Consumption-based versus production-based CO 2 emissions: drivers of carbon leakage between countries

While an increasing number of countries have adopted targets for their production-based (or territorial) emissions, very few have started to analyse their consumption-based emissions through empirical studies. This poses a challenge for policymaking if consumption emissions increase while production emissions decrease and, if emissions are effectively migrating to areas without carbon reduction targets or capabilities through carbon leakage. In order to look at these questions, this article accesses the drivers in the production and consumption emission accounts available for 101 countries, for the period between 1990 and 2017. Our results show that an increase in GDP per capita, trade balance, energy intensity, service sector share and urbanisation will increase production-based emissions more than consumption-based emissions. Conversely, an increase on imports of goods and services and a decrease of exports will increase consumption-based emissions more than production-based emissions. However, it is in urban centres, in developed countries, that there is a higher consumption, relatively to production, so it means that there is also a higher carbon import, otherwise production-based emissions would be higher. Therefore, in these regions there is evidence of carbon leakage.