Where to buy your imports? The potential of international trade to reduce global CO2 emissions

Consumption-based environmental measures, such as carbon labelling, aim at achieving environmental goals from the demand side through raising consumers' awareness. They have received much attention in the literature. Little research, however, has analyzed the potential to reduce emissions through trade. Our study determines the reallocation of imports of final products across exporter countries that minimizes global carbon dioxide (CO2) emissions. We do so by combining input-output models with linear programming techniques where an objective function is minimized under a set of constraints. The optimal solution determines who imports from whom on the basis of comparative advantage regarding emission characteristics of the global supply chains of final products. Our results show that the emissions reduction potential was about 0.9 Gt (4 % of the global CO2 emissions) in the year 2007. The largest potential emission reductions are reported for the economies of China, India and the USA. In a sensitivity analysis we relax some of the constraints. The results point at the enormous potential of trade in electricity for reducing global emissions.