of DE and OE of CO2 emissions into the forementioned four components allows us to examine in more details how the blocks of sectors are CO2-related in the economy and what is the character of the CO2 transfers(Fig.3)

Fig. 3. Decomposition of CO2 emissions for each block.

High-carbon industries Within the High-carbon industries, it can be noted that NFLE represents 88.43%, 72.59%, and 77.26% of the OE in the Energy industry, Transportation, and Basic industry, respectively. This high NFLE ratio indicates that these blocks emit a significant part of their CO2 in order to meet the final demand from the rest of the economy, and that these blocks have an important effect on the CO2 emissions of the whole economy

Low-carbon industries Only 20.20% of the OE is NFLE for Technology industry, 29.05% for Service, and 2.10% for Construction come. Low NFLE ratio in OE means that these blocks emit few CO2 in providing outputs required by other blocks. The OE of these blocks is markedly lower than their DE and their OE are mainly for themselves.

3.3. Net transferred emissions (NTE) of CO2 Fig. 4. Net transferred emissions (NTE) of CO2 in the network of eight blocks. (The numbers on the arrows represent the amount of net CO2 transfer between the blocks connected by the arrows, with Mt CO2 as the unit.).

What are the Fig. 4. tell us? (1) Energy industry is the largest block generating net output of CO2 emissions. Other blocks mainly depend on the embodied carbon inputs from the Energy industry. Different amounts of CO2 emissions were transferred to the other seven blocks (2) Basic industry is also an important block providing net output of CO2 emissions (3) Transportation has less net outputs of CO2 emissions than Energy industry and Basic industry. The only input of CO2 emissions is from Energy industry. (4) Agriculture and Light industry are closely linked. The proportion of net transfer emissions from Agriculture to Light industry is the largest (5) Technology industry, Construction, and Service (Low-carbon industries) are the primary destinations of CO2 emissions transferred from not only the Energy industry, but also other blocks

4. Conclusion and policy implications These results indicate that to maintain the process of production in the economy, the CO2 emissions embodied in the product exchange among the blocks are transferred from upstream (such as high-carbon industries including Energy industry, Transportation and Basic industry) to downstream (such as Low-carbon industries including Service, Construction and Technology industry) through the supply chain in the economy

Policy implications Shifting to Low-carbon industries with less CO2 emission intensities will reduce the CO2 emission intensity per unit GDP. It will also help China achieve the pledged goal of lowering its CO2 emissions per unit GDP by 40–45% by 2020 compared to the 2005 level. However, this shift will not reduce aggregate CO2 emissions for the entire economy. Therefore, mitigation of climate change which requires actual reduction of GHG emissions in absolute terms, cannot be automatically achieved in the course of economic growth and associated structural change.

Policy implications the significant linkages between High-carbon industries and Low-carbon industries suggest that: all industrial activities are responsible for the use of energy reduction of activities in the High-carbon industries, whilst supporting a CO2 emission intensity mitigation within the economy, may pose risks on the production of other economically key sectors in China. to reduce CO2 emissions in absolute terms, it is crucial to increase the relative share of low carbon energy in the Energy industry. policies on low carbon energy will affect the whole economic system because of the linkages stimulation of low carbon energy development may be more important than optimization of the economic structure