CO 2 Emission Embodied in International Trade : Evidence for China

As the biggest developing country, China generate huge amount of CO2 emissions. Some studies suggest that export trade is an important contributor to this, and China has been the pollution haven for the developed countries. A few developed countries also treat this as an excuse to take measures to punish China. This study calculates the amount of CO2 emissions of 18 exporting industries in China using the data from 2001 to 2010. The findings reveal that the amount of CO2 emissions is the result of export volume multiplying carbon emission per unit export. Carbon emission per unit export is dropping year by year, as the total amount of CO2 emissions is rising year by year. As a result, the major contributor to huge amount of CO2 emissions in export is the increasing volume of export inducing by abroad consumption. Empirical study also reveals that China has not been the pollution haven for developed countries.


Introduction
From last century, as the rapid growing in developed and developing countries, the dependence on fossil energy induces rising emission of carbon dioxide and other greenhouse gases.The rising emission of carbon dioxide leads to the environmental pollution, climate warming and ecology unbalance, and has been a constraint to economic and social sustainable development.In this case, it becomes urgent for every country to find a green development mode that could improve atmospheric environment without hurt economic efficiency.With the term of "Low Carbon Economy" was first raised in England in 2003, many countries set off a "Low Carbon Revolution".In the post-crisis era, some countries treat low carbon economy as an important economic growth point, and apply multiple measures to regulate carbon dioxide emission.
As the biggest developing country, China generate huge amount of CO 2 emissions.According to the IEA, the total amount of CO 2 emissions caused by fossil fuel in China (including Hong Kong) was about 0.8 billion tons in 1971.By 2011, the emissions increased to about 8 billion tons, which accounted for 25% of the total amount in the whole world.Some studies suggest that export trade is an important contributor to this, such as Shui and Harriss (2006), as well as Peter and Hertwich (2008).Researches in Elliott (2010), Fowlie (2009) and Glen (2008) reveal that regional carbon regulation in developed countries will cause emission intensive industries shifting to developing countries where are called pollution haven, such as China.The shifting will induce developing countries to increase emissions, which was known as 'carbon leakage'.
The amount of CO 2 emissions in export trade is the result of export volume multiplying carbon emission intensity, which is carbon emission per unit export.Even Carbon emission intensity is dropping year by year in China, the total amount of CO 2 emissions is rising yearly.As a result, the major contributor to huge amount of CO 2 emissions of export in China is the increasing export volume inducing by abroad consumption.China and the importers should jointly afford the responsibility, and it is not properly for the developed country take punitive measures to China.This research firstly applies the input-output (I-O) analysis to calculate the direct and indirect CO 2 emissions intensity for 18 industries in China.On this basis, this paper measures the CO 2 emissions level for 18 export industries from 2001 to 2010.Finally, it tests the pollution haven effect and carbon leakage effect by measuring the net exports as a proportion of consumption (NETXC).

Literature Review
I-O analysis is usually used to measure CO 2 emissions embodied in international trade.There are two kinds of I-O frameworks: one is the single regional I-O framework, such as researches in Machado (2001), Munksgaard and Pedersen (2001) and Mongelli (2006).The other is multiregional I-O framework, such as Shui & Harriss (2006) examine the influence of US-China trade on CO 2 emissions.They find that about 7%-14% of CO 2 emissions in China are the result of producing exports for US consumers.Peters & Hertwich (2008) measures CO 2 emissions embodied in the trade among 87 regions in 2001, finding that the CO 2 emissions embodied in China export trade accounts for 24% of the total emissions volume in China, while the CO 2 emissions embodies in import trade only accounts for 7%.
Most of researchers in China also use the I-O analysis to measure the CO 2 emissions embodied in trade, such as Qi Ye (2008) , Zhang Xiaoping (2009) and Sun Xiaoyu (2009).Their researches suggest that the rapid growth in China's export trade is at the cost of huge energy consumption and CO 2 emissions.
There is a technical problem when calculating CO 2 emissions: how to measure the CO 2 emissions embodied in processing trade?The importing parts of processing trade generate emissions before importing from abroad.It will overvalue the total amount of CO 2 emissions embodied in China's export trade if we do not eliminate these parts.Chen Ying (2008) and Wei Benyong (2009) solve this problem by revising the I-O analysis.Excepting the I-O framework, some researchers also measure the CO 2 emissions by other analysis . Zhou Nianli (2007) testes the level of sustainable development in China's export trade from 1985-2003 by grey cluster model.His research reveals that the economic benefits of export are obtained at the cost of environment deterioration and resource depletion . Liu Qiang (2008) uses the Life Cycle Assessment method to calculate the embodied energy and carbon emission in 46 kinds of export products, and finds that the huge energy consumption and carbon emission are against to the sustainable development of China.

Model Description
Indirect CO 2 emission amount is the total volume of CO 2 emissions generated in the entire product chain, and it reflects more complete emission behavior in every industry compared to the direct CO 2 emission amount.I-O analysis is usually used to measure the indirect CO 2 emission amount.We can establish the input and output relationship among economic sectors: Where X is the total output, A is the direct consumption coefficient matrix ( ) = is called direct consumption coefficient, and represents the outputs of sector i required as input by sector j to produce one unit of its monetary output.The AX means the share of final output consumed as intermediate input.
If we deduct AX from X, we can get final output Y, which is: (2) Where (I-A) -1 is called Leontief inverse matrix.CO 2 emissions are mainly generated from the consumption of fossil energy.According to the IPCC Guidelines for national greenhouse Gas Inventories 2006, the equation to calculate direct CO 2 emission is: Where C i is the direct CO 2 emission amount in sector i, and Consumption fuel is the sum of energy consumed in this sector.The measuring units of various energies are converted into standard coal.α fuel is the CO 2 emission coefficient of each energy, it can be calculated according to the equation given by volume 2 of the IPCC Guidelines for National Greenhouse Gas Inventories.Energies of this paper referred are as following: crude coal, coke, crude oil, fuel oil, gasoline, kerosene and natural gas.
The direct emission intensity is: Where X i is represented by the added value of output in each sector.If we multiply CO 2 emission intensity by Leontief inverse matrix (I-A) -1 , the indirect CO 2 emission intensity can be received: (5) The indirect CO 2 emission amount embodied in export for sector i is: 1 ( ) Where EX i is the export volume in sector i.
The total amount of indirect CO 2 emission embodied in export for all export sectors is: ) In an open economy, the intermediate inputs are not only produced domestically, but also imported from abroad.The imported has already generated CO 2 emissions before importing.If we do not eliminate this part, it will overvalue the total amount of CO 2 emissions embodied in China's export, so A here only refer to the intermediate inputs produced domestically.

Date Description
Input-output Other data source: the data of various energy consumption and industrial added value are from China Statistical yearbook.

Indirect CO 2 Emission Intensity for Various Sectors
According to the above model, we calculate the indirect CO 2 emission intensity for every sector from 2001 to 2010, and the details are shown by table 1.In general, the indirect CO 2 emission intensities for most sectors are declining year by year.The differences among various sectors are very big.We can classify the 18 export sectors into three categories: high emission sector which annual average emission intensity is above 0.1, medium emission sector which annual average is between 0.06 and 0.1, low emission sector which annual average is below 0.06.

Empirical Test of the Pollution Haven Effect
Even from 1990s some papers have mentioned that the strict environment policy in developed country may induce pollution industries shifting to developing country, there are few empirical studies to test.Janicke (1997) uses the NETXC, which is the ratio of net exports to domestic consumption, to judge the influence of environment policy to the pollution industry in developed country.The study of Janicke (1997) only focuses on pollution industry.Cole ( 2004) improves the NETXC, adds the clean industry as sample, and tests the pollution haven effect in developing country.On the basis of Cole's study, this paper adopts the following NETXC to test whether the strengthening of carbon policy in developed country make China to be the pollution haven of carbon emission: indicates sector 1, sector 2, …, sector n, t indicates year.NETXC it is the NETXC for sector i in a given year.M ) from all over the world in sector i (indicated as W it X ).The data for import and export are selected from the OECD database, and the amount of production refers to the output added value.
Through the NETXC, We can decide the influence of Annex I parties strengthening carbon policy on the level of CO 2 emission in China.If the NETXC in some sector is rising year by year, it means that the relative strict carbon policy in Annex I parties cause China getting advantage in that sector.If the sector is high-emission intensive, it will induce CO 2 emission rising and carbon leakage.This paper calculates the NETXC for 18 exporting sectors from 2001 to 2010, as seen in table 3.
For high emission sectors, the NETXC for some are roughly rising yearly, such as the Chemicals excluding pharmaceuticals (sector 8) and the Machinery & equipment (sector 13), but the NETXC for Coke, refined petroleum products & nuclear fuel (sector 7) reveals an inverse trend, while the Non-ferrous metal & ferrous metal smelting & rolling processing industry (sector 10) shows an inverted-U shape.It indicates that the relative strict carbon policy in developed country do not obviously enhance China's advantages in high emission sectors.For medium emission sectors, the NETXC for Mining & quarrying (sector 2) and other manufacturing (sector 18) reveals an increasing trend, while sector 6 shows inversely.The rest three sectors in this group do not reveal simple increasing or declining trend.For the low emission sectors, only the NETXC for Radio, television & communication equipment (sector 16) increase year by year, the rest sectors reveal inverse trend except sector 14.

Conclusion
This paper calculates the CO 2 emissions embodied in China's export trade from 2001 to 2010 by the input-output framework.Result reveals that the major contributor to huge amount of CO 2 emissions of export in China is the increasing export volume inducing by abroad consumption, not the CO 2 emissions intensity which declining yearly.This paper also use NEXTC to test the effect of relative strict policy in developed country on China's high emission sectors, medium emission sectors and low emission sectors, and finds the changes of trade advantages in each group are not consistent, which means carbon leakage do not occur and China do not become the pollution haven of CO 2 emissions for developed country.CO 2 emission is a global public pollution source, it needs all countries enhance cooperation, rationally allocate and consciously fulfill emission reduction obligations, improve the cooperation framework under the Kyoto Protocol, as well as look for the cooperation framework for post-Kyoto protocol.

X
represents the export amount of sector i in China to Annex I countries in a given year.Annex I countries refer to the contracting parties mentioned in the Annex I of UNFCC (United Nations Framework Convention on Climate Change).Most of the parties are developed countries.A it M represents the import amount of sector i in China from Annex I countries in a given year.The balance between A it X and A it M indicates the net export amount of sector i in China to Annex I countries.C it represents the net consumption of sector i in China, it equals the production (indicated as P it ) minus the export to other countries, then plus the import (indicated as W it table (I-O table): In order to eliminate the importing inputs of Leontief inverse matrix, this paper adopts the I-O table supplied by OECD database.The research period is from 2001 to 2010.Now, the OECD database only provide1995, 2000 and 2005 I-O table.Since the production technique do not change dramatically, this study uses price index to revise I-O relationship for 18 sectors on the basis of 2000 and 2005 I-O table.

Table 1 .
Indirect CO 2 emission intensity (billion tons/100 billion RMB) for 18 sectors(2001)(2002)(2003)(2004)(2005)(2006)(2007)(2008)(2009)(2010)We can also calculate the annual indirect CO 2 emission amount embodied in every export sector as shown in table 2. Firstly, the indirect CO 2 emission amounts embodied in most export sectors are rising yearly, but there are also several sectors reveal an opposite tendency, such as the Mining & quarrying (sector 2).According to chapter 4.1, the indirect CO 2 emission intensities of most sectors are declining, so the main reason that cause CO 2 emission amounts rising are the increasing export amounts.Secondly, the differences among sectors are very big.In some sectors, such as the chemicals excluding pharmaceuticals (sector 8), Non-ferrous metal & ferrous metal smelting & rolling processing industry (sector 11), Machinery & equipment (sector 131), the annual indirect CO 2 emissions embodied in export are above 200 million tons.These sectors with big growth rate are the main sources of the rising indirect CO 2 emissions embodied in China's export.In general, the total amount of indirect CO 2 emission embodied in China's export is also rising year by year, while the indirect CO 2 emission amount declined in 2008 and 2009 due to the world financial crisis.