Reducing CO2 Emissions

The global greenhouse effect may be one of the greatest challenges ever to face humankind. If fossil fuel use, and the consequent CO emissions, 2 continue to increase at their current trend, there is the possibility that over the next century there will be massive climate change and the flooding of coastal areas. The economics profession is beginning to respond to this challenge, through seeking to understand the economic processes which detennine the demand for energy, the proportion of this energy supplied by fossil fuels, and the policy instruments available for reducing fossil fuel demand while still supplying appropriate amounts of energy. This study is a contribution to that literature. We examine the impact of structural changes in the German and UK economies upon CO emissions 2 over the last two decades, and explore the potential for further structural change to reduce such emissions. This study is different from much of the current literature, in that we do not presuppose that the respective economies consist of only one, or a few, sectors. Instead, we analyse the interrelationships of 47 sectors for about 20 years, using input-output methods. We also deal with the effects of the changing sectoral structure of imports and exports of these two countries on the 'responsibility' for CO emissions. On the basis of this extensive evidence we have a solid 2 foundation to develop different scenarios to show how the 'Toronto target' of reducing CO emissions by 20% over 20 years can be achieved.

I. Introduction.- 1 Introduction.- 1.1 The Study.- 1.2 The Greenhouse Effect and Global Warming.- 1.2.1 The Natural Greenhouse Effect.- 1.2.2 The Anthropogenic Greenhouse Effect.- 1.2.3 The Evidence for Global Warming.- 1.3 Industrialisation and the Control of Nature.- 1.4 The Difficulty of Political Implementation of CO2 Targets.- 1.4.1 Wish and Will: The Need for Consensus.- 1.4.2 Reductions in CO2 Emissions: Local, National and Global Levels.- 1.5 Practical Implementation of CO2 Reduction.- 1.6 The Contents of the Book.- 2 Concepts and Methods for the Study.- 2.1 Introduction.- 2.2 Our Point of Departure.- 2.3 The CO2 Problem.- 2.4 General Principles for Ecological Economic Modelling.- 2.4.1 Empirical Foundations.- 2.4.2 Time.- 2.4.3 Natural Boundary Conditions.- 2.4.4 Non-Linear Relationships.- 2.4.5 Production.- 2.4.6 Demand.- 2.4.7 Quantities and Prices.- 2.4.8 Modelling Ex Post and Ex Ante.- 2.5 Our Aims.- 2.6 Our Method.- II. Understanding CO2 Emissions.- 3 The Problem of Climate Change and CO2 Emissions.- 3.1 Introduction.- 3.2 The Nature of the Problem.- 3.3 The Evidence.- 3.3.1 Global Greenhouse Gas Emissions.- 3.4 Historical Trends.- 3.4.1 Conversion Units.- 3.4.2 Data on Energy Use, CO2 Emissions and GDP.- 3.5 Review of CO2 Modelling in the Economics Literature.- 3.5.1 Factors Determining CO2 emissions.- 3.5.1.1 Output and Population Growth.- 3.5.1.2 Energy Efficiency.- 3.5.1.3 Energy Price.- 3.5.1.4 Back-Stop Technologies.- 3.5.2 Key Determinants of the Costs of Abating GHG Emissions.- 3.5.3 Emission Reduction Scenarios.- 3.5.3.1 Reduction Targets.- 3.5.3.2 Policy Instruments.- 3.5.3.3 Growth Effects.- 3.6 Outlook and Conclusions.- 4 Decomposing the Rate of Change of CO2 Emissions.- 4.1 Introduction.- 4.2 Understanding the Time Structure of CO2 Emissions.- 4.2.1 The Influential Variables.- 4.3 CO2 Emissions as a Product of Several Variables.- 4.4 Decomposing the Components of CO2 Emission Changes.- 4.4.1 Necessary Extensions to the Technique.- 4.5 The Rates of Change of CO2 Emissions.- 4.6 Conclusions.- A4 Appendix: Decomposition with Differencing.- A4.1 Introduction.- A4.2 The Differential Approach to Decomposition.- A4.3 Approximating the Differential with the Difference.- A4.4 Resolving Ambiguity: Forward, Backward and Central Differences.- A4.5 Calculating the Differencing Remainder Term.- A4.6 Differencing Error-Prone Empirical Data.- 5 CO2 Emissions by Germany and the UK.- 5.1 Introduction.- 5.2 Energy Use, CO2 Emission and GDP for Germany and the UK.- 5.2.1 Data Sources.- 5.2.2 The CO2/Energy Ratio and the Fuel Mix.- 5.3 Energy Use and GDP.- 5.4 Energy Use and CO2 Emission by Fuel Types.- 5.5 Energy Use and CO2 Emission by Households and in Production.- 5.6 Production CO2 Emission by Sector.- 5.7 Decomposition of German and UK CO2 Emission Changes.- 5.7.1 Decomposition of Total CO2 Emissions Changes.- 5.7.2 Decomposition of Production CO2 Emissions Changes.- 5.7.3 Decomposition of Households CO2 Emissions Changes.- 5.7.4 Decomposition of Total CO2 Emissions Changes.- 5.8 Sectoral Decomposition of CO2 Emissions Changes.- 5.8.1 Decomposition of Overall Rates of Change of CO2 Emission by Sectors.- 5.8.2 Decomposition of Aggregate CO2 Emission Changes.- 5.8.3 A Full Sectoral Decomposition of UK Production CO2 Emissions Changes.- 5.9 Conclusions.- III. Modelling Approach.- 6 A Framework for Modelling Production.- 6.1 Introduction.- 6.2 Invention, Innovation and Irreversibility.- 6.3 Activity Analysis vs. Production Functions.- 6.4 Activity Analysis and Input-Output Analysis.- 6.4.1 Input-Output Analysis and National Accounting.- 6.4.2 Activity Analysis and Dynamics.- 6.5 Input-Output Approaches versus General Equilibrium Models.- 6.6 Conclusions.- 7 Input-Output Methods.- 7.1 Introduction.- 7.2 Inter-Industry Trading and Input-Output Tables.- 7.2.1 A Two Sector Input-Output Model.- 7.2.2 Activity Analysis as the Production Assumption.- 7.2.3 Output Structure in Equation Form.- 7.3 Matrix Representation.- 7.3.1 The Unit Matrix and Matrix Inversion.- 7.3.2 Solving Simultaneous Equations in Matrix Form.- 7.4 The Input-Output Model in Matrix Form.- 7.4.1 Reconstructing the Input-Output Table.- 7.5 Decomposing Direct and Indirect Effects.- 7.6 Prices in Input-Output Models.- 7.6.1 Values and Prices in Input-Output Tables.- 7.7 Constructing Input-Output Tables from Value-Based Data.- 7.7.1 Deflating Input-Output Coefficients.- 7.8 Input-Output Tables and National Accounts.- 8 The Analysis of CO2 Emissions with Input-Output Methods.- 8.1 Introduction.- 8.2 The Input-Output Assessment of CO2 Emissions.- 8.2.1 An Input-Output Model of Production CO2 Emissions.- 8.2.2 An Input-Output Model of Final Demand CO2 Emissions.- 8.2.3 Production CO2 Emissions from Non-Fossil Fuel Sources.- 8.2.4 An Equation for Total CO2 Emissions.- 8.3 Comparing CO2 Emissions Over Time and Between Countries.- 8.4 Imports, Exports and ‘Attributable’ CO2 Emissions.- 8.4.1 Exports and the Attribution of CO2 Emissions.- 8.4.2 Imports and the Attribution of CO2 Emissions.- 8.4.3 Calculating CO2 Emission in a 2-Region, n-Sector Economy.- 8.5 The Sensitivity of CO2 Emissions to Changed Parameters.- 8.5.1 The Elasticities of CO2 Emission with the Parameters.- 8.5.2 The Derivative of CO2 Emission with Respect to aij.- 8.5.3 The Derivative of CO2 Emissions with Respect to cif.- 8.5.4 The Derivative of CO2 Emissions with Respect to pif.- 8.5.5 The Derivative of CO2 Emissions with Respect to yi.- 8.5.6 The Elasticities of CO2 Emissions.- 8.5.7 The Elasticities of CO2 Emissions with Respect to aj and ai.- 8.6 Conclusions.- IV. Data Analysis.- 9 German and UK Input-Output Data for Studying CO2 Emissions.- 9.1 Introduction.- 9.2 The Data Requirements.- 9.3 Data Collection and Processing.- 9.3.1 The Aggregation of the Input-Output Tables.- 9.4 Data Sources Used.- 9.4.1 Production of the A Matrices for Germany.- 9.4.2 Production of the A Matrices for the UK.- 9.4.3 Production of the C Matrices for Germany.- 9.4.4 Production of the C Matrices for the UK.- 9.4.5 Production of the P Matrices for Germany.- 9.4.6 Production of the P Matrices for the UK.- 9.4.7 Production of the Z Matrices for Germany.- 9.4.8 Production of the Z Matrices for the UK.- 9.4.9 Production of the e Vector for Germany.- 9.4.10 Production of the e Vector for the UK.- 9.4.11 Production of the m Vectors for Germany.- 9.4.12 Production of the m Vectors for the UK.- 9.4.13 Production of the B Matrices for Germany.- 9.4.14 Production of the B Matrices for the UK.- 9.4.15 Production of the u Vectors and Y for Germany.- 9.4.16 Production of the u Vectors and Y for the UK.- 9.4.17 Further Adjustment of the UK Data.- 9.5 The Structure of CO2 Emission: Germany 1988.- 9.5.1 The Nature of Input-Output Data.- 9.5.2 The Basic Data Used in the Analysis.- 9.5.3 The CO2 Intensities.- 9.5.4 Attributed CO2 Emissions.- 9.5.5 CO2 Intensities and Emissions by Sector.- 9.5.6 CO2 Emission Elasticities.- 9.6 Conclusions.- 10 Input-Output Analysis of German and UK CO2 Emissions.- 10.1 Introduction.- 10.2 Attribution of CO2 Emissions by Germany and the UK.- 10.3 Imports and Exports: CO2 Emission and Responsibility.- 10.4 Changes in CO2 Emission over Time.- 10.4.1 The Full Sectoral Decomposition.- 10.4.2 The Aggregate Decomposition.- 10.5 Differences in CO2 Emissions between Germany and the UK.- 10.6 Conclusions.- A10 Appendix: Decomposition of Changes in CO2 Emissions.- A10.1 Introduction.- A10.2 Tables.- V. Scenarios.- 11 Scenario Simulations.- 11.1 Introduction.- 11.2 Changing the Structure of Final Demand.- 11.2.1 Final Demand for Non-Fuel Goods.- 11.2.2 Final Demand for Fuels.- 11.2.3 From Private to Public Transport.- 11.2.4 Simulation Results.- 11.2.5 Conclusion.- 11.3 Changing the Energy Efficiency.- 11.3.1 Efficiency of Industrial Fuel Use.- 11.3.1.1. Electricity Generation.- 11.3.1.2 Iron and Steel Industry.- 11.3.1.3 Building Materials Industry.- 11.3.1.4 Food Processing Industry.- 11.3.1.5 Simulation Results.- 11.3.2 Efficiency of Direct Final Demand Fuel Use.- 11.3.2.1 Housing Insulation.- 11.3.2.2 Household Appliances.- 11.3.2.3 District Heating.- 11.3.2.4 Simulation Results.- 11.3.3 Conclusion.- 11.4 Changing the Fuel Mix.- 11.4.1 Natural Gas.- 11.4.2 Non-fossil Fuels.- 11.4.2.1 Nuclear Energy.- 11.4.2.2 Conclusion.- 11.4.2.3 Renewable Energy Sources.- 11.4.3 Conclusion.- 11.4.4 Simulation Results.- 11.5 Trend Extrapolations.- 11.6 A Sequence of Plausible Scenarios.- 11.7 Conclusions.- 12 A ‘Minimum Disruption’ Approach to Scenario Analysis.- 12.1 Introduction.- 12.2 The ‘Minimum Disruption’ Approach.- 12.3 Minimising Disruption of Final Demand.- 12.3.1 The Constraint on CO2 Emission Reduction.- 12.3.2 Minimising y Disruption Subject to CO2 Emission Target.- 12.3.3 Subject to CO2 Emission Target and GDP Growth Target.- 12.3.4 Subject to CO2 Emission Target and Employment Target.- 12.3.5 Subject to CO2 Emission, GDP and Employment Targets.- 12.4 Minimising Disruption of Fuel Use Coefficients.- 12.4.1 Minimising Disruption of C, with Constant Energy Efficiency.- 12.5 Minimising Disruption of Inter-Industry Trading.- 12.6 Conclusions.- 13 ‘Minimum Disruption’ Scenario Simulations.- 13.1 Introduction.- 13.2 Data Sources.- 13.3 Changes in Final Demand.- 13.3.1 Changes in Final Demand with no Other Constraints.- 13.3.2 Demand Changes with a GDP Growth Constraint.- 13.3.3 Demand Changes with an Employment Growth Constraint.- 13.3.4 Demand Changes with GDP and Employment Growth Constraints.- 13.4 Changes in Fuel Mix and Fuel Efficiency.- 13.4.1 Change in Fuel Mix with no Constraints.- 13.4.2 Change in Fuel Mix with Constant Energy Efficiency Constraint.- 13.5 Changes in the Structure of Inter-Industry Trading.- 13.6 Conclusions.- VI. Policy.- 14 Policy Conclusions for Reducing CO2 Emissions.- 14.1 Introduction.- 14.2 Major Conclusions.- 14.2.1 History.- 14.2.2 Analysis.- 14.2.3 Scenarios.- 14.3 Policy Overview.- 14.4 The Need for the Will.- References.- Author Index.- List of Figures.- List of Tables.