A Travel Agency for Greenhouse Gases: Who Pays for Emissions

Simon Kiwek
23. Nov. 2024
7 Min. Lesezeit

Aktualisiert: 12. Jan.

International trade accounts for 20% of global CO₂ emissions. But who bears the cost? Consumers in industrialized nations or producers in developing countries? Discover how fair solutions could ease the debate over carbon tariffs and CO₂ responsibility.

The COP-29 Conference in Azerbaijan's Baku Has Concluded. After much struggle, the representatives of all UN nations finally managed to reach an agreement despite numerous differences. The choice of hosting the conference in a country whose economy largely depends on fossil fuel exports drew significant criticism. This criticism often originates from Western civil society – while neglecting to acknowledge that this oil and gas are ultimately burned in the West.

As is often the case, assigning responsibility – and the associated costs – has sparked contention. Countries like India and China have long surpassed Europeans and Americans in greenhouse gas emissions, simply due to their sheer population size. However, in a globalized economy where more and more production processes are outsourced from wealthy nations to developing ones, assigning the CO₂ emissions of a factory is no longer just a local issue. With the rise of international trade, this question has gained an increasingly global dimension.

CO₂ on the Move: Global Supply Chains and Their Hidden Costs

Since the 1990s, many developing countries, especially China, have increasingly become the workshop of the world. Products often travel thousands of kilometers around the globe before finally reaching their destination with the consumer. Hardly any product sold in Western markets today is free of direct or indirect production steps or components labeled "Made in China."

Who ultimately bears responsibility for the greenhouse gases generated along the way, which heat up our shared atmosphere, is a matter of perspective: Is it the European consumer who buys the product, or the Chinese factory that produced it using dirty coal and brought it to market? Traditionally, these greenhouse gases are attributed to the country where they are emitted. As a result, the burden of adaptation and the costs of investments to reduce these emissions fall on factories in China or Indonesia.

This approach significantly skews the climate balance of poorer countries, as they take on the dirtiest roles in global value chains. CO₂ exports are primarily tied to industries like minerals, chemicals, metals, oil, and manufactured products, along with the electricity and transportation used in their production. Meanwhile, Western countries focus on clean office and service jobs. Consumers in these countries might seem to escape responsibility – but there is growing resistance to this notion.

A Trade Balance for Greenhouse Gases

A balance sheet of greenhouse gas imports and exports would show deep red figures for Europe and the USA: a substantial deficit. Studies from the 2010s reveal that China generates about 2.18 kilograms of carbon dioxide emissions for every dollar it exports, compared to 0.77 kilograms of CO₂ embedded in every dollar of U.S. imports. However, simply offsetting trade flows and the greenhouse gases they contain oversimplifies the issue. Such an approach would distort the deeper mechanisms behind CO₂ in international trade and could lead to misguided political actions – such as closing borders and relying solely on domestic production.

The data shows that in 2004, a significant portion of the CO₂ transferred from China to the United States—specifically 161 megatons—was tied to the U.S. trade deficit. This is represented in the figure as a blue bar. Even then, China was the undisputed leader in goods exports, particularly in terms of quantity rather than the total value of the products. Container ship after container ship arrived at U.S. ports, while empty containers made their way back to Asia. In Western Europe, which is economically similar to the U.S., the negative trade balance played a smaller role, with other factors being more influential.

The energy mix of two countries also plays a critical role. Two identical factories may produce the same products, but their emissions can vary significantly: In France, for example, electricity is predominantly generated by nuclear power, whereas in China, coal dominates. As a result, the French product is considerably more climate-friendly. If both countries trade the same volume of these products, China would still export a higher net amount of emissions, while France would import them. This is represented by the yellow bar in the figure.

Another important factor is the energy intensity of a country. Every dollar of economic output requires a certain amount of energy. Wealthy nations that derive most of their income from office work and services naturally consume less energy than countries with massive industrial infrastructures, such as China, that produce goods for global markets. Even in manufacturing, most European countries significantly outperform China in terms of energy efficiency. For instance, the energy required to produce a computer in China is similar to that in Ireland, but in Ireland, production is only viable for high-value computers. As a result, every dollar of a computer’s value in Ireland contains less embedded energy. These differences are illustrated by the orange bar.

Another key factor is a country’s specialization. Within the global division of labor, China has specialized in producing greenhouse gas-intensive goods. These are manufactured there because the coal-heavy energy mix in China makes production cheaper. In contrast, Western European companies face high energy taxes and often have to import expensive energy. Chinese factories receive orders precisely because they can emit CO₂ more cheaply. This mechanism is represented by the gray bar in the figure.

What the CO₂ Trade Between Major Industrial Nations Reveals

A comparison of trade relations between major industrial nations highlights the importance of examining the causes of greenhouse gas emissions in detail. The United States is a net importer of both goods and CO₂ from Japan and the European Union when looking solely at trade balance deficits. However, this picture changes once the underlying causes are considered.

The U.S. relies on a far more CO₂-intensive energy mix derived from fossil fuels. At the same time, every dollar of U.S. economic output contains more embedded energy than in comparable nations. Similar to China, the U.S. has specialized in producing CO₂-intensive goods for trade with other industrialized nations—an advantage facilitated by access to cheap domestic fossil fuels. Japan and the EU eagerly import these goods, yet the emissions associated with them are attributed to the U.S. As a result, Japan and Europe are net importers of greenhouse gases from the U.S., even though they often criticize Americans for their wasteful lifestyles.

One could imagine a scenario in which Europe and the U.S. completely sever their trade relations and rely solely on domestic production. This would mean that the U.S. would produce fewer carbon-intensive export goods, which it is currently specialized in. However, Europe would then have to expand its own production to replace these imports. The outcome? Europe’s greenhouse gas emissions would rise—by approximately 29 megatons, as illustrated by the gray bar in trade with the U.S. In this scenario, Europe would become "dirtier."

Is Shared Burden Half the Burden?

From this perspective, it’s not so simple to absolve Europeans of responsibility for America’s CO₂ emissions. For every million dollars of European exports, approximately 78 tons of CO₂ are emitted, compared to 284 tons for U.S. exports. In China, the figure is an even more staggering 889 tons. A consumer-based approach would require customers in the two Western blocs to shoulder the higher costs per ton of greenhouse gas emissions, potentially through CO₂ taxes. Conversely, a production-based approach would place the entire burden on Chinese exporters. In China, this amounts to a total of 1,350 megatons of exported CO₂, with 354 megatons going to the European Union and 327 megatons to the United States.

China would face enormous challenges in bearing the costs of CO₂ if emissions were priced, for example, through certificates. In contrast, consumers in the U.S. and Europe would largely escape such costs. To address this imbalance, researchers from China propose a model of shared responsibility. This responsibility should be calculated based on the greenhouse gas intensity of the energy mix used in the production of traded goods. Producers would pay for the share of emissions resulting from their less efficient or dirtier energy mix or higher energy usage. The costs would be calculated as the difference compared to the energy mix of the recipient country—as if the product had been manufactured there.

If this cost-sharing model were applied, China would still bear a large portion of the costs—about 32% of the 5.1 gigatons of CO₂ traded globally. This is primarily due to its coal-intensive production processes. Meanwhile, Europe and the U.S. would each account for approximately 11–13%. While their exports are relatively CO₂-efficient, they still export in significant volumes.

CO₂ Trade Matters

In 2011, internationally traded emissions accounted for 5.1 gigatons, representing a significant 20% of global emissions from worldwide production. This trade primarily occurred between the U.S., the EU, China, Japan, and South Korea. International value chains have become so complex that individual consumers have little influence over them. Given the scope of global trade flows and the local energy sources used in different countries, appeals to individual responsibility fall far short. Moreover, specialization in global trade has provided many people in poorer countries with a path out of poverty—how could we deny them this opportunity?

With COVID-19, the trade war between the U.S. and China, and sanctions against Russia, the numbers mentioned above may now be outdated. At the same time, China's energy mix has improved with the rapid expansion of renewable energy. Both the U.S. and Europe have recently resorted to strong protectionist measures to decouple themselves from global trade. Europe has implemented carbon tariffs to combat so-called carbon leakage. These tariffs aim to equalize higher energy prices for European producers through border adjustments. However, in many cases, international trade has simply shifted—to countries like Vietnam or Indonesia.

Climate change remains a global issue that cannot be solved locally. International trade adds another global dimension to this challenge. A well-thought-out cost-sharing approach could ease debates that inflame not only the climate but also public opinion.