Identifying and analysing carbon ‘hot-spots’ in an Inter-Regional Input Output framework

Abstract

Input Output frameworks have been widely used to study the emissions of industrial sectors either in specific economies or globally but usually focus on aggregated measures under production or consumption accounting principles (PAP and CAP). This leads to a lack of transparency in terms of the structure of the emissions and provides limited information on what are the main drivers of the emissions allocated to each sector under PAP and CAP. This information gap limits the options of policy makers to interventions on whole sectors, rather than the components of their supply chains that hold the major shares of the total embodied emissions. In this thesis we argue in favour of a more disaggregated, a ‘hot-spot’, approach that provides a better understanding of the structure of emissions under both of these headline measures. We develop a methodology to identify CO2 ‘hot-spots’ in downstream and upstream supply chains, both domestic and global. The methodology is applied first to a Single Region Input Output framework for China in 2005 identifying ‘Electricity, Gas and Water Supply’ as the Chinese sector with the highest direct emissions. Examination of the sector’s domestic downstream supply chain reveals that the majority of emissions are generated to support the final demand of other domestic sectors. Of these ‘Construction’ is the main driver and it also is the Chinese sector that is found to have the largest domestic CO2 footprint, with several emissions ‘hot-spots’ in its domestic upstream supply chain. The ‘hot-spot’ methodology is then extended to a global Inter-Regional Input Output framework to consider ‘hot-spots’ in a global supply chain context. By focusing on 2009 (the year for which appropriate data are most recently available) and UK total final demand we find that Chinese ‘Electricity, Gas and Water Supply’ is the non-UK sector with the largest direct emissions driven by UK total final demand. Studying this sector’s downstream supply chain outside China reveals that a large share of the sector’s emissions is ultimately generated to support several UK-based sectors’ domestic final demand. Furthermore, the UK ‘Health and Social Work’ sector is identified as the UK sector with the second largest global footprint to support domestic final demand. We identified a number of ‘hot-spots’ in the international part of its upstream supply chain, with a key finding being its dependence on the activity and the embodied emissions in global chemicals production. Finally, the thesis goes on to demonstrate how conducting ‘hot-spot’ analysis on disaggregated regional/sub-national Input Output tables can provide more detailed local level analysis of ‘hot-spot’ findings from the Inter-Regional Input Output framework. The key finding in this respect is the importance of introducing region specific emissions data where possible, as non-region specific data can lead in incorrect estimation of the embodied emissions in any component of the supply chains of any sectors. In general, through this research project we developed a methodology that can enhance the policy makers understanding of the structure and the drivers of the emissions generated throughout the economy. This additional information on the emissions structure, when combined with familiar IO analysis on employment and value-added for example, has the potential to lead to more targeted/focused policies, which result in significant emissions reduction with the minimum employment, resources and value-added cost.