Brantley Liddle Energy Studies Institute, NUS The Importance of Consumption-Based Accounting in a Potential Trade-Carbon Nexus Literature Brantley Liddle Energy Studies Institute, NUS

Motivation Long been concern that wealthy countries lower emissions via trade Recent consumption-based carbon emissions database by Peters et al. www.globalcarbonproject.org/carbonbudget/16/data.htm Economics trade-emissions papers use conventional, territory-based data Only two papers compare territory-based to consumption-based regressions Knight & Schor (2014) Lamb et al. (2014)

Motivation: Exponential Growth & “Nexus/Cointegration”

Outline Descriptive/graphical analysis Regression analysis Peters et al. consumption-based emissions data: 117 countries, 1990-2013 CDIAC & UNFCCC territory-based emissions data Ratio consumption-based emissions: trade-based emissions Net exports of emissions Regression analysis Dependent variables: consumption-based emissions vs. territory-based emissions Independent variables: GDP per capita, trade shares, energy structure, energy prices

Ratio of Consumption-based to Territory-based Emissions 28 (out of 117) countries had mean ratio (over 1990-2013) of less than one 12 countries fuel exports at least 75% of total exports Average country mean ratio 1.26 Mean ratio for each year ranged 1.2-1.4 Most countries’ max & min yearly ratio was within 20-30% of their mean

Ratio of Consumption-based to Territory-based Emissions vs Average GDP per capita

Ratio of Consumption-based to Territory-based Emissions vs Average GDP per capita

Ratio of Consumption-based to Territory-based Emissions vs Average Imports to Exports Ratio

Ratio of Consumption-based to Territory-based Emissions vs Average Imports to Exports Ratio

Share of Net Global Carbon Emissions Flows

Share of Net Global Carbon Emissions Flows

Additional Variables World Bank Development Indicators; 102 Countries, 1990-2013 Real GDP per capita Fossil fuel energy consumption as share of total energy consumption Industry value added, trade, exports of goods and services, imports of goods and services, all as % of GDP International Energy Agency; 29 & 33 OECD countries Real index of energy prices for industry & households Real index of oil products prices for industry & households IEA & Asia Development Bank; 48 OECD & Non-OECD countries Real index of gasoline prices

Pesaran CD Test & Absolute Value Mean Correlation Coefficient LN Consumption-based CO2 p.c. 0.42** LN Territory-based CO2 p.c. 0.51** LN GDP pc 0.82** LN Fossil fuel share 0.52* LN Industry share 0.45** LN Trade share 0.48** LN Exports share 0.46** LN Imports share LN Total energy price index 0.86** LN Oil price index 0.79**

Methods Common correlated effects mean group estimator (CMG) Heterogeneous Robust to Nonstationarity, cointegration, breaks, serial correlation Addresses cross-sectional correlation Adds cross-sectional averages of dependent & independent variables

Trade & Carbon Emissions: Expectations Fossil fuels share & prices more important for Territory-based emissions Exports, imports & trade more important for Consumption-based emissions GDP per capita & industry share not clear

Trade & Carbon Emissions Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.57*** [0.45 0.69] 0.66*** [0.49 0.83] Trade share 0.01 [-0.04 0.06] -0.17*** [-0.27 -0.08] Industry share 0.03 [-0.05 0.12] 0.06 [-0.07 0.19] Fossil fuels share 1.25*** [0.99 1.51] 0.76*** [0.49 1.02] Obs 2261 2258 x-sects 100 CD (p) 2.8 (0.01) 4.3 (0.00)

Trade & Carbon Emissions Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.51*** [0.38 0.63] 0.53*** [0.37 0.69] Exports share 0.03 [-0.02 0.09] -0.32*** [-0.40 -0.24] Imports share -0.03 [-0.10 0.04] 0.20*** [0.10 0.29] Fossil fuels share 1.35*** [1.08 1.62] 0.76*** [0.47 1.06] Obs 2397 2394 x-sects 102 CD (p) 2.2 (0.03) 4.6 (0.00)

Trade & Carbon Emissions: OECD & Non-OECD Panels Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.42*** [0.25 0.59] 0.57*** [0.35 0.79] [0.39 0.74] 0.64*** [0.38 0.89] Fossil fuels share 1.28*** [0.73 1.62] 0.52** [0.16 0.88] 1.21*** [0.90 1.52] 0.70*** [0.37 1.02] Exports share 0.01 [-0.07 0.10] -0.24*** [-0.32 -0.16] 0.02 [-0.04 0.08] -0.33*** [-0.42 -0.24] Imports share -0.02 [-0.12 0.08] 0.14* [0.01 0.27] -0.04 [0.13 0.05] 0.22*** [0.11 0.33] Obs 781 1616 1613 x-sects 33 69 CD (p) 0.4 (0.66) 2.0 (0.04) 0.3 (0.74) 0.5 (0.60)

Trade & Carbon Emissions: Energy Prices Energy Price Index Oil Price Index Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.44**** [0.30 0.57] 0.84**** [0.53 1.16] 0.37**** [0.20 0.54] 0.50**** [0.32 0.68] Fossil fuels share 1.35**** [0.92 1.78] 0.68**** [0.29 1.08] 1.39**** [0.92 1.86] 0.54*** [0.15 0.93] Exports share 0.01 [-0.06 0.07] -0.30**** [-0.47 -0.13] [-0.08 0.11] -0.29*** [-0.48 -0.11] Imports share -0.004 [-0.13 0.12] 0.19*** [0.05 0.33] 0.02 [-0.08 0.12] 0.16 [-0.03 0.34] Price -0.03 [-0.17 0.10] 0.08 [-0.07 0.23] -0.09* [-0.19 0.01] -0.06 [-0.18 0.06] Obs 695 770 x-sects 29 33 CD (p) -1.7 (0.10) 2.8 (0.00) 0.6 (0.54) 1.6 (0.12)

Trade & Carbon Emissions: Energy Prices Energy Price Index Oil Price Index Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.44**** [0.30 0.57] 0.84**** [0.53 1.16] 0.37**** [0.20 0.54] 0.50**** [0.32 0.68] Fossil fuels share 1.35**** [0.92 1.78] 0.68**** [0.29 1.08] 1.39**** [0.92 1.86] 0.54*** [0.15 0.93] Exports share 0.01 [-0.06 0.07] -0.30**** [-0.47 -0.13] [-0.08 0.11] -0.29*** [-0.48 -0.11] Imports share -0.004 [-0.13 0.12] 0.19*** [0.05 0.33] 0.02 [-0.08 0.12] 0.16 [-0.03 0.34] Price -0.03 [-0.17 0.10] 0.08 [-0.07 0.23] -0.09* [-0.19 0.01] -0.06 [-0.18 0.06] Obs 695 770 x-sects 29 33 CD (p) -1.7 (0.10) 2.8 (0.00) 0.6 (0.54) 1.6 (0.12)

Trade & Carbon Emissions: Gasoline Price OECD & Non-OECD OECD Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.48**** [0.34 0.61] 0.59**** [0.40 0.77] 0.41**** [0.28 0.53] 0.44**** [0.24 0.63] Fossil fuels share 1.29**** [0.98 1.61] 0.82**** [0.40 1.24] 1.37**** [0.95 1.80] 0.68*** [0.27 1.08] Exports share 0.03 [-0.04 0.11] -0.26**** [-0.40 -0.13] [-0.03 0.10] [-0.39 -0.13] Imports share -0.03 [-0.13 0.07] 0.18*** [0.06 0.31] [-0.12 0.07] 0.21*** [0.07 0.35] Price -0.07** [-0.14 -0.01] -0.08 [-0.17 0.01] -0.10** [-0.19 -0.01] [-1.29 0.07] Obs 1076 769 x-sects 48 33 CD (p) 3.0(0.00) 3.5(0.00) 1.3(0.18) 2.0(0.04)

Trade & Carbon Emissions: Gasoline Price OECD & Non-OECD OECD Dependent variable Territory-based CO2 p.c. Consumption-based CO2 p.c. GDP p.c. 0.48**** [0.34 0.61] 0.59**** [0.40 0.77] 0.41**** [0.28 0.53] 0.44**** [0.24 0.63] Fossil fuels share 1.29**** [0.98 1.61] 0.82**** [0.40 1.24] 1.37**** [0.95 1.80] 0.68*** [0.27 1.08] Exports share 0.03 [-0.04 0.11] -0.26**** [-0.40 -0.13] [-0.03 0.10] [-0.39 -0.13] Imports share -0.03 [-0.13 0.07] 0.18*** [0.06 0.31] [-0.12 0.07] 0.21*** [0.07 0.35] Price -0.07** [-0.14 -0.01] -0.08 [-0.17 0.01] -0.10** [-0.19 -0.01] [-1.29 0.07] Obs 1076 769 x-sects 48 33 CD (p) 3.0(0.00) 3.5(0.00) 1.3(0.18) 2.0(0.04)

Conclusions Most countries net importers of carbon emissions Low- & high-income countries have largest ratios, most middle-income countries have ratio > 1 China & India particularly important in global flow of emissions Function of size & carbon intensity; rather than energy intensity of exports Trade important for consumption-based emissions, but not territory- based Exports & imports impact emissions in opposite direction Domestic factors like carbon intensity of energy & energy prices matter for territory-based emissions

USAEE Working Paper 2017 https://ssrn.com/abstract=2928790 btliddle@alum.mit.edu esilbt@nus.edu.sg

GDP Nonlinearities: Territory-based Emissions

GDP Nonlinearities: Consumption-based Emissions