Sevilla May 2011, WIOD 2 nd Consortium Meeting 1 WP 7 Environment and trade: SDA plus panel data econometrics Ignazio Mongelli, Iñaki Arto Joint Research Centre (JRC) IPTS - Institute for Prospective Technological Studies

Sevilla May 2011, WIOD 2 nd Consortium Meeting 2 Outline 1. Introduction 2. Objective 3. Methodology 1.Structural Decomposition Analysis 2.Gravity Model 4. Preliminary results

Sevilla May 2011, WIOD 2 nd Consortium Meeting 3 1. Introduction The removal of economic and regulatory trade barriers promoted in the last twenty years has furthered a sharp increase in world trade Socio-economic and environmental consequences

Sevilla May 2011, WIOD 2 nd Consortium Meeting 4 1. Introduction Environmental consequences of trade –Positive environmental effects of trade: It could be a vehicle for diffusion of cleaner technologies and products If the relationship between pollution and income has an inverted-U shape, trade is beneficial to the environment whenever it increases income per capita – Negative effects: Increase of transport and associated use of fuels and emissions Country specialization in the production processes for which they present comparative advantages: lower environmental stringency (Pollution Haven Hypothesis (PHH) ;

Sevilla May 2011, WIOD 2 nd Consortium Meeting 5 2. Objective Analyse consequences of trade on the environment and in particular those depending on the countries´ specialization based on comparative advantages 1.Analyse and quantify: Contribution of imports as a determinant of a countrys carbon footprint over the period 1995 – 2006; Contribution of the scale, technical and composition effects of the overall development of CO2 embodied in imports (CF Emissions in Imports scale, technical, composition) 2.Analysis of main driving forces of the change in CO2 embodied in imports (empirical test of the PHH)

Sevilla May 2011, WIOD 2 nd Consortium Meeting 6 3. Methodology (I) Structural Decomposition Analysis (SDA) will be used to decompose changes in carbon footprint distinguishing between different drivers: –Technical: Energy Intensity, Energy mix, Leontief inverse –Composition of final demand –Scale of final demand Allows…. –Assessing the relevance of trade related structural change with respect to the other major determinants of emissions (production technology, consumption patterns, energy efficiency...) –Quantifying the impact of changes in volume and composition of bilateral trade flows on CO2 embodied in imports.

Sevilla May 2011, WIOD 2 nd Consortium Meeting 7 3. Methodology (II) Gravity Model Analysis (GMA) to test PHH This type of models analyses more in detail the driving forces underlying trade related structural adjustments The GM explains the emissions in bilateral trade flows between countries as a function of economic, geographic, institutional and political factors (inc. environmental stringency)

Sevilla May 2011, WIOD 2 nd Consortium Meeting 8 4. Preliminary results Germany France IndiaChina

Sevilla May 2011, WIOD 2 nd Consortium Meeting 9 Thank you for your attention