Embodied energy in trade: What role does specialization play

In global discussions aimed at limiting greenhouse gas emissions, the national targets set by governments are tied to the energy used or emissions generated within national borders. However, international trade can confuse the accounting. Moving a factory across the border does not change the total emissions, only the country to which they are attributed. Because of this, there is a growing consensus that the embodied emissions in international trade may undermine efforts to mitigate climate change. This has led to a number of studies that investigate the embodied emissions in international trade. Their findings have consistently demonstrated that industrialized countries tend to be net importers of embodied energy and emissions, while developing countries tend to be net exporters. It is often assumed that the industrialized countries have “offshored” energy intensive industries to developing countries, which in turn have specialized in energy intensive production. Some countries have started to adopt national targets around energy productivity, an indicator that links energy use to gross domestic product. Energy productivity has recently gained increased interest because it accommodates economic growth, is conceptually tied to energy efficiency – seen by policymakers as a low cost solution to limiting emissions – and focuses attention on how to maximize the welfare extracted from the energy system. We examine the issue of offshoring and specialization through the lens of embodied energy. First, we calculate the embodied energy in the net exports of 41 economies. We then decompose the embodied energy in net exports for each economy into three effects – intensity, specialization, and the trade balance – to reveal why each economy is a net exporter or importer of embodied energy.