How responsible is a region for its carbon emissions? An empirical general equilibrium analysis

CO2 reduction targets tend to be set in terms of the amount of pollution emitted within a given region. However, there is increasing public and policy interest in the notion of a carbon footprint, or CO2 generated globally to serve final consumption demand within a region. This raises an issue in that, despite the local economic benefits, the latter involves effectively absolving the region of responsibility for CO2 generated in the production of exports. Using a CGE model of Wales, we illustrate by simulating an increase in export demand for the output of an industry (metal production) that is both carbon and export intensive and generally produces to meet intermediate rather than final demands. The key result is economic growth accompanied by a widening gap between regional CO2 generation and the carbon footprint, raising questions as to the identification of precisely 'whose' carbon footprint these additional emissions should be allocated to.

► We consider the wisdom of attributing regional emissions to external final consumers. ► We integrate input-output and CGE analysis to examine pollution generation under different accounting principles. ► We develop an innovative CGE application including consideration of emissions under a consumption accounting principle. ► We show that significant economic benefit may accrue to a region from export-led expansion of a carbon-intensive industry. ► However, this is accompanied by much larger growth in production accounting emissions than the region's carbon footprint.