Decomposing Emissions

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The Kaya identity decomposes total energy-related emissions into the product of population, income per capita, energy intensity, and carbon intensity of energy carriers (Kaya, 1997). It is an extension of the IPAT identity (Ehrlich and Holdren, 1971) that decomposes its technology factor into two more factors. It is important to understand that this framework is an accounting identity and not a causal model. For example, growth in income per capita might drive or be associated with reduced energy intensity so that the factors are not independent.

Raupach et al. (2007) is a highly cited example of this literature. They show that global emissions growth since 2000 was driven by a cessation or reversal of earlier declining trends in the energy intensity of gross domestic product (GDP) (energy/GDP) and the carbon intensity of energy (emissions/energy), coupled with continuing increases in population and per-capita GDP. Nearly constant or slightly increasing trends in the carbon intensity of energy were observed in both developed and developing regions and no region was significantly decarbonizing its energy supply. The growth rate in emissions was strongest in rapidly developing economies, particularly China. This research group also published another highly cited paper in 2007 linking emissions growth and its drivers to the atmospheric concentration of carbon dioxide (Canadell et al., 2007).

Many papers examine the role of particular Kaya factors in explaining historical emissions and driving future projections. The most important factor driving declining energy intensity and to some degree carbon intensity is technological change. Grübler et al. (1999) present a framework for energy technology analysis and discuss methods that can be used to analyze the impact of technological changes on global warming. In the historical record, they identify characteristic “learning rates" for the reduction in cost of energy technologies that allow simple quantified characterization of the improvement in cost and performance due to cumulative experience and investments. They also identify patterns, processes and timescales that typify the diffusion of new technologies in competitive markets. Technologies that are long-lived and are components of interlocking networks typically require the longest time to diffuse and co-evolve with other technologies in the network; such network effects yield high barriers to entry even for superior competitors. The authors show how it is possible to include learning phenomena in micro- and macro-scale models. Doing so can yield projections with lessened environmental impacts without necessarily incurring a negative effect on the economy.

The authors also address the final Kaya factor – carbon intensity of energy. They show that over time the fuels that power the economy have had progressively more energy per unit of carbon pollution - from coal to oil to gas. Such replacement has historically “decarbonized'' the global primary energy supply 0.3% per year.

Besides technological change another potential driver of declining energy intensity is structural change of economy towards a service oriented economy. It is usually thought that such an economy will have lower energy intensity and, therefore, emissions intensity of income. Henriques and Kander (2010) argue that this interpretation is overly optimistic because the shift to a service economy is somewhat of an illusion in terms of real production. The share of an industry in the economy is a function of both the real level of production and the price of output. The share of the manufacturing sector has declined in developed countries because rapid productivity gains have reduced its output price relative to the service sector. When constant prices are used, less of a shift to a service economy is seen. The main driver of the decline in energy intensity in developed countries is, therefore, productivity gains in manufacturing. For emerging economies like Brazil, Mexico and India, it is the residential sector that drives energy intensity down because of the declining share of this sector as the formal economy grows, and as a consequence of switching to more efficient fuels.

Another important issue related to the decomposition literature is to what degree trade and foreign investment have allowed developed countries to reduce their apparent energy intensity. Since the early days of the environmental Kuznets curve literature this was seen as a potential explanation of reduced pollution in developed economies (Stern et al., 1996). Most mainstream economists (Levinson, 2010) and economic historians (e.g. Kander and Lindmark 2006) have argued that the role of trade. Peters and Hertwich (2008), however, find that most developed countries were net importers of embodied carbon dioxide emissions in 2001 – in other words, their imports required more emissions to produce than their exports did. For the United States the difference amounted to 120 Mt C while for the UK it was 28 Mt. But this does not imply that if they produced all these products at home their net emissions would be this much higher. This is because production in developing countries is much more energy intensive than in developed countries when measured at market exchange rates and some developed countries, in particular China and India are particularly carbon intensive. This explains the differences on this issue between economists and researchers from engineering backgrounds.

A little researched topic is what happens to the Kaya factors in the short-run over the course of the business cycle. In a response to Peters et al. (2012), Jotzo et al. (2012) hint that the rate of change in energy intensity follows a strong cycle with the rate of decline slowing in the aftermath of recessions and increasing later in the business cycle. Alternatively, emissions could be seen as responding asymmetrically to increases and decreases in income (York, 2012).

References

Canadell, J. G., C. Le Quéré, M. R. Raupach, C. B. Field, E. T. Buitenhuis, P. Ciais, T. J. Conway, N. P. Gillett, R. A. Houghton, and G. Marland (2007) Contributions to accelerating atmospheric CO2 growth from economic activity, carbon intensity, and efficiency of natural sinks, Proceedings of the National Academy of Sciences 104(47): 18866–18870.

Ehrlich, P. R. and J. P. Holdren (1971) Impact of population growth, Science 171(3977): 1212-1217.

Grübler, Arnulf, Nebojsa Nakicénovic, and David G. Victor (1999) Dynamics of energy technologies and global change, Energy Policy 27: 247-280.

Henriques, Sofia Teives, and Astrid Kander (2010) The modest environmental relief resulting from the transition to a service economy, Ecological Economics 70(2): 271-282.

Jotzo F., P. J. Burke, P. J. Wood, A. Macintosh, and D. I. Stern (2012) Decomposing the 2010 global carbon dioxide emissions rebound, Nature Climate Change 2(4): 213-214.

Kander, Astrid and Lindmark, Magnus, 2006. "Foreign trade and declining pollution in Sweden: a decomposition analysis of long-term structural and technological effects," Energy Policy, Elsevier, vol. 34(13), pages 1590-1599, September.

Kaya, Y. and K. Yokobori (1997) Environment, Energy, and Economy: Strategies for Sustainability, United Nations University Press.

Levinson, A. (2010) Offshoring Pollution: Is the United States Increasingly Importing Polluting Goods? Review of Environmental Economics and Policy 4(1): 63-83.

Peters, Glen P. and Edgar G. Hertwich (2008) CO2 Embodied in International Trade with Implications for Global Climate Policy, Environmental Science and Technology 42(5): 1401-1407.

Peters, Glen P., Gregg Marland, Corinne Le Quéré, Thomas Boden, Josep G. Canadell & Michael R. Raupach (2012) Rapid growth in CO2 emissions after the 2008–2009 global financial crisis, Nature Climate Change 2, 2–4.

Raupach, Michael R., Gregg Marland, Philippe Ciais, Corinne Le Quéré, Josep G. Canadell, Gernot Klepper, Christopher B. Field (2007) Global and regional drivers of accelerating CO2 emissions, Proceedings of the National Academy of Sciences 104(24): 10288-10293.

Stern D. I., M. S. Common, and E. B. Barbier (1996) Economic growth and environmental degradation: the environmental Kuznets curve and sustainable development, World Development 24, 1151-1160.

York, R. (2012) Asymmetric effects of economic growth and decline on CO2 emissions, Nature Climate Change 2(11): 762-764.