CO₂ embodiment in China-Australia trade: The drivers and implications

This study focuses on CO₂ emissions 'embodied' in the characteristic China-Australia bilateral trade, which refer to the CO₂ emissions due to the production of goods traded between the two countries. We perform an assessment of the CO₂ embodiment in the trade during the period between 2002 and 2010. We find that the scale effect has been a dominant effect contributing to an increase of CO₂ emissions embodied in the bilateral trade through the years; while the composition effect seems to be a major driver for reducing CO₂ embodiment in the exports of Australia to China. Based on an analysis of the difference between the amounts of actual CO₂ embodiment and those in a hypothetical 'no-trade' scenario, we estimate that the 'net' CO₂ emissions due to the bilateral trade declined from around 10Mt of CO₂ emissions in 2002 to -10Mt in 2010; that is, the bilateral trade contributed to a reduction of the global carbon emissions in the recent years. This finding suggests that the rapid growth of exports of carbon-intensive goods from Australia to China has helped in reducing carbon emissions globally because carbon intensity factors of those goods are much lower in Australia than those in China.