Decomposing the Energy Impact of the Steel Industry in the Manufacturing Sector: Evidence from Japan and China

Anthropogenic carbon dioxide (CO2) emissions alarmingly rising up to cause global warming through global greenhouse gas (GHG) emissions. To reach Paris Agreement targets and reduce GHG to net zero by 2050, dramatic action is required from the iron and steel industry. This study aims to explore the changes in CO2 emissions of Japanese and Chinese manufacturing subsectors from 2008 to 2017 and 2005 to 2017, respectively. Manufacturing sectors of Japan and China are split into two groups: CO2 emissions from all manufacturing subsectors and manufacturing sectors excluding the iron and steel industry. We decompose CO2 emissions by separating the scale, composition and technique effects following the novel method of (Levinson (2015) A direct estimate of the technique effect: Changes in the pollution intensity of US manufacturing, 1990–2008. Journal of the Association of Environmental and Resource). Our study postulates, after excluding emissions from the iron and steel industry, composition effect actually increases pollution emissions. Significant reduction in CO2 emissions is accelerated by innovative improvements to production driven by technology and/or regulations of Japanese and Chinese manufacturing. Different results are observed for all manufacturing subsectors: compositional changes account almost half of emissions reduction for Japan and 18% for China, which are larger than previous studies on environmental problems. This finding suggests iron and steel industry needs to augment its technical potential to reduce CO2 emissions.