Carbon fueling complex global value chains tripled in the period 1995–2012

Complex global value chains are those involving more than two countries and imply that a country imports products as capital goods or intermediate inputs to the production of its exports. When tracing the life-cycle greenhouse gas (GHG) emissions of traded products, for example for border carbon adjustments, such emissions are counted at each border crossing. The prevalence and dynamics of this phenomenon have been poorly understood. This paper shows that GHG emissions associated with the production of imports that enter export production have risen rapidly from 1995, peaking 2012 and declining slightly to 2016. They now constitute a total of 4.4 Pg CO2eq. or 10% of global emissions. The most important exported products in terms of emissions associated with imported inputs are chemicals, vehicles, machinery, and information and communications technology (ICT). Crude petroleum, iron and steel, chemicals, and ICT components are the imported products being used for this export production. A decomposition analysis indicates that in industrialized countries, the declining domestic value added in exports and increasing share of exports in GDP have contributed most to this development. In emerging economies, however, the growth of GDP itself has been an important driving factor, while declines in the energy intensity of export production have provided a weak counterbalance. The importance of transiting carbon raises questions of how climate policies affect industrial competitiveness and how a potential border tax regime would account for such emissions.