The total carbon emissions of the US economy should be viewed as more than 6 per cent higher than widely believed, while China’s carbon emissions could be around 10 per cent lower, according to new, proprietary analysis by Bloomberg Intelligence (BI).
The difference, which equates to billions of metric tons of carbon per year, comes from taking into account the carbon emissions linked to the countries’ imports and exports – a fast-emerging issue and likely one focus area at the forthcoming United Nations Climate Change Conference (COP26).
China is the world’s largest emitter in absolute terms, seen as accounting for over 30 per cent of global carbon emissions. Yet, when carbon transfers linked to imports and exports are taken into consideration, the reduction in its carbon emissions amounts to around 3 per cent of global emissions.
Accounting for 13 per cent of global carbon emissions and ranking second after China, the US could be more than 6 per cent higher when accounting for emissions from its trade balance. This would increase the country’s share of global emissions by one percentage point.
While the US has an economic trade deficit, it also faces a carbon trade deficit, meaning that emissions from its imports outweigh emissions linked to its exports, adding to emissions linked to its domestic production. The analysis by Bloomberg Intelligence shows that US carbon transfers added 285 million tons to its emissions of 4.5 billion tons in 2020, creating a carbon trade deficit. The US’s carbon net trade balance is close to the UK’s total carbon emissions topping 310 million tons.
“Emissions transferred to other countries offer a more complete picture of carbon accountability associated with a nation’s climate actions. That is particularly the case when such emissions are associated with the outsourcing of manufacturing to developing countries such as China, mainly for the benefit of developed nations,” says Adeline Diab, Director of Research for ESG and Thematic Investing for EMEA and APAC at Bloomberg Intelligence.
“Our analysis shows that trade could lower China’s carbon emissions by 10 per cent. China’s carbon net trade balance equates to 1.1 billion tons, an amount comparable to Japan’s emissions, the fifth-largest emitter globally,” says Esther Tsang, ESG Analyst at Bloomberg Intelligence.
According to Bloomberg Intelligence, China not only has an economic trade surplus, but also a carbon trade surplus across all industries. As a result, the carbon footprint linked to its exports is higher than those linked to its imports.
China hit 11.7 billion tons of emissions in 2020, of which 880 million were imported and 2 billion exported. Emissions are driven by high-carbon-intensive sectors, including the construction materials sector which accounted for 15 per cent of China net exports last year. It is one of the sectors that may be affected by carbon border tax risk.
Diab concludes: “As COP26 nears and carbon border tax talks emerge, the accountability of carbon emissions may be redefined beyond domestic emissions.”
