Who Are The Big 5 In The Carbon Trade?

Originally published on Shrink That Footprint by Lindsay Wilson

When we talk about a country’s carbon emissions we generally only consider those that occur within its borders. But where does the fuel for those emissions come from? And where do the products a country makes go?

In this second part of our series The Carbon Trade we look at who the big traders of carbon are. We’ll analyze the major importers and exporters of fuels and products and in doing so explain much of how carbon moves around the world, both before and after its combustion.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

The Regions Fueling the World

In the first piece of this series, The Globalization of Carbon, we noted that in 2007 traded carbon totaled 17.6 Gt CO2, or 60% of total carbon emissions. More than half of this traded carbon was in the form of fuels, in particular oil and gas.

The big exporters of fuel carbon are those regions and countries that produce more fossil fuels than they use at home.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

The big five fuel exporters are the Middle East, Russia, Sub-Saharan Africa, North Africa and Australia. Together these five regions export 63% of carbon in traded fuels.

Indeed they are each so rich in fossil fuels in the form of oil, natural gas and coal that each of them export more carbon in fuels than they create through combusting fuels within their borders.

Each tonne of oil, natural gas or coal that is exported by these regions is imported somewhere else. So let’s see where they go.

Living On Foreign Fuel

It is widely known that the US is dependent on foreign oil, so much so they banned crude exports back in the seventies oil shocks. But the US isn’t the only region living off fossil fuels from other regions.

This fact is plain to see when we look at who the big importers of carbon in fuels are.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

When taken together the countries that make up Europe (EU27) import more carbon in the form of fuels than the US. These two regions are the big fuel importers followed by Japan, China and South Korea, based on 2007 data.

Together these five regions import a staggering 71% of all carbon traded as fuels.

China is the World’s Factory

Now that we have seen how carbon is traded before it’s combusted, it is worth looking a how it is embodied in the trade of products after its combustion. For clarity’s sake products in this case means both goods and services though the former dominates.

In the last two decades exports of Chinese made products have exploded, driven on by cheap labour, capital controls and government subsidies. This phenomenon is plain to see in the data for carbon in exported products.’

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

In 2007 the carbon embodied in China’s exports of goods and services totalled 1,556 Mt CO2. About the same as the exports of the United States, Europe and Russia combined.

Although these five regions accounted for a healthy 58% of the trade of carbon embodied in products it is as a general rule less centralized than is the case for fuels.

Europe and the US Buy the World’s Stuff

If China is the big exporter of carbon embodied in products it will surprise few that the US and Europe are the big buyers.

Image courtesy of Shrink That Footprint.
Image courtesy of Shrink That Footprint.

In 2007 there was 1,514 Mt of carbon dioxide emissions embodied in European imports of goods and services, a quarter of which came from China. The US was the other major importer, followed by Japan, China and the Middle East.

The fact that so much European and American consumption is supported by emissions that occur in other parts of the world highlights the perils of focusing solely on terrestrial emissions for climate policy. The increased outsourcing of carbon intensive production to regions with weaker climate regulation risks undermining the effectiveness of national climate policies.

Such risks also exist regarding carbon in fuels. If factors reducing terrestrial emissions result in increased exports of fuels this can undermine the effectiveness of national action. The more than doubling of US coal exports since 2006 in reaction to the shale boom is a good example of this.

Join us for the final post in the series tomorrow when we Mind the Carbon Gap between country’s extraction, production and consumption totals.

All the data used in this series is based on the recent, and freely downloadable, paper ‘Climate policy and dependence on traded carbon‘ by Robbie Andrew, Steven Davis and Glen Peters. Many thanks to Robbie in particular for providing the data.

This article, Who Are The Big 5 In The Carbon Trade?, is syndicated from Clean Technica and is posted here with permission.

US Uses 11 Times More Energy Than UK

Why Resource-based Economies Need Tariffs

by John Brian Shannon

Joseph E. Stiglitz, Nobel laureate in economics and Professor at Columbia University has noted the problems inherent to resource-based economies in his recent and excellent article; “From Resource Curse to Blessing” which I urge you to read. Early into his piece, he says;

“On average, resource-rich countries have done even more poorly than countries without resources. They have grown more slowly, and with greater inequality – just the opposite of what one would expect.” — Stiglitz

The usual solution to the inevitable slowing of a resource-based economy is to facilitate ever more extraction — in the hopes that more resource dollars will stimulate growth and compensate for the lack of progress in other sectors.

Time and time again this fails to work and to make matters worse, other sectors of the economy grow weaker in almost direct correlation with mounting resource exports. Manufacturing often takes the greatest hit.

Moreover, resource-rich countries often do not pursue sustainable growth strategies. They fail to recognize that if they do not reinvest their resource wealth into productive investments above ground, they are actually becoming poorer. Political dysfunction exacerbates the problem, as conflict over access to resource rents gives rise to corrupt and undemocratic governments. — Stiglitz

The government line on this is usually; “We should concentrate on what we do best.” Which is fine except that in so doing, the rest of the economy slowly slips toward the day when the government must then announce; ‘The majority of the resources are gone, we now must rebuild our economy from scratch.” This is when economists are finally consulted and listened to — but are then expected to solve the entire problem by the weekend, with nothing more than a magic wand and an algebraic/transcendental incantation.

Resource-based economies should commit to robust and long-term economic development throughout the economy well before such cantrip is required.

Real development requires exploring all possible linkages: training local workers, developing small and medium-size enterprises to provide inputs for mining operations and oil and gas companies, domestic processing, and integrating the natural resources into the country’s economic structure. Of course, today, these countries may not have a comparative advantage in many of these activities, and some will argue that countries should stick to their strengths. From this perspective, these countries’ comparative advantage is having other countries exploit their resources.

That is wrong. What matters is dynamic comparative advantage, or comparative advantage in the long run, which can be shaped. Forty years ago, South Korea had a comparative advantage in growing rice. Had it stuck to that strength, it would not be the industrial giant that it is today. It might be the world’s most efficient rice grower, but it would still be poor. — Stiglitz

The problem of course, is how to fund the necessary investment in the non-resource economy. And what level of funding do non-resource sectors enjoy at the present? Less than you might imagine.

Of all solutions, the simplest usually work best. Which is why a nominal export tax is a necessary ingredient to any resource-based economy to assist the national economy maintain a quantitative balance.

After all, taxing natural resources at high rates will not cause them to disappear, which means that countries whose major source of revenue is natural resources can use them to finance education, health care, development, and redistribution. — Stiglitz

There is little need for domestic resource taxes in nations where the majority of resources are exported. Such ‘recycling’ of citizen’s money adds little ‘new money’ to the economy and irritates voters, while the most efficient economic performance enhancement available comes from export tariffs and FDI.

Both export tariffs and FDI revenue streams represent new money entering the system which means unlike domestic taxation, citizens are not paying for other citizens employment programs — foreign interests will be paying that bill.

When resource-based economies implement a 5% to 8% export tariff on every exported tonne of coal/metals/minerals, or barrel of oil, their economies will fire on all cylinders — and with little complaint from the rapidly growing and resource-hungry nations.

John Brian Shannon