Global Emissions in Focus: Tackling GHG Impacts in Production and Trade Networks

The OECD's study introduces advanced metrics to measure greenhouse gas emissions across global production networks, integrating non-CO2 gases and supply chain dynamics. It highlights the role of trade in redistributing emissions and offers insights for effective decarbonization strategies and climate policies.

The OECD Directorate for Science, Technology, and Innovation, in collaboration with the University of Barcelona, has unveiled an innovative framework to measure greenhouse gas (GHG) emissions embedded in global production networks. This extensive research extends traditional CO2-focused accounting by incorporating industrial processes and other potent greenhouse gases such as methane and nitrous oxide. Spanning 76 economies and 45 industries from 1995 to 2020, the study combines the OECD’s Inter-Country Input-Output (ICIO) tables with detailed emissions data, offering an unprecedented understanding of how production, trade, and consumption shape global emissions. By integrating upstream and downstream emissions data, this new approach provides policymakers and businesses with a more accurate view of their carbon footprints across supply chains.

Revealing Emissions Trends in OECD and Non-OECD Economies

The study highlights the contrasting roles of OECD and non-OECD economies in global emissions. OECD countries have gradually reduced both production-based and demand-based emissions since the mid-2000s, largely due to a shift toward cleaner energy and efficient technologies. For instance, the United States, despite being the largest emitter among OECD countries in 2020, has significantly reduced emissions since 1995. On the other hand, non-OECD economies, particularly emerging markets like China and India, have seen rapid emissions growth driven by industrialization and export-oriented growth. These economies now account for an increasing share of global production-based emissions, rising from 50% in 2000 to 69% in 2020. The inclusion of non-CO2 gases in this study narrows the emissions intensity gap between OECD and non-OECD regions, emphasizing the significant impact of agriculture, mining, and waste management sectors in developing countries.

The Role of Trade and Sectoral Contributions

International trade plays a critical role in redistributing emissions across regions. OECD countries, as net importers of embodied GHGs, rely heavily on goods produced in emissions-intensive industries abroad. Meanwhile, non-OECD economies act as net exporters, producing substantial emissions to meet global demand. China, in particular, emerges as the largest exporter of GHG-intensive goods, followed by other Asian economies such as India and Vietnam. Sectorally, utilities like electricity, gas, and waste management are the largest contributors, responsible for 36% of global production-based emissions. Other significant sectors include materials manufacturing (19%), agriculture and forestry (13%), household activities (11%), and transportation services (8%). The analysis also underscores the emissions embedded in trade and transportation margins, which can significantly inflate the carbon footprint of low-emission products such as vegetables and flowers when exported abroad.

Scope 3 Emissions and Their Policy Implications

One of the most innovative aspects of this study is its comprehensive treatment of Scope 3 emissions—indirect emissions from supply chains and distribution activities. By including upstream and downstream emissions, the analysis provides a complete picture of the carbon footprint of industrial activities and consumer products. The findings reveal that Scope 1 emissions (direct emissions) account for only 35% of global total emissions when all scopes are considered. This highlights the need for businesses and policymakers to address indirect emissions as part of broader decarbonization strategies. The inclusion of emissions embodied in trade and transport margins also allows for better-targeted interventions, helping identify high-carbon elements in supply chains and designing policies such as carbon border adjustments.

Balancing Economic Growth and Environmental Sustainability

The study also explores the relationship between emissions and economic development, drawing on the Environmental Kuznets Curve (EKC) hypothesis. According to this model, emissions rise with income levels up to a certain threshold, after which they decline as economies transition to cleaner technologies and services. While high-income economies like Germany have begun reducing emissions, emerging markets such as China and Indonesia are still in the upward phase of this curve, reflecting their ongoing industrialization. This dynamic underscores the need for tailored climate policies that balance growth and sustainability. For OECD countries, the focus may lie in promoting renewable energy and green technologies, while for developing economies, international support could help mitigate emissions without stifling growth.

A Roadmap for Climate Policy and Future Research

The insights from this study offer critical guidance for policymakers. By integrating emissions data across production, trade, and final demand, the research provides a roadmap for decarbonizing supply chains and industries. The dataset's granular approach, which includes trade and transportation margins, offers actionable data for corporate carbon accounting and designing mechanisms like carbon pricing and border adjustments. Future research priorities include standardizing non-CO2 emissions coefficients for improved consistency, expanding the ICIO framework to include more economies, and developing methodologies to better capture emissions from capital goods. By refining these metrics, the study aims to further enhance its relevance for governments and industries seeking to align their economic and environmental goals.

The comprehensive approach represents a significant step forward in understanding and addressing the global challenge of climate change. By capturing the full scope of emissions across supply chains, the study equips decision-makers with the tools needed to implement effective and equitable climate policies. It also underscores the interconnectedness of global economies, emphasizing the shared responsibility for mitigating emissions and fostering sustainable development worldwide.