Overarching question
“How mitigative actions undertaken
by developed countries could affect
development in developing and
emerging economies?”
Hans Opschoor (2010)
Overview
• Background on climate change mitigation.
• Consumption trends and consumption-based accounting.
• Trade and impacts to the developing world.
• Method• Results• Limitations and conclusions
Climate Change
• Strong evidence that rise in global average temperatures is due to the observed increase in anthropogenic GHG concentrations.
• Currently global warming is at 0.7 ° C above pre-industrial levels .
• Under a “business as usual” scenario, temperatures could rise 5 to 6°C by 2100.
Source: (IPCC, 2007)
Multilateral emissions reduction targets
• Kyoto protocol: Some Annex B countries agreed to reduce emissions by 2012 relative to 1990 baseline (e.g. EU15 and other European nations -8%).
• EU ETS: Cuts of at least 20% by 2020 and >80% by 2050 relative to 1990.
• Cancun Agreements: Industrialized countries proposed reduction targets, including some developing countries (e.g. Brazil, China, Indonesia, Mexico, South Africa).
What is mitigation?
• “Technological change and substitution that reduce resource inputs and emissions per unit of output” (IPCC, 2007)
• Strong focus on technological solutions.
• Low-carbon technologies• Renewable energy• Geoengineering• Energy conservation
Can technology save us?
• 90% to 130% emission intensity improvement is required (Jackson, 2010)
• 80% of projected 2020 emissions from the power sector are already locked in (IEA, 2011)
• Window for cutting emissions (to 450 ppm - 2°) is closing fast (Stern, 2011)
• Not enough just to rely on technology (HM Government, 2005)
Other mitigation actions
• Social and economic policies oriented towards emission reductions and enhancement of sinks (IPCC, 2007).
• Beneficial aspects of creating synergies between developed and developing nations
• Clean Development Mechanism (CDM)
• Reducing Emissions Reducing Emissions from Deforestation and forest Degradation (REDD).
Demand-side options
• Demand-side options seek to modify directly or indirectly consumption patterns in order to achieve emission reductions.
• Behavioural changes (business practices, individual lifestyles)
• Instruments such as carbon taxes, border adjustments, subsidies, carbon labelling, awareness campaigns, etc. can have an effect on demand.
• EU, US (Waxman-Markey bill) and Australia to implement BCA to address the issues of leakage and loss of competitiveness.
Consumption
• Climate change is the greatest symptom of excessive consumption levels.
• Consumption in developed countries is the main driver for increasing emissions (Sanwal, 2009)
• Consumption patterns also need to be modified (Agenda 21, 1992; Rio +20, 2012)
• Northern consumption causes environmental impacts in the South.
0
5
10
15
20
25
30
35
40
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Tri
llio
ns
of 2
005
US
D
Year
Source: Own graph based on data by UN Stats.
Final consumption expenditure(1970-2010)
High Income Countries(15% of world population)
Rest of the World
Consumption LevelPer Capita Income,
2005Biocapacity Used Per Person, 2005
Sustainable Population at this
level
(GNI, PPP, 2008 dollars)
(global hectares) (billion)
Low-income 1,230 1.0 13.6Middle-income 5,100 2.2 6.2High-income 35,690 6.4 2.1United States 45,580 9.4 1.4
Global average 9,460 2.7 5.0
Sustainable World Population at Different Consumption Levels
Source: The Worldwatch Institute
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1961 1970 1980 1990 2000 2006
Year
Num
ber
of P
lane
t Ear
ths
Source: Own graph based on data by the Global Footprint Network.
Humanity's Ecological Footprint(1961-2006)
World's Biocapacity
Ecological Footprint
Carbon accounting
• Production-based (territorial) approach: “Greenhouse gas emissions that take place within the national territory and offshore areas over which a country has jurisdiction” (IPCC, 2006).
• Consumption-based emission inventories consider total emissions occurring from economic consumption within a country (Peters and Hertwich, 2008).
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
1990 1993 1996 1999 2002 2005 2008
Per
cent
age
High-income countries ROW
Source: Own graph based on data by Peters et al. (2011)
Consumption-induced emissions as a percentage of territorial emissions
Consumer emissions as a percentage of territorial emissions, 2004
Source: Carbon Trust Analysis, CICERO/SEI/CMU GTAP 7 MRIO model (2004)
Income-Emissions Relationship
• Panel data regressions using fixed and random effects, between-groups and differences including 113 countries.
• From a consumption-based perspective, evidence rejects the EKC inverted-U hypothesis.
• CO2 emissions increase monotonically with income*.
Sakai and Hubacek (forthcoming)
higher income → higher consumption → higher emissions
50,000
150,000
250,000
350,000
450,000
550,000
650,000
1992 1998 2004 2010 2016 2022 2028 2034 2040 2046
Year
kt C
O2e
q
Source: Own graph based on data by SEI.
Projected CO2 UK Household EmissionsBusiness as usual (1990-2050)
Total (Δ50%)
Imports(Δ250%)
Domestic(Δ-20%)
50,000
150,000
250,000
350,000
450,000
550,000
650,000
1992 1998 2004 2010 2016 2022 2028 2034 2040 2046
Year
kt C
O2e
q
Source: Own graph based on data by SEI.
Scenarios for Total UK Household Consumption-Based CO2 Emissions
(1990-2050)Business as usual
80% cut
50,000
150,000
250,000
350,000
450,000
550,000
650,000
1992 1998 2004 2010 2016 2022 2028 2034 2040 2046
Year
kt C
O2e
q
Source: Own graph based on data by SEI.
Scenarios for Total UK Household Consumption-Based CO2 Emissions
(1990-2050)Business as usual
80% cut
80% additional cut in imports
Impacts on the developing world
• Changes in consumption patterns (as mitigation actions) have been largely analysed from a developed-country perspective.
• The consequences of these actions in the developing world have not been sufficiently explored.
• ECLAC has recently expressed concerns in Latin America, especially to policies like border adjustments and carbon labelling.
International Trade
• Trade has grown three times faster than world GDP since 1990: increasing globalisation of markets.
• The geographical fragmentation of production has created a new trade reality.
• Rise of global production chains and the profound interdependency imply that exogenous changes in one country may induce effects in several other economies.
The Method
• Increasing use of environmentally- extended MRIO Analysis to understand environmental effects caused by consumption.
• Shows the underlying structure of several economies.
• Capture the interdependencies between different industries located in diverse regions.
• 113 countries and 57 sectors – GTAP7
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The MRIO Model
Technology matrix (6441*6441)
Value Added
Total Inputs
CO2 emissions
FD(6441*113)
Tota
l Out
puts
Import matrices
𝑋= (1− 𝐴)−1𝑌 𝑇𝐼𝑀𝑆= ሺ𝐶𝑂2𝑖𝑋𝑖−1ሻሺ1− 𝐴ሻ−1 𝐼𝑛𝑑𝑖𝑟𝑒𝑐𝑡 𝑎𝑛𝑑 𝑑𝑖𝑟𝑒𝑐𝑡 𝑒𝑚𝑖𝑠𝑠𝑖𝑜𝑛𝑠= 𝑇𝐼𝑀𝑆∗𝑌
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
USA EU 15 Other high-
income
Other Annex I
China EiT G20 emerg
ing
Other Middle-
income
Low Income
Pe
rce
nta
ge
Agriculture, hunting, forestry and fishing Mining and quarrying
Light industry Heavy industry
Transport and communications
CO2 embodied in trade
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
USA EU 15 Other high
-income
Other Annex I
China G20 emerg
ing
Other Middle-
income
Low Income
EiT
Pe
rce
nta
ge
Agriculture, hunting, forestry and fishing Mining and quarrying
Light industry Heavy industry
Transport and communications
Value added embodied in trade
0
200
400
600
800
1000
1200
1400
1600
USA China EU 15 Other Annex I
Other high-
income
EiT Low Income
G20 emer-ging
Other Middle-income
Bil
lio
ns
US
D
Exports Imports
Value added embodied in exports and imports according to region
USA31%
China4%
EU 1528%
Other Annex I17%
Other high-income
3%
EiT2%
Low Income1% G20
emerging8%
Other Middle-income
6%
Share of consumption-based value added (domestic + imports)
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
USA EU 15 Other Annex I
Other high-
income
China EiT G20 emerg
ing
Other Middle-
income
Low Income
Pe
rce
nta
ge
Agriculture, hunting, forestry and fishing Mining and quarrying
Light industry Heavy industry
Transport and communications
Skilled labour embodied in trade
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
USA EU 15 Other Annex I
Other high-
income
China EiT G20 emerg
ing
Other Middle-
income
Low Income
Pe
rce
nta
ge
Agriculture, hunting, forestry and fishing Mining and quarrying
Light industry Heavy industry
Transport and communications
Unskilled labour embodied in trade
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
Agriculture Mining L-industry H-industry Transport
US
D
Skilled labour Unskilled labour
Total intensity (wages/$), low-income countries, skilled and unskilled
labour
0
2
4
6
8
10
12
14
16
Agriculture Mining L-industry H-industry Transport
Kg
. C
O2
eq
/$
GHGs
Total intensity (GHGs/$), low-income countries, GHGs
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Agriculture Mining L-industry H-industry Transport
US
D
Skilled labour Unskilled labour
Total intensity (wages/$), other middle-income countries, skilled and
unskilled labour
0
1
2
3
4
5
6
Agriculture Mining L-industry H-industry Transport
Kg
. C
O2
eq
/$
GHGs
Total intensity (GHGs/$), other middle-income countries, GHGs
Limitations
• Static model. Data for only one year.
• Price effects, production functions, elesticities, etc. not included. (started working on CGE modelling).
• Developing countries are very heterogeneous.
• Additional factors not captured by the model (climate variables, extreme climate events, etc.).
Conclusions
• Need to lower consumption and change patterns, especially in wealthy countries, but this may cause alterations in the structure of global trade.
• Poor countries are vulnerable to changes in structure of trade.
• Negative consequences on welfare in the developing world aggravating adaptation costs.
• Need for financial and technological transfers and strengthening absorptive capacities.
• Policies should be regarded from an inclusive viewpoint that considers the needs of both developed and developing nations.
30% domestic and 15% import improvements in energy emission intensity Source: Own projections based on data by SEI
17.9% 16.5% 16.2%
42.2%34.6%
26.8%
11.9%
17.3%23.7%
5.2% 8.3% 10.8%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1992
2007
2025
Per
cent
age
Food & beverages Alcohol & tobacco Clothing & footwear
Water, energy Maintenance Health
Transport Communication Recreation & culture
Education Rest. & hotels Misc. goods & services
Projected structure of emissions for UK households according to consumption
category
0
1
2
3
4
5
6
7
8
9
Agriculture Mining L-industry H-industry Transport
Kg
. C
O2
eq
/$
GHGs
Total intensity (GHGs/$), China, GHGs
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
Agriculture Mining L-industry H-industry Transport
US
D
Skilled labour Unskilled labour
Total intensity (wages/$), China, skilled and unskilled labour
0
1
2
3
4
5
6
7
8
9
Agriculture Mining L-industry H-industry Transport
Kg
. C
O2
eq
/$
GHGs
Total intensity (GHGs/$), emerging G20, GHGs
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
Agriculture Mining L-industry H-industry Transport
US
D
Skilled labour * Unskilled labour *
Total intensity (wages/$), emerging G20, skilled and unskilled labour