In recent decades, trade has become a foundation of the world economy – exports now represent nearly a third of global GDP, more than double the share of just 30 years ago. Trade is a significant source of economic growth and improved standards of living, especially in developing countries. However, there is evidence that growth in trade can lead to an increase in global greenhouse gas (GHG) emissions due to increased consumption – what is known as the “scale effect”.
However, increasing trade could also reduce GHG emissions, if countries that expand production of goods for export invest in newer, lower-carbon technologies or processes (the “technique effect”), reducing the GHG emissions intensity of producing these goods. Within a country, trade activity may also change the relative balance of activity in different sectors (the “composition effect”), resulting in an increase or decrease in that country’s emissions.
This report focuses on the implications of the composition and technique effects, for which research results are less clear. Specifically, it assesses whether trading more with some countries – those best positioned to expand low-GHG production – could help reduce global GHG emissions, or at least help counteract the scale effect. It thus explores the relative average GHG intensity of production of selected goods in different world regions and the potential for regions to access low-GHG fuels and feedstocks needed to expand low-GHG production.
While a complete analysis of shifting trade patterns would assess the economic implications, including the scale effect, this simplified approach allows us to gauge what conditions might enable countries to be future low-GHG producers. The report begins by looking at the emissions embodied in trade (Section 2), based on a multiregional input-output model, to help identify significant trade flows for further analysis. Section 3 then examines differences in GHG-intensity among regions for some of the categories identified, while Section 4 asks whether and how shifting the location of steel production could reduce global GHGs. Section 5 assesses a range of national and international policies that could be used to shift trade patterns. Section 6 summarizes the results and identifies areas for further research.