Regional Analysis

The CO2 Content of Consumption Across U.S. Regions: A Multi-Regional Input-Output (MRIO) Approach

How much will your cost of living rise if a price is put on carbon? The answer may depend on where you live—and how policymakers define who’s ultimately responsible for manmade carbon emissions.On first glance, it might seem intuitive to impose a price on carbon where emissions are generated, from manufacturing facilities to power plants. But none of those point sources would be operating without the end-users of the goods and services that they produce. Consider windshield glass made in Ohio that’s exported to Michigan for assembly into automobiles, which get shipped to New York auto dealers. If responsibility for carbon emissions embodied in that glass—through its manufacture, assembly and transport—is placed on the consumer, then a price on carbon would be imposed in New York.

Using a data-driven carbon emissions accounting strategy that’s far more comprehensive than earlier analyses, former MIT Joint Program postdoc Justin Caron and his coauthors—MIT Joint Program Co-Director John Reilly and Tufts University Professor of Economics Gilbert Metcalf—found that attributing CO2 emissions to states based on consumption rather than production vastly changes the total emissions for which they are responsible. The researchers also determined that the CO2 emissions embodied in the goods consumed by households vary widely among U.S. states and regions. According to the study, the majority of CO2 emissions attributable to households are not due to energy use (e.g., home electricity and heating fuel, gasoline) but rather embodied in all other goods consumed by those households.

Because the producers of imported goods—and hence their embodied emissions—vary considerably from state to state, some states are responsible for much more CO2 emissions than others, and would be more adversely impacted under a uniform carbon pricing policy. The authors determined that some of the largest net importers of embodied carbon are New York, Florida and California, as well as states in the New England and Mid-Atlantic regions, whereas Texas and the south-central and Mountain states are the largest net exporters.The differences in the carbon intensity of production and consumption across regions could impact support for carbon-pricing policies in different states within those regions, and whether those policies will be based on production or consumption. This study’s state-by-state estimates of CO2 emissions production and consumption could inform efforts to ensure that national and regional carbon-pricing policies don’t result in excessive economic hardship for particular states and regions. 

Interprovincial migration and the stringency of energy policy in China

China’s leaders are considering a variety of policies to reduce energy intensity and CO2 emission intensity, but most policies don’t take into account how interprovincial migration will alter the energy needs and economic activities across provinces. This paper explores the interaction between interprovincial migration and the design of climate and energy policy in China.

Specifically, we focus on two policies included in the Twelfth Five-Year Plan (2011–2015). The first, a mandatory energy intensity target, limits how much energy each province can consume based on its GDP. The second, a non-binding energy cap, limits the absolute amount of energy each province can consume. We estimate a population migration model and integrate it into a general equilibrium model that resolves each province in China to simulate the effect of migration on total national energy use and economic activity.

The analysis shows that if China moves from energy intensity targets to mandatory absolute caps on energy use at the provincial level, it will be important to consider effects of migration explicitly in the target-setting process. The findings also underscore the value of moving from provincial targets to an integrated national emissions trading system.

This led to the following findings: 

  • “an energy intensity target (energy use indexed to economic output) is more robust than an absolute cap on provincial energy”;
  • If China shifts “from energy intensity targets to mandatory absolute caps on energy use at the provincial level, it will be important to consider effects of migration explicitly in the target-setting process;
  • Great value could be achieved by “moving from provincial targets to an integrated national emissions trading system, given that the choice of abatement strategies will adjust endogenously to labor relocation as well as other rapidly evolving features of China’s regional economies”.

Abstract

Interprovincial migration flows involve substantial relocation of people and productive activity, with implications for regional energy use and greenhouse gas emissions. In China, these flows are not explicitly considered when setting energy and environmental targets for provinces, and their potential impact on the effectiveness of policy alternatives is ignored. We analyze how migration affects outcomes under energy intensity targets and energy caps. While both policies are part of the nation's Twelfth Five Year Plan (2011–2015) and imposed at the provincial level, only the intensity targets are binding at present. We estimate a migration model, integrate it into a general equilibrium model that resolves each province in China, and simulate the effect of migration on energy use and economic activity. We find that although both types of policies are affected by uncertain migration flows, energy intensity targets (energy use indexed to economic output) are more robust than absolute caps. They are also more cost effective, placing less burden on the relatively clean in migration provinces. Our findings also underscore the value of moving from provincial targets to an integrated national trading system targeting emissions of energy-related CO2, given that the choice of abatement strategies will adjust endogenously to labor relocation.

Synergy between Pollution and Carbon Emissions Control: Comparing China and the United States

Three questions with Kyung-Min Nam

 

How do pollution and carbon emissions control interact?

 

Carbon dioxide (CO2) and conventional pollutants like sulfur dioxide (SO2) and nitrogen oxides (NOx) are often byproducts of the same activities, such as fossil fuel combustion. Accordingly, regulating pollution resulting from these activities affects carbon emissions, and regulating carbon emissions affects pollution. We studied the effects of abating pollution on carbon emissions, and the effects of mitigating carbon emissions on pollution. We analyzed these relationships in both China and the U.S. to compare the effects of the different emissions trends and energy mixes in each country.

Why study this relation in two directions, and in two different countries?

There are two primary motivations. One is the need for more attention to the potential ancillary carbon-mitigation benefits associated with pollution control. Given the difficulty reaching international agreement on CO2, reducing carbon emissions through pollution regulations may be more realistic. In fact, countries tend to be more apt to undertake efforts to control conventional pollutants than carbon emissions, as costs of excess pollution or the benefits of reduced pollution are felt more directly in the country undertaking control. However, the focus of existing literature leans toward ancillary air quality benefits resulting from carbon reductions, giving little attention to non-target effects in the reverse direction, which we also focus on in this study.

The other motivation is to compare the relative magnitude of the effects of pollution-carbon control in the two countries. Instead of the monetary measures conventionally used, we estimate the ratio of the change in the untargeted gases to the change in the gases targeted by regulations-a measure that can be readily compared across countries. 

What did you find? 

In both countries, ancillary carbon reductions resulting from SO2 and NOx control tend to rise with the increased stringency of pollution control targets, reflecting the eventual need for wholesale change toward non-fossil technologies when large reductions are required. Under stringent pollution targets, the non-target effects tend to be substantially higher in China than in the U.S., due to China's heavy reliance on coal. These results are promising in that China's efforts to reduce local air pollution will result in substantial global carbon reductions. We also find that in both countries substantial ancillary SO2 and NOx reductions can be attained through carbon control. However, unintended effects in this direction depend less on the stringency of control and are stronger in the U.S. than in China. A key implication of our results is that future pollution and carbon mitigation targets need to consider synergistic effects to improve coordination and reduce unnecessary policy compliance costs.
 

Potential Wind Power Resource in Australia: A New Perspective

Summary 

Wind power generation has doubled in Australia in the last 5 years, and is expected to grow rapidly in the coming decades.  It now meets 3.4% of Australia’s energy demand, and this percentage is predicted to increase to 12% by 2030.  But expanding the nation’s wind power capacity in a way that maximizes reliable power generation is a major challenge.

In this report, researchers at the MIT Joint Program studied the viability of different geographical regions for wind farms in Australia.  They established the distribution of the wind resource across the continent, measuring its strength, variabilty and intermittency, using a number of relevant measures that have not been used before to assess the regional-scale wind resource.  The analysis used data from MERRA, a NASA project that integrates data from satellites and other observations, to reconstruct the wind resource from 1979 to 2009.

They then used the wind distribution data to determine if wind power could be aggregated, or spread over several farms across many locations. Aggregating wind power in this way creates a more reliable power source, because when wind dies down at one wind farm, another farm where the wind is still blowing can continue to provide power.

The reconstructions of the wind resource show the strongest winds in the western and southern parts of the continent. Although it is strong, wind in this area is intermittent and farms are far from population centers in the east. Further, the intermittency of the wind in the southwest of the continent is spatially distributed such that the aggregation of the wind resource over large areas will not result in a significantly more reliable wind resource. These factors combine to make this area of Australia a relatively unattractive location for large-scale wind farm development.

In comparison, in eastern Australia the wind resource is weaker at broad scales, but is more constant. Aggregating wind farms in this area produces a greater benefit in terms of mitigating intermittency of the wind resource, providing a more reliable and therefore more economically viable resource in eastern Australia.

Will Economic Restructuring in China Reduce Trade-Embodied CO2 Emissions?

In 2011, China ranked as the world’s largest exporter, as well as the world’s largest energy consumer and source of carbon emissions. As China's leaders discuss ways to reduce the energy intensity of the country's economic activity, including its exports, Joint Program researchers analyze the potential impact of related policy measures on emissions in China and the global total.

Emissions from export activities made up 22 percent of China’s total emissions. Europe (360 million metric tons), the U.S. (337 million metric tons) and Japan (109 million metric tons) account for the largest share of these export-embodied emissions. Most of China’s emissions come from the production of machinery and equipment, not energy-intensive products like steel and aluminum. This is because machinery and equipment accounts for a large share of China’s total exports and, after accounting for emissions from electricity purchases, is moderately emissions intensive. 

In this analysis, researchers consider two policies in China. The first is an increase in the tariff on energy-intensive exports from China, which is used to simulate a reduction in export tariff rebates. The second policy involves incentivizing a shift in China’s economy away from industry and toward services. In exploring these policies—both of which are advertised as carbon-reducing strategies—researchers find that neither would have a significant impact on total global emissions because reduced production in China is partially offset by increased production elsewhere. A policy that targets the expansion of domestic demand is more effective at reducing China’s export-embodied CO2 emissions, in turn reducing China’s exposure to potential tariffs on embodied carbon imposed overseas. But such a move would also shift production of many industrial products to other nations, shifting emissions along with them.

Abstract:

We calculate carbon dioxide (CO2) emissions embodied in China's net exports using a multi-regional input–output database. We find that the majority of China's export-embodied CO2 is associated with production of machinery and equipment rather than energy-intensive products, such as steel and aluminum. In 2007, the largest net recipients of embodied CO2 emissions from China include the EU (360 million metric tons, mmt), the US (337 mmt) and Japan (109 mmt). Overall, annual CO2 emissions embodied in China's net exports totaled 1177 mmt, equal to 22% of China's total CO2 emissions. We also develop a global general equilibrium model with a detailed treatment of energy and CO2 emissions. We use the model to analyze the impact of a sectoral shift in the Chinese economy away from industry and towards services, both without and with a decrease in China's trade surplus, and a tax on energy-intensive exports, which reflect policy objectives in China's Twelfth Five-Year Plan (2011–2015). We find that without a decrease in the trade surplus, both policies will have a limited impact on China's net exports of embodied CO2 emissions. The policies have an even smaller effect on global emissions, as reduced production in China is partially offset by increased production elsewhere.

Equity and Emissions Trading in China

China has embarked on an ambitious pathway for establishing a national carbon market in the next five to ten years. In this study, we analyze the distributional aspects of a Chinese emissions-trading scheme from ethical, economic, and stated-preference perspectives. We focus on the role of emissions permit allocation and first show how specific equity principles can be incorporated into the design of potential allocation schemes. We then assess the economic and distributional impacts of those allocation schemes using a computable general equilibrium model with regional detail for the Chinese economy. Finally, we conduct a survey among Chinese climate-policy experts on the basis of the simulated model impacts. The survey participants indicate a relative preference for allocation schemes that put less emissions-reduction burden on the western provinces, a medium burden on the central provinces, and a high burden on the eastern provinces. Most participants show strong support for allocating emissions permits based on consumption-based emissions responsibilities.

Three questions with Valerie J. Karplus

What are the challenges associated with CO2 emissions reduction in China's Twelfth Five-Year Plan?

The Twelfth Five-Year Plan aims to reduce national carbon intensity by 17% by assigning reduction targets to each of China’s provinces. Provincial targets are difficult to assign because policymakers are trying to take into account both the country’s uneven distribution of production and consumption activities and the diverse levels of economic development. By implementing provincial targets without an emissions trading system (ETS), reductions are not necessarily taken at the lowest cost and some cost-effective opportunities are overlooked. Allowing trading of emissions permits across provinces encourages reductions where they are cheapest, regardless of how permits are initially allocated. Moving from the current provincial target system to an ETS would reduce the total cost of undertaking reductions.

How can equity principles be used to develop an ETS in China?

We investigated the impacts of using ten different equity criteria to guide the initial allocation of emissions permits to provinces in an ETS. We considered criteria that hold individuals or entities responsible for emissions based on certain attributes (e.g., emissions, population), as well as criteria that explicitly target changes in welfare across different groups. In the second category, we consider allocations that would equally burden all provinces, or scale the burden in proportion to economic metrics, such as GDP. The results are used to generate a menu of options for policymakers that can inform ETS design, based on a clear understanding of the outcomes and tradeoffs associated with alternative allocation approaches.

What do you find?

We show that, depending on how permits are allocated, widely different outcomes result. For example, if allocations are based on GDP, the western and central provinces are burdened most, while the eastern provinces are burdened least. Meanwhile, basing allocation on polluter pays (PPP), consumer pays (CPP), or ability–to–pay (ABT) principles results in benefits for the western provinces, while placing greater burden on the central provinces and even more on the eastern provinces. Under several of the allocation scenarios we consider, provinces are allowed to increase their territorial emissions. We find very different welfare outcomes if allocations are adjusted to prevent any province from increasing its emissions (and instead the excess permits are allocated to other provinces in proportion to emissions shares). In general, this adjustment has the effect of reducing welfare loss in the eastern provinces while shrinking the welfare gains in the western and central provinces.

Pages

Subscribe to Regional Analysis