Expansion of international trade
The past half century has been marked by an unprecedented expansion of
international trade. Since 1950, world trade has grown more than
twenty-seven fold in volume terms. By way of comparison, the level of
world GDP rose eight-fold during the same period. As a consequence, the
share of international trade in world GDP has risen from 5.5 per cent in
1950 to 20.5 per cent in 2006. More ![](/images/arrow_below.gif)
A number of factors have given rise to this spectacular expansion in
world trade. Foremost is technological change, which has considerably
reduced the cost of transportation and communications. In the second
half of the 20th century, the introduction of the jet engine and
containerization significantly reduced the cost of air and maritime
transportation, thereby expanding the range and volume of goods that are
traded. The information technology revolution has made it easier to
trade and to coordinate production of parts and components of a final
good in different countries.
A second factor is more open trade and investment policies. Countries
have opened up their trade regimes unilaterally, bilaterally,
regionally, and multilaterally. Measures that taxed, restricted or
prohibited trade have either been eliminated or reduced significantly.
These changes in economic policies have not only facilitated trade, they
have also broadened the number of countries participating in global
trade expansion. In particular, developing countries now account for 36
per cent of world exports, about double their share in the early 1960s.
Thus, technological innovations and changes in trade and investment
policies have both democratized trade and made it easier to “unbundle”
production. The parts and components that make up the final product can
be manufactured in different locations around the globe. Many of these
manufacturing plants are located in developing countries that, in turn,
have become increasingly integrated in global supply chains. Compared to
the past, more trade can be embodied in the manufacture of a final
product and more countries can be involved in the process.
The expansion of world trade may be one reason why trade is increasingly
being raised in climate change discussions and may also help to explain
why there are concerns about the impact of trade on greenhouse gas
emissions. But to what extent are the concerns justified? Less
How does trade affect greenhouse gas emissions?
Trade economists have developed a conceptual framework for examining how
trade opening can affect the environment. This framework, first applied
to study the environmental impact of the North American Free Trade
Agreement (NAFTA), separates the impact of trade liberalization into
three independent effects: scale, composition and technique. This
framework can be used therefore to study the link between trade opening
and climate change. More![](/images/arrow_below.gif)
The “scale” effect refers to the impact on greenhouse gas emissions from
the increased output or economic activity resulting from freer trade.
The general presumption is that trade opening will increase economic
activity and hence energy use. Everything else being equal, this
increase in the scale of economic activity and energy use will lead to
higher levels of greenhouse gas emissions.
The “composition” effect refers to the way that trade liberalization
changes the mix of a country’s production towards those products where
it has a comparative advantage. This re-allocation of resources within a
country is how trade improves economic efficiency. The effect on
greenhouse gas emissions will depend on the sectors in which a country
has comparative advantage. The composition effect will result in less
greenhouse gas emissions if the expanding sectors are less energy
intensive than the contracting sectors. Whether the composition effect
results in higher or lower greenhouse gas emissions is therefore
difficult to predict in advance.
Finally, trade opening can lead to improvements in energy efficiency —
the “technique” effect — so that the production of goods and services
generates less greenhouse gas emissions. This decline in emission
intensity can come about in two ways. First, freer trade will increase
the availability and lower the cost of environmentally-friendly goods,
services and technologies. This is particularly important for countries
that do not have access to these goods, services and technologies or
whose domestic industries do not produce them in sufficient scale or at
affordable prices. For exporters, additional market access can provide
incentives to develop new products, services and technologies to
mitigate climate change. Second, the increase in income that trade
brings about can lead society to demand better environmental quality —
in other words, less greenhouse gas emissions.
Since the scale and technique effects tend to work in opposite
directions, and the composition effect depends on the comparative
advantage of countries, the overall impact of trade on greenhouse gas
emissions cannot be determined in advance. It will depend on the
magnitude or strength of each of the three effects.
The technique effect reflects the principal avenue through which trade
opening can help mitigate climate change, hence the importance of the
current Doha Round and in particular the negotiations to liberalize
environmental goods and services. By increasing the availability of
goods, services and technologies that are likely to be important in
improving energy efficiency, trade can help to meet the challenge of
global warming. Less
Trade and transport
One concern about trade's role in greenhouse gas emissions is its link
to transportation services. International trade involves countries
specializing in and exporting goods in which they have a comparative
advantage and importing other goods from their trade partners. This
process of international exchange requires that goods be transported
from the country of production to the country of consumption. So
international trade expansion is likely to lead to increased use of
transportation
services. More![](/images/arrow_below.gif)
Petroleum supplies 95 per cent of the total energy used by world
transport — making it a significant source of greenhouse gas emissions.
The International Energy Agency (IEA) has estimated that, in 2004,
transport was responsible for 23 per cent of world energy-related
greenhouse gas emissions. But there are important differences in the
contribution of various modes of transport. About 74 per cent of
energy-related CO2 emissions in the transport sector comes from road
transport with another 12 per cent from air transport.
Since the International Maritime Organization estimates that around 90
per cent of global merchandise trade by volume is transported by sea,
and the bulk of CO2 emissions in the transport sector comes from road
transport, international trade does not seem to play a major role in the
generation of emissions from the transport sector. The IEA's 2007 study
on CO2 emissions from fuel combustion suggests that international marine
transport generates about 8.6 per cent of the emissions of the transport
sector.
In the context of the carbon footprint of international transportation, “food miles” is an emerging concept that involves the calculation of CO2 emissions associated with the transport of food over long distances to
arrive at the final consumer. Therefore, some advocate that products
should be sourced as much as possible locally and that labels of food
products should include information on the origin of the product.
However, the real “carbon footprint” of domestically produced versus
imported foodstuffs is very complex. Transport mode (air, road, maritime
or rail) and distance are not the only significant contributors to CO2 emissions. Life cycle of the products, including production methods
(e.g. heated greenhouses vs. open-air production; energy-intensive
modern techniques vs. hand labour) also plays a big part.
Indeed, some studies conducted on the “carbon mileage” of traded goods
have shown that the effect can be the opposite of what is commonly
believed. For instance, it has been argued that Kenyan flowers
air-freighted to Europe would generate less CO2 emissions than flowers
grown in the Netherlands; or New Zealand lamb transported to the United
Kingdom would generate 70 per cent less CO2 than lamb produced in the
United Kingdom. Therefore, food miles may be an issue in need of
case-by-case analysis, and empirical verification. Less
> Introduction
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