Most developed countries generate more CO2 emissions for their imports than they generate to produce exports, while most developing countries generate more CO2 emissions to produce exports than they generate foreign emissions to produce their imports. Most developed countries ‘import’ CO2 emissions in net terms, while most developing countries ‘export’ CO2 emissions in net terms. There has been a negative cross-country correlation between net CO2 emission transfers and per-capita income.

Two interpretations exist. On one side, the emission transfers between the developed and developing economies may stem from the shift of CO2-intensive production from the developed to the developing economies. On the other side, the size and direction of international emission transfers may also be determined by international technology differences: in the presence of technology differences, the exchange of identical products of similar monetary value would imply emission transfers. This dissertation uses Environmentally-Extended Multi-Regional Input-Output (EE MRIO) analysis to study the international emission transfers and regression analysis to assess whether the economy-emission decoupling observed in developed countries is indeed valid.

Additionally, there arises a need to explore specific mechanisms to address the increase in CO2 emissions. Carbon tax represents one such mechanism. A carbon tax generates revenue and creates incentives for behavioral changes among both producers and consumers. However, in the short run, a carbon tax leads to price increases and disproportionately affects poor households. This dissertation combines EE MRIO and microsimulation analysis to analyze the distributional impacts of carbon tax reform.

We estimate the extent of emission offshoring at the country level in net terms. We define net emission onshoring as the difference between the emissions domestic producers generate by exporting and the emissions they avoid by importing. Using the multi-regional input–output (MRIO) model and the OECD Inter-Country Input-Output (ICIO) Table, we report levels and trends in net emission onshoring for 45 countries between 1995–2018. Service-oriented economies with trade deficits (USA, UK, India) are net offshoring emissions. China is net onshoring emissions. The scale of net onshoring is small relative to production-based emissions. National emissions and GDP have decoupled in many developed countries, even when accounting for trade. In a cross-section of countries, there is no robust association between net onshoring and per-capita income.

We combine the Environmentally-Extended Multi-Regional Input-Output (EE MRIO) analysis with a microsimulation analysis to estimate the distributional implications of carbon policy reform, a combination of carbon tax and revenue recycling initiatives, on households in Indonesia. We consider two relevant scenarios: an “economy-wide” carbon tax versus an “electricity-only” carbon tax. The impact of carbon policy reform is measured by the net impact of carbon tax and cash transfer relative to initial expenditure. Carbon policy reform in Indonesia tends to be progressive, meaning the relative net impact on households decreases as income increases. Carbon tax in Indonesia primarily affects households through the price increase in electricity and fuel products. The distributional impacts of a carbon policy reform are determined more by the percentage of tax revenue recycled and taxation scenario and less by the tax rate. In order to protect the poorest 40 % of Indonesian households from inflationary pressure, the Indonesian government needs to recycle 25 % of tax revenue.

We propose a new method for standardizing the production technology at the world average level and derive interpretations for the resulting carbon emission concepts. The technology-adjusted emission balance measures net weak carbon leakage defined as the difference between the foreign emissions avoided by exports and the foreign emissions generated by imports. We use global multi-regional input–output tables to document the variable’s spatio-temporal variation for 49 economies between 1995 and 2015. There is a positive cross-country correlation between net leakage and per-capita income. Changes in net leakage are generally small and do not account for country-specific emission trends, that is, domestic emission decreases were not offset by foreign emission increases.