Increased emission leakage induced by Chinese households' consumption: New insights from an extended input output subsystem analysis

This paper uses an input-output subsystem decomposition method to analyse the evolutions of inter-industry and international leakage of greenhouse gas (GHG) emissions induced by the final consumption of Chinese households. This decomposition breaks down the inter-industry feedback and spillover effects into various sub-components to track the emission distribution through international trade between China and its trading partners. Using the EORA database between 1991 and 2021, our empirical work provides a comprehensive and updated accounting of emissions induced by Chinese households' consumption from an integrated industry and international perspective. Our analysis yields several findings relevant to policy analysis. China remains a net exporter of emissions by 2021, meaning that its territorial emissions are greater than consumption-based emissions. Emissions induced by its households' consumption grew less than its total emissions, posing a need for emissions analysis across other sectors within China. However, Chinese households' demand has driven overseas emissions, quintupling from 0.9% to 5.6%. Falling emissions intensities in developed economies help offset this growth, but emissions continue to rise in less developed trading partners elsewhere. Agriculture, Financial Intermediation and Business Activities, Food and Beverages, Hotel and Restaurants, Petroleum, Chemical and Non-Metallic Mineral Products, and Textiles and Wearing Apparel incurred the most emissions induced by Chinese household consumption. These findings provide several policy implications.