How responsible is a region for its carbon emissions? An integrated input-output and CGE analysis

Abstract

Targets for CO2 reduction tend to be set in terms of the amount of pollution generated within the borders of a given region or nation. That is, under a "production accounting principle". However, in recent years there has been increased public and policy interest in the notion of a carbon footprint, or the amount of pollution generated globally to serve final consumption demand within a region or nation. That is, switching focus to a "consumption accounting principle". However, this paper argues that a potential issue arising from the increasing focus on consumption-based "carbon footprint" type measures is that while regional CO2 generation embodied in export production is attributed outside of the region (i.e. to the carbon footprints of other regions/nations), regional consumers are likely to benefit from such production. Moreover, where there is a geographical and supply chain gap between producers and final consumers, it may be difficult to identify precisely "whose" carbon footprint emissions should be allocated to. We demonstrate our argument by using a regional computable general equilibrium (CGE) model of the Welsh economy to simulate the impacts of an increase in export demand for the output of an industry (metal manufacturing) that is both carbon and export intensive and generally produces to meet intermediate rather than final demands. In doing so, we demonstrate how the CGE model results may be used to create „post-shock‟ input-output accounts to examine changes in the structure of economic activity and the resulting impact on CO2 generation under both production and consumption accounting measures. In this respect, to our knowledge, the current paper makes a novel contribution in using CGE techniques to model "carbon footprint" impacts of a change in economic activity.