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Environmental Impacts of Capital Formation

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  • Carl†Johan Södersten
  • Richard Wood
  • Edgar G. Hertwich

Abstract

The investment in capital goods is a well†known driver of economic activity, associated resource use, and environmental impact. In national accounting, gross fixed capital formation (GFCF) constitutes a substantial share of the total final demand of goods and services, both in terms of monetary turnover and embodied resources. In this article, we study the structure of GFCF and the environmental impacts associated with it on a global scale, and link it to measures of development. We find that the share of GFCF as part of the total carbon footprint (CF) varies more across countries than GFCF as a share of gross domestic product (GDP). Countries in early phases of development generally tend to invest in resource†intensive assets, primarily infrastructure and machinery, whereas wealthier countries invest in less resource†intensive assets, such as computers, software, and services. By performing a structural decomposition analysis, we assess the relative importance of investment structure and input†output multipliers for the difference in carbon intensity of capital assets, and find that the structure of investments plays a larger role for less†developed countries than for developed countries. We find a relative decoupling of the CF of GFCF from GDP, but we can neither confirm nor rule out the possibility of an absolute decoupling.

Suggested Citation

  • Carl†Johan Södersten & Richard Wood & Edgar G. Hertwich, 2018. "Environmental Impacts of Capital Formation," Journal of Industrial Ecology, Yale University, vol. 22(1), pages 55-67, February.
  • Handle: RePEc:bla:inecol:v:22:y:2018:i:1:p:55-67
    DOI: 10.1111/jiec.12532
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    Cited by:

    1. Appiah, Michael & Li, Mingxing & Sehrish, Saba & Abaji, Emad Eddin, 2023. "Investigating the connections between innovation, natural resource extraction, and environmental pollution in OECD nations; examining the role of capital formation," Resources Policy, Elsevier, vol. 81(C).
    2. Akan, Taner & Gündüz, Halil İbrahim & Emirmahmutoğlu, Furkan & Işık, Ali Haydar, 2023. "Disaggregating renewable energy-growth nexus: W-ARDL and W-Toda-Yamamoto approaches," Renewable and Sustainable Energy Reviews, Elsevier, vol. 188(C).
    3. Toru Kobayakawa, 2022. "The carbon footprint of capital formation: An empirical analysis on its relationship with a country's income growth," Journal of Industrial Ecology, Yale University, vol. 26(2), pages 522-535, April.
    4. Thomas Wiedmann & Guangwu Chen & Anne Owen & Manfred Lenzen & Michael Doust & John Barrett & Kristian Steele, 2021. "Three‐scope carbon emission inventories of global cities," Journal of Industrial Ecology, Yale University, vol. 25(3), pages 735-750, June.
    5. Liang, Junyi & Wang, Shaojian & Liao, Yuantao & Feng, Kuishuang, 2024. "Carbon emissions embodied in investment: Assessing emissions reduction responsibility through multi-regional input-output analysis," Applied Energy, Elsevier, vol. 358(C).
    6. Bernhard Steubing & Arjan de Koning & Stefano Merciai & Arnold Tukker, 2022. "How do carbon footprints from LCA and EEIOA databases compare? A comparison of ecoinvent and EXIOBASE," Journal of Industrial Ecology, Yale University, vol. 26(4), pages 1406-1422, August.
    7. Junming Zhu, 2020. "Suggested use? On evidence‐based decision‐making in industrial ecology and beyond," Journal of Industrial Ecology, Yale University, vol. 24(5), pages 943-950, October.
    8. Ming Cao & Wei Kang & Qingren Cao & M. Jawad Sajid, 2020. "Estimating Chinese rural and urban residents’ carbon consumption and its drivers: considering capital formation as a productive input," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(6), pages 5443-5464, August.
    9. Peter Berrill & T. Reed Miller & Yasushi Kondo & Edgar G. Hertwich, 2020. "Capital in the American carbon, energy, and material footprint," Journal of Industrial Ecology, Yale University, vol. 24(3), pages 589-600, June.
    10. Koide, R. & Murakami, S. & Nansai, K., 2022. "Prioritising low-risk and high-potential circular economy strategies for decarbonisation: A meta-analysis on consumer-oriented product-service systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 155(C).
    11. Liu, Tiansen & Song, Yazhi & Xing, Xinpeng & Zhu, Yue & Qu, Zhengyu, 2021. "Bridging production factors allocation and environmental performance of China’s heavy-polluting energy firms: The moderation effect of financing and internationalization," Energy, Elsevier, vol. 222(C).
    12. Melyana R. Pugu & Yanyan M. Yani & Wawan B. Dharmawan & Velix V. Wanggai & Zuhaina Zakaria, 2021. "Electricity Production, Energy Consumption and Capital Formation: Analyzing the Footprints in Indonesia," International Journal of Energy Economics and Policy, Econjournals, vol. 11(6), pages 145-151.
    13. Škare, Marinko & Porada-Rochoń, Małgorzata, 2023. "Are we making progress on decarbonization? A panel heterogeneous study of the long-run relationship in selected economies," Technological Forecasting and Social Change, Elsevier, vol. 188(C).
    14. Yasmeen, Humaira & Tan, Qingmei & Zameer, Hashim & Vo, Xuan Vinh & Shahbaz, Muhammad, 2021. "Discovering the relationship between natural resources, energy consumption, gross capital formation with economic growth: Can lower financial openness change the curse into blessing," Resources Policy, Elsevier, vol. 71(C).
    15. Xueying Meng & Tianqing Li & Mahmood Ahmad & Guitao Qiao & Yang Bai, 2022. "Capital Formation, Green Innovation, Renewable Energy Consumption and Environmental Quality: Do Environmental Regulations Matter?," IJERPH, MDPI, vol. 19(20), pages 1-14, October.
    16. Gilang Hardadi & Alexander Buchholz & Stefan Pauliuk, 2021. "Implications of the distribution of German household environmental footprints across income groups for integrating environmental and social policy design," Journal of Industrial Ecology, Yale University, vol. 25(1), pages 95-113, February.
    17. Muhammad Ghulam Shabeer & Farhat Rasul, 2024. "Energy, Forests and Environmental Sustainability: A Comparative Analysis of Developed and Developing Economies," Journal of Economic Impact, Science Impact Publishers, vol. 6(1), pages 14-20.
    18. Chen, Jie & Huang, Shoujun & Kamran, Hafiz Waqas, 2023. "Empowering sustainability practices through energy transition for sustainable development goal 7: The role of energy patents and natural resources among European Union economies through advanced panel," Energy Policy, Elsevier, vol. 176(C).
    19. Glenn A. Aguilar‐Hernandez & Sebastiaan Deetman & Stefano Merciai & João F. D. Rodrigues & Arnold Tukker, 2021. "Global distribution of material inflows to in‐use stocks in 2011 and its implications for a circularity transition," Journal of Industrial Ecology, Yale University, vol. 25(6), pages 1447-1461, December.

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