Assessing the impact of foreign content in China's exports on the carbon outsourcing hypothesis

Much academic attention has been given to the so-called carbon outsourcing hypothesis: the idea that increased outputs and exports of energy intensive goods from developed countries, especially China, has allowed more developed countries to grow, while reducing their carbon emissions. However, most studies on the issue overlook the complexities of increasingly globalized input markets, where exports themselves are made up of inputs assembled from around other countries around the world. This study estimates such effects on China's net carbon dioxide emissions by accounting for the energy and carbon embodied in its processing and non-processing exports sectors. China's policies of carbon dioxide emission intensity aimed at reducing its carbon dioxide emission intensity are then re-evaluated. To do this we use an extended input-output framework with new assumptions for estimating energy and carbon intensities. This includes a detailed energy disaggregation for domestic use of energy, processing exports and non-processing exports. In across 32 industries, after which a multiplicative structural decomposition analysis is applied. Our findings confirm that industrial emission intensity and final demands were driving factors behind the significant downward shift in national emission intensity from 2002 to 2007. However, by considering the embodied emissions effects of imported inputs into Chinese exports, we found that the energy and resource intensive industries accounted for a smaller proportion of exports than typically understood. However, we also found that within the industry sector changes in structure contributed to an increase in energy intensity.