Sectoral Decomposition of Technology-adjusted CO2 Emissions from International Trade in China 1999-2009

In the context of increasing focus on the climate change China is being blamed for its large contribution to global CO2 emissions, which have been produced within China’s territory. However, increasing number of researches have started to argue that the developed countries should be held responsible for displacing their emissions by outsourcing pollution-heavy production to the developing countries. Using Multi-Region Input-Output (MRIO) analysis for 41 countries disaggregated into 35 sectors and Log-Mean Divisia Index (LMDI) decomposition, this academic research paper attempts to find out what are the driving forces of China’s CO2 emissions and whether China has become the “factory of the world” when different technologies between countries have been taken into account. The results indeed point to the existence of CO2 emissions displacement to China and China becoming the “factory of the world”. However compared to conventional accounting methods, the magnitude of displacement is lower in the case of technology-adjusted emissions embodied in trade, holding China accountable for its carbon-intense production process. The decomposition results point to the trade specialization effect as the largest contributor to China’s emissions embodied in trade, which has mostly been caused by the electricity, gas and water supply sector