CO₂ Embedded in Trade : Trends and Fossil Fuel Drivers

The amount of CO₂ embedded in trade has substantially increased since 1990. We study the trends and some drivers over the period 1995-2009. We find that traded goods tend to have higher emission-intensities compared to average final demand. The second finding is that independently of sector structure, dirty countries tend to specialize in emission-intensive sectors. This finding suggests a comparative advantage mechanism for CO₂ and lends support to the hypothesis that trade liberalization tends to increase global emissions. The third finding is that, on average, emission-intensive countries have shifted from trade deficits to surpluses, so a larger share of goods is now produced in emission-intensive countries, consequently increasing global emissions. Finally, our analysis points to coal abundance as an important driver for high levels of both domestic emissions per value added and sector specialization into emission-intensive sectors. Hence coal abundance is an important driver of net CO₂ exports