Decomposition of Embodied Exergy Flows in the Manufactured Products and Implications for Carbon Tariff Policies

The paper proposes to use the concept of embodied exergy as metrics in designing incentive policy instruments to tackle the inefficiency of energy operations. Based on the second thermodynamic law and the energy’s economic property as of both private commodity and public goods, it maintains that energy be measured by separating its useful exergy embodied in a manufactured product from its waste exergy (anergy) as emission and sunk waste in a production process. It is rational to benchmark the content of useful exergy embodied in products for any incentive polciy design to encourage green production. The paper uses the trade data between China, Japan and EU countries and compares the embodied exergy and waste exergy embodied in the traded manufactured products. The paper proposes to use negative value-added tax as an incentive instrument instead of fullscale carbon tariff to encourage green production and to fence against carbon evasion behaviour. The analysis on embodied exergy flow in manufactured products is to find about how much useful energy left and embodied in a product, and what amount of emission and waste caused by energy depreciation at different point of production/consumption process should be assigned either to producers or to consumers for the mitigation duty. The research methods adopted for this study include Literature Based Discovery (LBD) and Gtap-E simulation. The former is applied to expound and prove a theory about embodied exergy in traded products and an empirical analysis based on the trade data of EU and its major eastern Asian partners-China and Japan.