Carbon content of trade

Global carbon emissions levels might not decrease with the use of policies limiting exports of goods with high carbon content, reports research in Nature Climate Change this week.

Experts have previously measured the level of carbon embodied in traded goods and found that most emerging economies, such as China, are actually net exporters of carbon. They often suggest taxing the carbon content of goods at the borders to limit emissions offshoring, but Robert Marschinski and Michael Jakob challenge such proposals. Trade theory assumes that trading goods is equivalent to trading their production factors. For example, if the production of goods requires a certain amount of fossil fuels, trading those goods is calculated as equivalent to trading the associated carbon emissions, or production factor. The theory then suggests that a country benefiting from a cheap supply of fossil fuels would have a relative advantage over others in the production of goods with high carbon content, assuming equal fossil-fuel productivity across countries. Taxing the carbon content of its exports should therefore curb fossil-fuel use and ultimately emissions. However, the authors report that in reality countries use production factors differently - a result of different technologies or institutional quality. They therefore conclude that production factors (carbon) embodied in a country’s exports and those in its imports - from a trade partner - are two quantities with no common basis, and their comparison to identify net exporters/importers of carbon emissions requires caution.

doi: 10.1038/nclimate1630

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