Parcelling virtual carbon in the pollution haven hypothesis

The methodology proposed in this paper allows us to parcel the pollution haven hypothesis (PHH) into a bi-regional input-output framework to analyse whether the specialisation of countries in different stages of production and/or in final goods trading generates an increase or a decrease in global emissions as a consequence of international trade. We apply the model to the Spain-China trade relationship as it existed in 2005, finding a PHH of 29,667 KtCO2. If this trade had not existed (so each country had met its demand for intermediate and final goods), global emissions would have been reduced by these 29,667 KtCO2. Of this PHH, 43.5% corresponds to imports of final goods; 32.4% is related to imports of intermediate goods for the last stage of production; the remainder, 24.1%, is caused by global value chains (GVC) between the countries. Only 3229 KtCO2 of PHH emissions are linked to domestic emissions from the sector in which the imports are produced; the rest is explained by domestic linkages or successive rounds of domestic production, which supports the existence of an indirect PHH. Together with a trade growth in the last years, the fall of trade barriers would have implied a transformation of global production chains that have boosted global emissions.