- Email: [email protected]
The role of CO2 embodiment in US–China trade
ARTICLE IN PRESS
Energy Policy 34 (2006) 4063–4068 www.elsevier.com/locate/enpol
The role of CO2 embodiment in US–China trade Bin Shuia,b,, Robert C. Harrissb Advanced Study Program, National Center for Atmospheric Research1, Boulder, CO 80301, USA Institute for the Study of Society and Environment, National Center for Atmospheric Research, Boulder, CO 80301, USA a
b
Received 13 June 2005; received in revised form 11 September 2005 Available online 14 November 2005
Abstract This study examines the influence of US–China trade on national and global emissions of carbon dioxide (CO2). The three basic questions are as follows: (1) What amount of CO2 emissions is avoided in the US by importing Chinese goods? (2) How much are CO2 emissions in China increased as a result of the production of goods for export to the US? and (3) What are the impacts of US–China trade on global CO2 emissions? Our initial findings reveal that during 1997–2003: (1) US CO2 emissions would have increased from 3% to 6% if the goods imported from China had been produced in the US, (2) About 7%–14% of China’s current CO2 emissions were a result of producing exports for US consumers, and (3) US–China trade has increased global CO2 emissions by an estimated 720 million metric tons. We suggest that the export of US technologies and expertise related to clean production and energy efficiency to China could be a ‘‘win–win’’ strategy for both countries for reducing their trade imbalance and mitigating global CO2 emissions. Improved international accounting methodologies for assigning responsibility for CO2 emissions must be designed to account for the dynamic nature of international trade. r 2005 Published by Elsevier Ltd. Keywords: Carbon dioxide; Embodiment; Trade
1. Introduction In 2004, the US trade deficit reached an all-time high of $618 billion, exceeding the 2003 record deficit of $497 billion by 24%. The growth of imported goods from China is a major contributor to this trade imbalance. The related national and international assessments of the causes and consequences have focused primarily on economic, social, and political factors with far less attention being paid to environmental implications resulting from US–China trade. For example, the issues of China’s currency valuation policies and the designation of Hong Kong as a foreign port for purposes of international trade have received considerable discussion. The globalization of trade in goods has numerous environmental implications. Some researchers have preCorresponding author. Tel.: +1 303 497 2889; fax: +1 303 497 8125.
E-mail address: [email protected] (B. Shui). The National Center for Atmospheric Research is supported by the US National Science Foundation. 1
0301-4215/$ - see front matter r 2005 Published by Elsevier Ltd. doi:10.1016/j.enpol.2005.09.010
viously realized the importance of CO2 embodiment in global trade. By evaluating carbon embodied in the imports of manufactured goods to six largest OECD countries between 1984 and 1986, Wyckoff and Roop (1994) warned that many national greenhouse gas (GHG) policies, which are predicated on controlling emissions by reducing domestic GHG emissions, may not be effective if imports contribute significantly to domestic consumption. Schaeffer and de Sa´ (1996) studied carbon embodied in Brazilian imports and exports from 1970 to 1992 and expressed concerns that developed countries are transferring CO2 emissions to developing countries through offshore manufacturing and production of goods for domestic consumption. Munksgaard and Pedersen (2001) questioned whether the producer or the consumer of goods should be responsible for CO2 emissions. Jiun-Jiun Ferng (2003) suggested using a benefit principle to assign responsibility for pollutant emissions related to the consumption of goods. In this paper, we focus on the potential importance of US–China trade for developing atmospheric greenhouse
ARTICLE IN PRESS 4064
B. Shui, R.C. Harriss / Energy Policy 34 (2006) 4063–4068
gas inventories and implementing strategies to mitigate the growth of global CO2 emissions. We investigate three basic questions: (1) What amount of CO2 emissions is avoided in the US by importing Chinese goods? (2) How much have CO2 emissions in China increased as a result of the production of goods for export to the US? (3) What are the impacts of US–China trade on global CO2 emissions?
2.2. Estimating the amount of CO2 emissions avoided in the US by importing Chinese goods The CO2 emissions embodied in Chinese exports to the US are avoided from the perspective of the current US CO2 emissions inventory. The avoided CO2 emissions for the US can be estimated as follows: EmCO2j;y ¼ X j;y RPPPy
2. Methodologies 2.1. Overview The CO2 embodiment in exports (imports) is estimated by multiplying the dollar value of each export (import) product by the corresponding CO2 emission factor for the same kind of product produced in the exporting (importing) country. Trade data used in this study were obtained from the US Census Bureau.2 Input–output analysis has been often applied to estimating embodied energy, CO2 emissions, pollutants and land appropriation from international trade activities (Wyckoff and Roop, 1994; Schaeffer and de Sa´, 1996; Machado et al., 2001; Munksgaard and Pedersen, 2001; Muradian et al., 2002; Ferng, 2003; Hubacek and Giljum, 2003). The CO2 emission factors for US exports to China are derived from the Economic Input Output-Life Cycle Assessment (EIO-LCA) software developed by Green Design Initiative at Carnegie Mellon University. The EIO-LCA was developed based on US economic input and output data. It is a useful tool to trace economic transactions, resource requirements and environmental emissions associated with a particular product manufactured in the US (Carnegie Mellon University Green Design Initiative, 2004). Due to the lack of similar input–output tool(s) for assessing environmental impacts of Chinese products, the CO2 emission factors for Chinese exports to the US are based on the CO2 emission factors that have been corrected for differences in the fuel mix of the manufacturing sector in China and the US.
CPI j;1997 EF j . CPI j;y
(1)
EmCO2j,y, with a unit of million metric tons of CO2 emissions (MMTCO2), represents ‘‘avoided’’ CO2 emissions if the same quantity of a Chinese export j had been produced in the US in the year y. Xj,y represents a Chinese export j in the value of billion US$ traded in the year y, which is obtained from the US Census Bureau. Since the Census’s US import data Xj,y (or Chinese export data) exclude US import duties, freight, insurance, and other charges incurred in bringing the merchandise to the US, we assume that Chinese export data record custom value of the goods produced in China. We were aware that the same dollar value of a US product and a Chinese export in the same/similar category can represent different quantities of merchandise produced in each country. For example, 1 US dollar may indicate the production cost of 1 pair of shoes produced in the US and 4 pairs of similar shoes produced in China. We use relative purchasing power parity, or RPPP, to translate the US dollar values documented by US Census Bureau to the actual quantity of Chinese exports in the condition of using emission factors derived from the US-based EIO-LCA. RPPP is a ratio between the exchange rate of a US dollar relative to Chinese currency RMB and purchasing power parity (PPP) conversion factor. Table 1 presents the RPPPy values we used for estimating the CO2 embodiment in Chinese exports to the US for the years 1997–2003. CPIj,y is the consumer price index (CPI) for a US product which is in the same or similar category of Chinese export j in the year y. Since the EIO-LCA 1997 industrial benchmark model is based on US input–output data for
2
The statistics used to compile the merchandise trade balance exclude: (1) bunker fuels and other supplies and equipment for use on departing vessels, planes, or other carriers engaged in foreign trade, (2) merchandise shipped in transit through the United States from one foreign country to another, and (3) imports of articles repaired under warranty. Exports measure the total physical movement of merchandise out of the United States to foreign countries. The US export data are the free alongside ship value (f.a.s.), which is the value of exports at the U.S. seaport, airport, or border port of export, based on the transaction price, including inland freight, insurance, and other charges incurred in placing the merchandise alongside the carrier at the U.S. port of exportation. The value excludes the cost of loading the merchandise aboard the exporting carrier and also excludes freight, insurance, and any charges or transportation costs beyond the port of exportation. The import data record customs value. This value is generally defined as the price actually paid or payable for merchandise when sold for exportation to the United States, excluding U.S. import duties, freight, insurance, and other charges incurred in bringing the merchandise to the United States (US Census Bureau, 2005).
Table 1 China’s relative purchasing power parity, 1997–2003 Years
Exchange rate RMB per US $
PPP conversion factor (LCU per US $)
RPPPy
1997 1998 1999 2000 2001 2002 2003
8.2897 8.2791 8.2783 8.2784 8.2770 8.2770 8.2770
1.9968 1.9146 1.8515 1.8323 1.8059 1.7880 1.8132
4.15 4.32 4.47 4.52 4.58 4.63 4.56
Sources: 1. China’s exchange rate is from China’s State Administration of Foreign Exchange (2004). 2. PPP conversion factor is from the World Bank (2005), LCU ¼ local currency unit.
ARTICLE IN PRESS B. Shui, R.C. Harriss / Energy Policy 34 (2006) 4063–4068
1997, we used the CPI of the years 1998–2003 to normalize trade data to the baseline 1997 year. EFj is the CO2 emission factor of a US product which is in the similar/ same product category of a Chinese export j. 2.3. Estimating CO2 emissions embodied in US and Chinese exports The estimation for CO2 embodiment in US exports was calculated as follows: ExCO2i;y ¼ X i;y
CPI i;1997 EF i . CPI i;y
(2)
ExCO2i,y, with a unit of MMTCO2, represents the CO2 emissions embodied in a US export i in the year of y. Xi,y is a US export i with the trade value of billion US$ in the year y. EFi, with a unit of MMTCO2 per billion US$, is the CO2 emission factor for a US export i, which is derived from the EIO-LCA 1997 model. Since emission factors for CO2 associated with the production of Chinese exports are not currently available, we developed a methodology for estimating the CO2 emissions associated with Chinese industrial processes using a CO2 emissions ratio based on the fuels used in industrial sectors of China and the US. The CO2 embodiment in a Chinese export j is estimated as follows: ImCO2j;y ¼ X j;y RPPPy
CPI j;1997 EF j F y . CPI j;y
(3)
ImCO2j,y, with a unit of MMTCO2, indicates CO2 embodiment in a Chinese export j in the year y. Xj,y
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represents a Chinese export j in the value of billion US$ traded in the year y. Fy is the ratio of carbon in the fuel mix of China’s industrial sector compared to the carbon in fuel mix of the US’s industrial sector in the year y: P ðChinaIndFuel m;y ChinaCE m Þ . (4) Fy ¼ P ðUSIndFuel n;y USCE n;y Þ ChinaIndFuelm,y represents CO2 emissions in Chinese industrial sector by fuel type m in the year y (Table 2). ChinaCEm is CO2 coefficient by Chinese fuel type m (Hu et al., 2001). USIndFueln,y represents CO2 emissions in US industrial sector by fuel type n in the year y (Table 3). USCEn,y is the CO2 coefficient by US fuel type n (EIA, 2004a). The calculated carbon emission ratios Fy ranged from 1.42 to 1.43 during the years 1997–2003.
2.4. Uncertainties Due to the absence of a Chinese EIO-LCA-like model, we derived emission factors to estimate CO2 embodiment in Chinese exports to the US based on fuel structure differences in the industrial sectors of the US and China. This methodology, however, has the limitations in reflecting technological and other factors which may be relevant to deriving more accurate CO2 emission factors for specific Chinese products. For example, the role of inefficient technologies used in China for production of exports cannot be traced from this methodology. We will focus the next phase of our research on a detailed comparative analysis of the industrial processes associated with the
Table 2 Fuel mix of CO2 emissions in China’s industry sector, 1997–2003
1997 1998 1999 2000 2001 2002 2003
Coal (%)
Coke (%)
Electricity (%)
Petroleum (%)
Natural gas (%)
Heat (%)
Coke oven gas (%)
Total (%)
35 33 31 27 24 22 22
11 12 11 11 11 12 12
39 40 42 46 48 50 50
10 10 10 11 10 10 10
1.1 1.2 1.3 1.4 1.5 1.4 1.4
3 3 3 3 4 3 3
1.2 1.2 1.2 1.2 1.3 1.2 1.2
100 100 100 100 100 100 100
Source: Calculated based on fuel mixture of China’s industry sector (Sinton et al., 2004) and China’s CO2 coefficients by fuel type (Hu et al., 2001).
Table 3 Fuel mix of CO2 emissions in US industry sector, 1997–2003
1997 1998 1999 2000 2001 2002 2003
Coal (industrial) (%)
Coal (electricity) (%)
Natural gas (%)
Other gases (%)
Petroleum (%)
Total (%)
12 12 11 11 12 11 11
9 9 9 9 8 9 9
40 40 40 40 39 39 37
2 2 2 2 2 2 2
37 37 38 37 39 39 40
100 100 100 100 100 100 100
Source: Calculated based on fuel mix of US’s industrial sector and relevant CO2 coefficients (EIA, 2004b).
ARTICLE IN PRESS B. Shui, R.C. Harriss / Energy Policy 34 (2006) 4063–4068
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production of goods that are the primary carriers of embodied CO2. Using an input–output model, such as the current EIOLCA, often leads to difficulties in representing dynamic factors such as technological change when conducting time-series data analysis.
3. Data results 3.1. Avoided CO2 emissions in the US through Chinese exports Our results (methodologies in Section 2.2) indicate that the US avoided 150 MMTCO2 in 1997 increasing to 357 MMTCO2 in 2003 as a result of importing Chinese products (Fig. 1). The total ‘‘avoided’’ CO2 emissions for the US during the period 1997–2003 was 1711 MMTCO2, an amount 6% greater than the total emissions produced by the world’s 3rd largest CO2 emitter Russia in 2003. In addition, the annual growth rates of ‘‘avoided’’ CO2 emissions for the US (dotted bars in Fig. 2) were much higher than the annual growth rates of current US CO2 emissions (solid bars in Fig. 2), 3% (2001)–24% (2002) vs. 400
200 357
Avoided CO2 Emissions in the US through importing Chinese goods (MMTCO2)
300
314
MMTCO2
246
250 200
152
100
150
150
125
211 182
150 100
252
100
102
82 62
billion US$
350
71 Trade value of Chinese exports (billion US$)
50
50
0
0 1997
1998
1999
2000
2001
2002
1.8(2001) to 3.0% (2000). Fig. 2 also shows the impact of Chinese exports on the annual growth rate of US CO2 emissions. Without importing Chinese goods, the US’s annual growth rates of CO2 emissions (plain bars in Fig. 2) would increase 12% (2001)–146% (2002) compared to the current levels (solid bars in Fig. 2). The year of 2001 is the only year that the annual growth rates in trade, CO2 embodiment in Chinese exports, and total US CO2 emissions decreased dramatically. It may be caused by the sluggish US economy before the ‘‘9–11’’ terror attack and the badly hurt US economy after that. 3.2. The CO2 emissions in China attributed to producing exports to the US As the world’s second-largest carbon emitter, some faction of China’s CO2 emissions are produced during the manufacture of export goods destined for US consumers. Our calculations (methodology in Section 2.3) attribute approximately 213 MMTCO2 in 1997 increasing to 497 MMTCO2 in 2003 of China’s CO2 budget to products that were exported to the US (Fig. 3), accounting for 7% (1997)–14% (2002 and 2003) of China’s annual CO2 emissions. Our analysis also suggests that (1) as expected, the CO2 embodiment in Chinese exports (plain circles with a dashed line in Fig. 3) follows the growth trend of the trade value of Chinese exports to the US (solid circles with a solid line in Fig. 3). It may indicate that the structure of Chinese exports and fuel structures of China’s industrial sector did not change significantly during the study period, (2) due to the relatively insignificant value of US exports to China (solid triangles with a solid line in Fig. 3), the growth trends of US–China trade balance (solid squares with a solid line in Fig. 3) and associated CO2 embodiment balance (plain squares with a dashed line in Fig. 3) are dominated by Chinese exports.
2003 Embodied CO2 emissions in Chinese exports to the US (MMTCO2) Embodied CO2 emissions in US exports to China (MMTCO2)
Fig. 1. Avoided CO2 emissions for the US vs. trade values of Chinese exports to the US, 1997–2003.
US CO2 trade surplus from the trade with China (MMTCO2) Chinese export values to the US (billions of US$) US exports value to China (billions of US$) China $ trade surplus from the trade with US (billion US$)
497
500
449
352
350
361
140
301
120
259
100
250 213
80
200
60
150 100
40
50
20
0 1997
Fig. 2. Annual growth rates of CO2 emissions in the US, 1997–2003.
160
400
300
180
1998
1999
2000
2001
2002
Trade Value (billions in US$)
Embodied CO2 Emissions (MMTCO2)
450
0 2003
Fig. 3. China trade surplus vs. US net CO2 embodiment, 1997–2003.
ARTICLE IN PRESS B. Shui, R.C. Harriss / Energy Policy 34 (2006) 4063–4068
Similar to the annual growth rates of ‘‘avoided’’ CO2 emissions for the US (dotted bars in Fig. 2), the doubledigit annual growth rates of CO2 embodiment in Chinese exports to the US (dotted bars in Fig. 4) are much higher than the single-digit annual growth rates of current national CO2 emissions (solid bars in Fig. 4). If China has not produced exports to the US, its annual growth rates of CO2 emissions (plain bars in Fig. 4) would have ranged from 5.0% (1998) to 7.8% (2003), decreasing 4% (2003) to 140% (1999) compared to the current levels of the same years. While the production of exports for US consumption are a significant source of China’s annual CO2 emissions, rapid growing domestic demand and production of exports to other countries are primary driving force for increasing China’s carbon emissions. 3.3. The impacts of US–China trade on national and global CO2 emissions If the US had produced the same quantity of products domestically rather than importing them from China, the
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CO2 emissions in the US would have increased by 3% (1997 and 1998)–6% (2003) higher than the reported levels. In addition, the CO2 emissions in China due to the production of exports to the US accounted for 7% (1997)–14% (2002 and 2003) of China’s annual CO2 emissions. We conclude that US–China trade has a significant influence of the national emissions inventories of both countries, increasing emissions in China and decreasing emissions in the US (Fig. 5). When comparing Figs. 1 (plain circles with a dashed line) and 3 (plain circles with a dashed line), it is evident that if the goods imported from China had been produced in the US the net contribution of CO2 to the global atmosphere would have been reduced. This is largely due to the relatively high use of coal and less efficient manufacturing technologies in China’s industrial sector. During 1997–2003, the net ‘‘additional’’ global CO2 emissions resulting from US–China trade are 720 MMTCO2, an amount 20% higher than the total emissions produced by the world’s 7th largest CO2 emitter Canada in 2003. 4. Policy implications: a need for improved trading and carbon accounting guidance
6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1997
China's Annual CO2 Emissions
The US's Annual CO2 Emissions
MMTCO2
MMTCO2
Fig. 4. Annual growth rates of CO2 emissions in China, 1997–2003.
A voluminous literature exists on the financial and social impacts of world trade. Environmental impacts are less well studied and largely unacknowledged in current international trade accounting methodologies. Since embodied environmental impacts are ‘‘invisible’’ in most methodologies, their costs and benefits are largely ignored in judging the winners and losers of bilateral or multilateral trades. Our results illustrate the importance of world trade in accounting for the emissions CO2 that drive climate change. Future methodologies for estimating net benefits of trade will benefit from a comprehensive assessment of all economic, social, and environmental impacts. Our exploratory approach for relating consumer consumption to national emissions demonstrates how US– China trade has both reduced the effectiveness of national
Annual CO2 emissions if Chinese exports are produced in the US The annual CO2 emissions in the US 1998
1999
2000
2001
2002
2003
6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1997
Annual CO2 emissions if China does not produce exports to the US The annual CO2 emissions in China 1998
1999
2000
Fig. 5. The influence of US–China trade on national CO2 Emissions, 1997–2003.
2001
2002
2003
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emission inventories as a tool and contributed to an enhanced growth rate in the carbon intensity associated with the global production of goods. The growing magnitude and importance of the global trade of consumer goods indicates that further development of methodologies for relating the geospatial relationships of CO2 emissions to the production, use, and disposal of goods is an important area for continued investigation. The data and methodologies for quantitative tracking of carbon dioxide emissions associated with international trade require further refinement. For example, the EIOLCA software used for this study was developed for USbased applications. An international version EIO-LCA may be developed based on manufacturing technologies, transportation systems, and energy sources in each country engaged in significant international trade. Quantifying CO2 and other pollutants associated with international trade will shed light on opportunities and priorities for implementing mitigation programs like the Kyoto Protocol and Clean Development Mechanism. We suggest that the export of ‘‘clean’’ manufacturing technologies from the US to China would decrease the current trade imbalance, reduce pollution loading and related negative environment impacts in China, provide pollution ‘‘credits’’ to the US, and mitigate net global emissions. 5. Conclusions Our exploration of the embodied carbon in US–China trade has revealed that the environmental consequences of international trade are highly relevant to climate change policy considerations. The key issue revealed in our study and previous studies are that environmental factors, like the embodiment of carbon in imported/exported products, are not linked to consumption in either current national carbon accounting methods or in existing climate protection protocols. While we recognize that the costs and benefits of international trade have many economic, social, and environmental dimensions, the increasing interest in financial markets as a mechanism for mitigation of carbon emissions will require careful verification of emission reductions. With the entering into force of Kyoto protocol in February of 2005 and increasing tensions associated with trade deficits, discussions of embodied environmental costs in trade may open opportunities for active and effective collaboration between China and the US for implementing market-based approaches to carbon mitigation and pollution reduction.
Acknowledgements We would like to thank the following people for their valuable inputs in our study: Mr. XIN Dingguo, Energy Research Institute of China; Dr. Kathleen Miller, National Center for Atmospheric Research; Dr. Jonathan Sinton, Lawrence Berkeley National Laboratory; and Dr. WANG Renyou, Carnegie Mellon University. This research was supported by the Advanced Study Program and the Institute for the Study of Society and Environment at the National Center for Atmospheric Research. We especially thank an anonymous reviewer for his/her insightful suggestions. References Carnegie Mellon University Green Design Initiative, 2004. Economic input–output life cycle assessment (EIO-LCA) model [Internet]. Accessed 2004. http://www.eiolca.net/index.html EIA, 2004a. Documentation for Emissions of Greenhouse Gases in the United States 2002, Energy Information Administration. EIA, 2004b. Annual Energy Review 2002. Accessed 2004. http:// www.eia.doe.gov/emeu/aer/contents.html Ferng, J.-J., 2003. Allocating the responsibility of CO2 over-emissions from the perspectives of benefit principle and ecological deficit. Ecological Economics 46, 121–141. Hu, X., Jiang, K., et al., 2001. Technology Choice and Policy Analysis for China Greenhouse Gas Mitigation. China Environmental Science Publishing House. Hubacek, K., Giljum, S., 2003. Applying physical input–output analysis to estimate land appropriation (ecological footprints) of international trade activities. Ecological Economics 44, 137–151. Machado, G., Schaeffer, R., et al., 2001. Energy and carbon embodied in the international trade of Brazil: an input–output approach. Ecological Economics 39, 409–424. Munksgaard, J., Pedersen, K.A., 2001. CO2 accounts for open economies: producer or consumer responsibility? Energy Policy 29, 327–334. Muradian, R., O’Connor, M., et al., 2002. Embodied pollution in trade: estimating the ‘environmental load displacement’ of industrialized countries. Ecological Economics 41, 51–67. Schaeffer, R., de Sa´, A., 1996. The embodiment of carbon associated with Brazilian imports and exports. Energy Conversion and Management 37, 955–960. Sinton, J., Fridley, D., et al., 2004. China Energy Databook, sixth revised edition. State Administration of Foreign Exchange, 2004. Accessed 2004. http:// www.safe.gov.cn/ (in Chinese). US Census Bureau, 2005. Information on the Collection and Publication of Trade Statistics. Accessed 2004. http://www.census.gov/foreigntrade/reference/guides/tradestatsinfo.html#intro World Bank, 2005. World Development Indicator 2005. Accessed 2005. http://www.worldbank.org/data/wdi2005/index.html Wyckoff, A.W., Roop, J.M., 1994. The embodiment of carbon in imports of manufactured products: implications for international agreements on greenhouse gas emissions. Energy Policy 22, 187–194.
Energy Policy 34 (2006) 4063–4068 www.elsevier.com/locate/enpol
The role of CO2 embodiment in US–China trade Bin Shuia,b,, Robert C. Harrissb Advanced Study Program, National Center for Atmospheric Research1, Boulder, CO 80301, USA Institute for the Study of Society and Environment, National Center for Atmospheric Research, Boulder, CO 80301, USA a
b
Received 13 June 2005; received in revised form 11 September 2005 Available online 14 November 2005
Abstract This study examines the influence of US–China trade on national and global emissions of carbon dioxide (CO2). The three basic questions are as follows: (1) What amount of CO2 emissions is avoided in the US by importing Chinese goods? (2) How much are CO2 emissions in China increased as a result of the production of goods for export to the US? and (3) What are the impacts of US–China trade on global CO2 emissions? Our initial findings reveal that during 1997–2003: (1) US CO2 emissions would have increased from 3% to 6% if the goods imported from China had been produced in the US, (2) About 7%–14% of China’s current CO2 emissions were a result of producing exports for US consumers, and (3) US–China trade has increased global CO2 emissions by an estimated 720 million metric tons. We suggest that the export of US technologies and expertise related to clean production and energy efficiency to China could be a ‘‘win–win’’ strategy for both countries for reducing their trade imbalance and mitigating global CO2 emissions. Improved international accounting methodologies for assigning responsibility for CO2 emissions must be designed to account for the dynamic nature of international trade. r 2005 Published by Elsevier Ltd. Keywords: Carbon dioxide; Embodiment; Trade
1. Introduction In 2004, the US trade deficit reached an all-time high of $618 billion, exceeding the 2003 record deficit of $497 billion by 24%. The growth of imported goods from China is a major contributor to this trade imbalance. The related national and international assessments of the causes and consequences have focused primarily on economic, social, and political factors with far less attention being paid to environmental implications resulting from US–China trade. For example, the issues of China’s currency valuation policies and the designation of Hong Kong as a foreign port for purposes of international trade have received considerable discussion. The globalization of trade in goods has numerous environmental implications. Some researchers have preCorresponding author. Tel.: +1 303 497 2889; fax: +1 303 497 8125.
E-mail address: [email protected] (B. Shui). The National Center for Atmospheric Research is supported by the US National Science Foundation. 1
0301-4215/$ - see front matter r 2005 Published by Elsevier Ltd. doi:10.1016/j.enpol.2005.09.010
viously realized the importance of CO2 embodiment in global trade. By evaluating carbon embodied in the imports of manufactured goods to six largest OECD countries between 1984 and 1986, Wyckoff and Roop (1994) warned that many national greenhouse gas (GHG) policies, which are predicated on controlling emissions by reducing domestic GHG emissions, may not be effective if imports contribute significantly to domestic consumption. Schaeffer and de Sa´ (1996) studied carbon embodied in Brazilian imports and exports from 1970 to 1992 and expressed concerns that developed countries are transferring CO2 emissions to developing countries through offshore manufacturing and production of goods for domestic consumption. Munksgaard and Pedersen (2001) questioned whether the producer or the consumer of goods should be responsible for CO2 emissions. Jiun-Jiun Ferng (2003) suggested using a benefit principle to assign responsibility for pollutant emissions related to the consumption of goods. In this paper, we focus on the potential importance of US–China trade for developing atmospheric greenhouse
ARTICLE IN PRESS 4064
B. Shui, R.C. Harriss / Energy Policy 34 (2006) 4063–4068
gas inventories and implementing strategies to mitigate the growth of global CO2 emissions. We investigate three basic questions: (1) What amount of CO2 emissions is avoided in the US by importing Chinese goods? (2) How much have CO2 emissions in China increased as a result of the production of goods for export to the US? (3) What are the impacts of US–China trade on global CO2 emissions?
2.2. Estimating the amount of CO2 emissions avoided in the US by importing Chinese goods The CO2 emissions embodied in Chinese exports to the US are avoided from the perspective of the current US CO2 emissions inventory. The avoided CO2 emissions for the US can be estimated as follows: EmCO2j;y ¼ X j;y RPPPy
2. Methodologies 2.1. Overview The CO2 embodiment in exports (imports) is estimated by multiplying the dollar value of each export (import) product by the corresponding CO2 emission factor for the same kind of product produced in the exporting (importing) country. Trade data used in this study were obtained from the US Census Bureau.2 Input–output analysis has been often applied to estimating embodied energy, CO2 emissions, pollutants and land appropriation from international trade activities (Wyckoff and Roop, 1994; Schaeffer and de Sa´, 1996; Machado et al., 2001; Munksgaard and Pedersen, 2001; Muradian et al., 2002; Ferng, 2003; Hubacek and Giljum, 2003). The CO2 emission factors for US exports to China are derived from the Economic Input Output-Life Cycle Assessment (EIO-LCA) software developed by Green Design Initiative at Carnegie Mellon University. The EIO-LCA was developed based on US economic input and output data. It is a useful tool to trace economic transactions, resource requirements and environmental emissions associated with a particular product manufactured in the US (Carnegie Mellon University Green Design Initiative, 2004). Due to the lack of similar input–output tool(s) for assessing environmental impacts of Chinese products, the CO2 emission factors for Chinese exports to the US are based on the CO2 emission factors that have been corrected for differences in the fuel mix of the manufacturing sector in China and the US.
CPI j;1997 EF j . CPI j;y
(1)
EmCO2j,y, with a unit of million metric tons of CO2 emissions (MMTCO2), represents ‘‘avoided’’ CO2 emissions if the same quantity of a Chinese export j had been produced in the US in the year y. Xj,y represents a Chinese export j in the value of billion US$ traded in the year y, which is obtained from the US Census Bureau. Since the Census’s US import data Xj,y (or Chinese export data) exclude US import duties, freight, insurance, and other charges incurred in bringing the merchandise to the US, we assume that Chinese export data record custom value of the goods produced in China. We were aware that the same dollar value of a US product and a Chinese export in the same/similar category can represent different quantities of merchandise produced in each country. For example, 1 US dollar may indicate the production cost of 1 pair of shoes produced in the US and 4 pairs of similar shoes produced in China. We use relative purchasing power parity, or RPPP, to translate the US dollar values documented by US Census Bureau to the actual quantity of Chinese exports in the condition of using emission factors derived from the US-based EIO-LCA. RPPP is a ratio between the exchange rate of a US dollar relative to Chinese currency RMB and purchasing power parity (PPP) conversion factor. Table 1 presents the RPPPy values we used for estimating the CO2 embodiment in Chinese exports to the US for the years 1997–2003. CPIj,y is the consumer price index (CPI) for a US product which is in the same or similar category of Chinese export j in the year y. Since the EIO-LCA 1997 industrial benchmark model is based on US input–output data for
2
The statistics used to compile the merchandise trade balance exclude: (1) bunker fuels and other supplies and equipment for use on departing vessels, planes, or other carriers engaged in foreign trade, (2) merchandise shipped in transit through the United States from one foreign country to another, and (3) imports of articles repaired under warranty. Exports measure the total physical movement of merchandise out of the United States to foreign countries. The US export data are the free alongside ship value (f.a.s.), which is the value of exports at the U.S. seaport, airport, or border port of export, based on the transaction price, including inland freight, insurance, and other charges incurred in placing the merchandise alongside the carrier at the U.S. port of exportation. The value excludes the cost of loading the merchandise aboard the exporting carrier and also excludes freight, insurance, and any charges or transportation costs beyond the port of exportation. The import data record customs value. This value is generally defined as the price actually paid or payable for merchandise when sold for exportation to the United States, excluding U.S. import duties, freight, insurance, and other charges incurred in bringing the merchandise to the United States (US Census Bureau, 2005).
Table 1 China’s relative purchasing power parity, 1997–2003 Years
Exchange rate RMB per US $
PPP conversion factor (LCU per US $)
RPPPy
1997 1998 1999 2000 2001 2002 2003
8.2897 8.2791 8.2783 8.2784 8.2770 8.2770 8.2770
1.9968 1.9146 1.8515 1.8323 1.8059 1.7880 1.8132
4.15 4.32 4.47 4.52 4.58 4.63 4.56
Sources: 1. China’s exchange rate is from China’s State Administration of Foreign Exchange (2004). 2. PPP conversion factor is from the World Bank (2005), LCU ¼ local currency unit.
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1997, we used the CPI of the years 1998–2003 to normalize trade data to the baseline 1997 year. EFj is the CO2 emission factor of a US product which is in the similar/ same product category of a Chinese export j. 2.3. Estimating CO2 emissions embodied in US and Chinese exports The estimation for CO2 embodiment in US exports was calculated as follows: ExCO2i;y ¼ X i;y
CPI i;1997 EF i . CPI i;y
(2)
ExCO2i,y, with a unit of MMTCO2, represents the CO2 emissions embodied in a US export i in the year of y. Xi,y is a US export i with the trade value of billion US$ in the year y. EFi, with a unit of MMTCO2 per billion US$, is the CO2 emission factor for a US export i, which is derived from the EIO-LCA 1997 model. Since emission factors for CO2 associated with the production of Chinese exports are not currently available, we developed a methodology for estimating the CO2 emissions associated with Chinese industrial processes using a CO2 emissions ratio based on the fuels used in industrial sectors of China and the US. The CO2 embodiment in a Chinese export j is estimated as follows: ImCO2j;y ¼ X j;y RPPPy
CPI j;1997 EF j F y . CPI j;y
(3)
ImCO2j,y, with a unit of MMTCO2, indicates CO2 embodiment in a Chinese export j in the year y. Xj,y
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represents a Chinese export j in the value of billion US$ traded in the year y. Fy is the ratio of carbon in the fuel mix of China’s industrial sector compared to the carbon in fuel mix of the US’s industrial sector in the year y: P ðChinaIndFuel m;y ChinaCE m Þ . (4) Fy ¼ P ðUSIndFuel n;y USCE n;y Þ ChinaIndFuelm,y represents CO2 emissions in Chinese industrial sector by fuel type m in the year y (Table 2). ChinaCEm is CO2 coefficient by Chinese fuel type m (Hu et al., 2001). USIndFueln,y represents CO2 emissions in US industrial sector by fuel type n in the year y (Table 3). USCEn,y is the CO2 coefficient by US fuel type n (EIA, 2004a). The calculated carbon emission ratios Fy ranged from 1.42 to 1.43 during the years 1997–2003.
2.4. Uncertainties Due to the absence of a Chinese EIO-LCA-like model, we derived emission factors to estimate CO2 embodiment in Chinese exports to the US based on fuel structure differences in the industrial sectors of the US and China. This methodology, however, has the limitations in reflecting technological and other factors which may be relevant to deriving more accurate CO2 emission factors for specific Chinese products. For example, the role of inefficient technologies used in China for production of exports cannot be traced from this methodology. We will focus the next phase of our research on a detailed comparative analysis of the industrial processes associated with the
Table 2 Fuel mix of CO2 emissions in China’s industry sector, 1997–2003
1997 1998 1999 2000 2001 2002 2003
Coal (%)
Coke (%)
Electricity (%)
Petroleum (%)
Natural gas (%)
Heat (%)
Coke oven gas (%)
Total (%)
35 33 31 27 24 22 22
11 12 11 11 11 12 12
39 40 42 46 48 50 50
10 10 10 11 10 10 10
1.1 1.2 1.3 1.4 1.5 1.4 1.4
3 3 3 3 4 3 3
1.2 1.2 1.2 1.2 1.3 1.2 1.2
100 100 100 100 100 100 100
Source: Calculated based on fuel mixture of China’s industry sector (Sinton et al., 2004) and China’s CO2 coefficients by fuel type (Hu et al., 2001).
Table 3 Fuel mix of CO2 emissions in US industry sector, 1997–2003
1997 1998 1999 2000 2001 2002 2003
Coal (industrial) (%)
Coal (electricity) (%)
Natural gas (%)
Other gases (%)
Petroleum (%)
Total (%)
12 12 11 11 12 11 11
9 9 9 9 8 9 9
40 40 40 40 39 39 37
2 2 2 2 2 2 2
37 37 38 37 39 39 40
100 100 100 100 100 100 100
Source: Calculated based on fuel mix of US’s industrial sector and relevant CO2 coefficients (EIA, 2004b).
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production of goods that are the primary carriers of embodied CO2. Using an input–output model, such as the current EIOLCA, often leads to difficulties in representing dynamic factors such as technological change when conducting time-series data analysis.
3. Data results 3.1. Avoided CO2 emissions in the US through Chinese exports Our results (methodologies in Section 2.2) indicate that the US avoided 150 MMTCO2 in 1997 increasing to 357 MMTCO2 in 2003 as a result of importing Chinese products (Fig. 1). The total ‘‘avoided’’ CO2 emissions for the US during the period 1997–2003 was 1711 MMTCO2, an amount 6% greater than the total emissions produced by the world’s 3rd largest CO2 emitter Russia in 2003. In addition, the annual growth rates of ‘‘avoided’’ CO2 emissions for the US (dotted bars in Fig. 2) were much higher than the annual growth rates of current US CO2 emissions (solid bars in Fig. 2), 3% (2001)–24% (2002) vs. 400
200 357
Avoided CO2 Emissions in the US through importing Chinese goods (MMTCO2)
300
314
MMTCO2
246
250 200
152
100
150
150
125
211 182
150 100
252
100
102
82 62
billion US$
350
71 Trade value of Chinese exports (billion US$)
50
50
0
0 1997
1998
1999
2000
2001
2002
1.8(2001) to 3.0% (2000). Fig. 2 also shows the impact of Chinese exports on the annual growth rate of US CO2 emissions. Without importing Chinese goods, the US’s annual growth rates of CO2 emissions (plain bars in Fig. 2) would increase 12% (2001)–146% (2002) compared to the current levels (solid bars in Fig. 2). The year of 2001 is the only year that the annual growth rates in trade, CO2 embodiment in Chinese exports, and total US CO2 emissions decreased dramatically. It may be caused by the sluggish US economy before the ‘‘9–11’’ terror attack and the badly hurt US economy after that. 3.2. The CO2 emissions in China attributed to producing exports to the US As the world’s second-largest carbon emitter, some faction of China’s CO2 emissions are produced during the manufacture of export goods destined for US consumers. Our calculations (methodology in Section 2.3) attribute approximately 213 MMTCO2 in 1997 increasing to 497 MMTCO2 in 2003 of China’s CO2 budget to products that were exported to the US (Fig. 3), accounting for 7% (1997)–14% (2002 and 2003) of China’s annual CO2 emissions. Our analysis also suggests that (1) as expected, the CO2 embodiment in Chinese exports (plain circles with a dashed line in Fig. 3) follows the growth trend of the trade value of Chinese exports to the US (solid circles with a solid line in Fig. 3). It may indicate that the structure of Chinese exports and fuel structures of China’s industrial sector did not change significantly during the study period, (2) due to the relatively insignificant value of US exports to China (solid triangles with a solid line in Fig. 3), the growth trends of US–China trade balance (solid squares with a solid line in Fig. 3) and associated CO2 embodiment balance (plain squares with a dashed line in Fig. 3) are dominated by Chinese exports.
2003 Embodied CO2 emissions in Chinese exports to the US (MMTCO2) Embodied CO2 emissions in US exports to China (MMTCO2)
Fig. 1. Avoided CO2 emissions for the US vs. trade values of Chinese exports to the US, 1997–2003.
US CO2 trade surplus from the trade with China (MMTCO2) Chinese export values to the US (billions of US$) US exports value to China (billions of US$) China $ trade surplus from the trade with US (billion US$)
497
500
449
352
350
361
140
301
120
259
100
250 213
80
200
60
150 100
40
50
20
0 1997
Fig. 2. Annual growth rates of CO2 emissions in the US, 1997–2003.
160
400
300
180
1998
1999
2000
2001
2002
Trade Value (billions in US$)
Embodied CO2 Emissions (MMTCO2)
450
0 2003
Fig. 3. China trade surplus vs. US net CO2 embodiment, 1997–2003.
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Similar to the annual growth rates of ‘‘avoided’’ CO2 emissions for the US (dotted bars in Fig. 2), the doubledigit annual growth rates of CO2 embodiment in Chinese exports to the US (dotted bars in Fig. 4) are much higher than the single-digit annual growth rates of current national CO2 emissions (solid bars in Fig. 4). If China has not produced exports to the US, its annual growth rates of CO2 emissions (plain bars in Fig. 4) would have ranged from 5.0% (1998) to 7.8% (2003), decreasing 4% (2003) to 140% (1999) compared to the current levels of the same years. While the production of exports for US consumption are a significant source of China’s annual CO2 emissions, rapid growing domestic demand and production of exports to other countries are primary driving force for increasing China’s carbon emissions. 3.3. The impacts of US–China trade on national and global CO2 emissions If the US had produced the same quantity of products domestically rather than importing them from China, the
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CO2 emissions in the US would have increased by 3% (1997 and 1998)–6% (2003) higher than the reported levels. In addition, the CO2 emissions in China due to the production of exports to the US accounted for 7% (1997)–14% (2002 and 2003) of China’s annual CO2 emissions. We conclude that US–China trade has a significant influence of the national emissions inventories of both countries, increasing emissions in China and decreasing emissions in the US (Fig. 5). When comparing Figs. 1 (plain circles with a dashed line) and 3 (plain circles with a dashed line), it is evident that if the goods imported from China had been produced in the US the net contribution of CO2 to the global atmosphere would have been reduced. This is largely due to the relatively high use of coal and less efficient manufacturing technologies in China’s industrial sector. During 1997–2003, the net ‘‘additional’’ global CO2 emissions resulting from US–China trade are 720 MMTCO2, an amount 20% higher than the total emissions produced by the world’s 7th largest CO2 emitter Canada in 2003. 4. Policy implications: a need for improved trading and carbon accounting guidance
6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1997
China's Annual CO2 Emissions
The US's Annual CO2 Emissions
MMTCO2
MMTCO2
Fig. 4. Annual growth rates of CO2 emissions in China, 1997–2003.
A voluminous literature exists on the financial and social impacts of world trade. Environmental impacts are less well studied and largely unacknowledged in current international trade accounting methodologies. Since embodied environmental impacts are ‘‘invisible’’ in most methodologies, their costs and benefits are largely ignored in judging the winners and losers of bilateral or multilateral trades. Our results illustrate the importance of world trade in accounting for the emissions CO2 that drive climate change. Future methodologies for estimating net benefits of trade will benefit from a comprehensive assessment of all economic, social, and environmental impacts. Our exploratory approach for relating consumer consumption to national emissions demonstrates how US– China trade has both reduced the effectiveness of national
Annual CO2 emissions if Chinese exports are produced in the US The annual CO2 emissions in the US 1998
1999
2000
2001
2002
2003
6500 6000 5500 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 1997
Annual CO2 emissions if China does not produce exports to the US The annual CO2 emissions in China 1998
1999
2000
Fig. 5. The influence of US–China trade on national CO2 Emissions, 1997–2003.
2001
2002
2003
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emission inventories as a tool and contributed to an enhanced growth rate in the carbon intensity associated with the global production of goods. The growing magnitude and importance of the global trade of consumer goods indicates that further development of methodologies for relating the geospatial relationships of CO2 emissions to the production, use, and disposal of goods is an important area for continued investigation. The data and methodologies for quantitative tracking of carbon dioxide emissions associated with international trade require further refinement. For example, the EIOLCA software used for this study was developed for USbased applications. An international version EIO-LCA may be developed based on manufacturing technologies, transportation systems, and energy sources in each country engaged in significant international trade. Quantifying CO2 and other pollutants associated with international trade will shed light on opportunities and priorities for implementing mitigation programs like the Kyoto Protocol and Clean Development Mechanism. We suggest that the export of ‘‘clean’’ manufacturing technologies from the US to China would decrease the current trade imbalance, reduce pollution loading and related negative environment impacts in China, provide pollution ‘‘credits’’ to the US, and mitigate net global emissions. 5. Conclusions Our exploration of the embodied carbon in US–China trade has revealed that the environmental consequences of international trade are highly relevant to climate change policy considerations. The key issue revealed in our study and previous studies are that environmental factors, like the embodiment of carbon in imported/exported products, are not linked to consumption in either current national carbon accounting methods or in existing climate protection protocols. While we recognize that the costs and benefits of international trade have many economic, social, and environmental dimensions, the increasing interest in financial markets as a mechanism for mitigation of carbon emissions will require careful verification of emission reductions. With the entering into force of Kyoto protocol in February of 2005 and increasing tensions associated with trade deficits, discussions of embodied environmental costs in trade may open opportunities for active and effective collaboration between China and the US for implementing market-based approaches to carbon mitigation and pollution reduction.
Acknowledgements We would like to thank the following people for their valuable inputs in our study: Mr. XIN Dingguo, Energy Research Institute of China; Dr. Kathleen Miller, National Center for Atmospheric Research; Dr. Jonathan Sinton, Lawrence Berkeley National Laboratory; and Dr. WANG Renyou, Carnegie Mellon University. This research was supported by the Advanced Study Program and the Institute for the Study of Society and Environment at the National Center for Atmospheric Research. We especially thank an anonymous reviewer for his/her insightful suggestions. References Carnegie Mellon University Green Design Initiative, 2004. Economic input–output life cycle assessment (EIO-LCA) model [Internet]. Accessed 2004. http://www.eiolca.net/index.html EIA, 2004a. Documentation for Emissions of Greenhouse Gases in the United States 2002, Energy Information Administration. EIA, 2004b. Annual Energy Review 2002. Accessed 2004. http:// www.eia.doe.gov/emeu/aer/contents.html Ferng, J.-J., 2003. Allocating the responsibility of CO2 over-emissions from the perspectives of benefit principle and ecological deficit. Ecological Economics 46, 121–141. Hu, X., Jiang, K., et al., 2001. Technology Choice and Policy Analysis for China Greenhouse Gas Mitigation. China Environmental Science Publishing House. Hubacek, K., Giljum, S., 2003. Applying physical input–output analysis to estimate land appropriation (ecological footprints) of international trade activities. Ecological Economics 44, 137–151. Machado, G., Schaeffer, R., et al., 2001. Energy and carbon embodied in the international trade of Brazil: an input–output approach. Ecological Economics 39, 409–424. Munksgaard, J., Pedersen, K.A., 2001. CO2 accounts for open economies: producer or consumer responsibility? Energy Policy 29, 327–334. Muradian, R., O’Connor, M., et al., 2002. Embodied pollution in trade: estimating the ‘environmental load displacement’ of industrialized countries. Ecological Economics 41, 51–67. Schaeffer, R., de Sa´, A., 1996. The embodiment of carbon associated with Brazilian imports and exports. Energy Conversion and Management 37, 955–960. Sinton, J., Fridley, D., et al., 2004. China Energy Databook, sixth revised edition. State Administration of Foreign Exchange, 2004. Accessed 2004. http:// www.safe.gov.cn/ (in Chinese). US Census Bureau, 2005. Information on the Collection and Publication of Trade Statistics. Accessed 2004. http://www.census.gov/foreigntrade/reference/guides/tradestatsinfo.html#intro World Bank, 2005. World Development Indicator 2005. Accessed 2005. http://www.worldbank.org/data/wdi2005/index.html Wyckoff, A.W., Roop, J.M., 1994. The embodiment of carbon in imports of manufactured products: implications for international agreements on greenhouse gas emissions. Energy Policy 22, 187–194.