CO2 embodiment in China-Australia trade : the drivers and implications

This study focuses on CO2 emissions 'embodied' in the characteristic China-Australia bilateral trade, which refer to the CO2 emissions due to the production of goods traded between the two countries. We perform an assessment of the CO2 embodiment in the trade during the period between 2002 and 2010. We find that the scale effect has been a dominant effect contributing to an increase of CO2 emissions embodied in the bilateral trade through the years; while the composition effect seems to be a major driver for reducing CO2 embodiment in the exports of Australia to China. Based on an analysis of the difference between the amounts of actual CO2 embodiment and those in a hypothetical 'no-trade' scenario, we estimate that the 'net' CO2 emissions due to the bilateral trade declined from around 10Mt of CO2 emissions in 2002 to -10Mt in 2010; that is, the bilateral trade contributed to a reduction of the global carbon emissions in the recent years. This finding suggests that the rapid growth of exports of carbon-intensive goods from Australia to China has helped in reducing carbon emissions globally because carbon intensity factors of those goods are much lower in Australia than those in China.