1. CO 2 Emissions Embodied in Austrian International Trade Kurt Kratena, Ina Meyer Austrian Institute of Economic Research – WIFO 11. FIW-Workshop Studien zur Außenwirtschaft Wiener Institut für Internationale Wirtschaftsvergleiche (wiiw) Wien, 8. April 2010

2. Outlook  Motivation  Empirical findings with respect to CO 2 emissions embodied in international trade  Relevance of CO 2 embodied in trade  the concept of producer-based GHG inventories under UNFCCC and related problems under unilateral climate protection regimes  Measuring embodied emissions: Methodologies and our modelling approach for Austria  Data  Empirical results  Conclusions

3. MOTIVATION: Empirical findings w.r.t CO 2 emissions embodied in international trade  Peters & Hertwich (2008) calculate that 5.3 Gt of global CO 2 emissions are embodied in internationally traded goods  equal to 21.5% of global CO 2 emissions  Nakano et al. (2009) estimate that “trade deficits” of CO 2 emissions are to be observed in 21 OECD countries in the early 2000s  Net importer and net exporter are clearly separated by OECD and non-OECD members  Net importers: USA, Japan, UK, Germany, France, Italy  Net exporters: Russia, China, Indonesia, India, South Africa  Accelateration of global integration via international outsourcing and fragmentation of production processes has contributed to this development

4. MOTIVATION: Production-based GHG emissions inventories and related problems BUT  Embodied carbon emissions in imports are not accounted for in the legal reporting mechanism of the UNFCCC. This scheme follows a territorial principle, i.e. only emissions produced from domestic sources are taken into account.  Production-based approach (territorial GHG emissions, including exports)  Due to the lack of accounting for emissions embodied in imports, this approach can lead to unclear emissions profiles, e.g. emissions per unit of GDP or per capita of a country if net imports of emissions are significant (like in OECD countries).  Analyzing and quantifying emissions embodied in international trade give a more adequate description of countries emissions profiles.  In the literature the consumption-based approach (production approach – exports + imports) has been developed to account for a countries’ consumption related emissions. However, this approach does not seem feasible within international treaties due to methodological and data problems.

5. Q: IEA Database, CO 2 emissions from fuel combustion sectoral approach, 2009 Production-based GHG emissions inventories II How much growth in emissions is triggered by import demand from industrialized countries?

6. Carbon leakage  Climate protection agreements with a limited geographic scope (Kyoto Protocol) possess an intrinsic incentive to shift carbon intensive production abroad if based on a production-based approach to emissions accounting  This is because industries in countries with binding emission reduction targets have to compete with exports from countries without mandatory emissions reductions. Due to lower costs involved (through lower carbon prices because of absent pricing mechanism) there is an incentive to shift carbon-intensive production abroad  carbon leakage  Carbon leakage could imply a rise in international emission budget, if production shifts address countries with less carbon efficient installations and less ambitious environmental legislation  Analyzing CO 2 emissions embodied in international trade of industrialized countries is important to capture relevant underlying drivers and dynamics

7. Measuring embodied emissions Def.: Carbon (emissions) embodied in a product is defined as all the emissions required to produce the product, including all stages of the production process from raw material extraction through to final assembly and ultimately the final sale of the product. Emissions can be calculated using different methodological approaches:

8. Single country approach to embodied emissions in Austrian external trade

9. Single country approach to embodied emissions in Austrian external trade II

10. Data Main data requirements for single country input-output approach: 1.IO tables 2.Bilateral trade data 3.data on CO 2 emissions  IO tables in current prices for 1995, 2000 and 2005 (EUROSTAT)  Trade taken from IO tables covers industries as well as services in the 2 digit-NACE classification  Data for CO 2 emissions by industries in Austria was taken from energy NAMEA dataset (Stat. Austria) – energy data according to residential principle for 1999 to 2007 for 2 digit- Nace industries, differentiating about 30 energy carriers  Application of CO 2 emissions factors from UNFCCC on the NAMEA energy data set (including process emissions)

11. IO Austrian exports and imports 1995 and 2005 in mill. Euro Pulp, Paper Basic Metals

12. Data II  Data for CO 2 emissions of industrial sectors in the ROW are approximated by CO 2 emissions of the EU 27 from the IEA database on energy-related CO 2 emissions  Data is converted from the IEA industry classification to the 2 digit NACE classification by using output weights from the EU 27 IO table  CO 2 emissions factors thus vary between Austria and EU 27  In particular for electricity generation the CO 2 emission factor is much higher in the EU 27 than in Austria (different process- mix between renewable electricity generation, nuclear generation and different fossil generation technologies)

13. CO 2 emission coefficients

14. Empirical Results CO 2 emissions embodied in trade flows (in 1,000 tons)

15. CO 2 emissions, embodied in exports and imports (in 1,000 tons), 1995 and 2005

16. Conclusions  Austria shows large net imports of CO 2, i.e. between 8% (2005) and 17% (1995) of total CO 2 emissions  One important result is that these net imports have decreased considerably  partly due to decreases of imported CO 2 emissions  and of huge increases of exported CO 2 emissions  especially the basic metal industry has increased net exports and the electric sector has decreased its net imports  large increase in exports of CO 2 goes together with the high growth in world trade in this period  The Austrian decline in trade deficit of embodied emissions stands in contrast to developments calculated for other countries, e.g. USA, Germany, Italy, UK and Japan where trade balance deficits of embodied emissions grew substantially