The circular flow of CO2 emissions embodied in international trade

Production or consumption-based greenhouse gases (GHG) inventories are two approaches used to measure an agent’s responsibility on climate change. These consider direct and upstream embodied emissions, respectively, and that the agent benefiting from the CO2 emissions is either the producer or the consumer, but never both. In the circular flow of economies, goods and services flow in one direction and associated payments flow in the opposite direction. The production of a good generates upstream emissions (from the production processes), whereas its payment generates downstream emissions (from the consumption processes). In this paper we compute both upstream and downstream emissions embodied in international trade. Quantification of these emissions, for the year 2001, reveals that a large proportion of CO2 (~20% of the world total) is traded internationally. Three world regions concentrate 80% of the emissions: Developed Economies, Asia and Fossil Fuels Exporters. Developed economies import ~54% and ~42% of world’s total upstream and downstream emissions embodied in international trade, mainly from Fossil Fuel exporters and Asia. At the downstream level, the flow of emissions from Developed economies to Fossil Fuel exporters is also relevant (~32% or world’s total downstream emissions embodied in international trade). Sectoral breakdown of these flows highlights the importance of the manufacture products and fossil fuels sectors. Our results indicate that the process of economic decoupling from CO2 emissions is just apparent, at the upstream and downstream level. In the context of global climate policy, if both upstream and downstream emissions are considered, policy design can become more effective and equitable, and thus perceived as fairer. This will potentiate the worldwide acceptance and compliance of climate policies.