CO2 Embedded in Trade: Trends and Fossil Fuel Drivers

Abstract

The amount of CO2 embedded in trade has substantially increased over the last decades. We study the trends and some drivers of the carbon content of trade over the period 1995-2009. Our main findings are the following. First, the mix of traded goods tends to have higher emission intensity than the average mix of final demand. Second, dirty countries tend to specialize in emission-intensive sectors. This finding suggests that trade liberalization may increase global emissions. Third, the share of goods produced in emission-intensive countries is rising, consequently increasing global emissions. Finally, we find that coal abundance is an important driver of net CO2 exports, and abundance increases exports. These findings highlight the importance of considering trade when designing CO2 reduction strategies. They also suggest that, if left unattended, continued growth in global trade will increase – not decrease – global CO2 emissions.

Keywords: international trade, embodied emissions, carbon leakage, multi-region input-output analysis, fossil fuels, Kyoto Protocol

JEL Classification: F180, Q430, Q540, C670