Foreign multinationals affiliates and countries' carbon upstreamness. How could these firms support the fulfilment of emissions reduction targets?

Abstract

Climate emergency requires urgent actions to reduce carbon emissions. In this paper we calculate the countries’ carbon upstreamness and evaluate its linkage to the presence of foreign MNE affiliates, by using a multiregional input–output model with firm heterogeneity. We find a mismatch between carbon upstreamness, emissions reduction targets and income per capita between countries. OECD countries, which are located in the final stages of carbon production, have lower carbon intensity than the world average and have committed strongly to reducing their total emissions. On the contrary, non-OECD countries, which are located mainly in the initial stages of carbon production, maintain higher carbon intensity than the world average and they are less ambitiously committed, as they have lower per capita income. In that context, multinational enterprises (MNEs) could play a key role in supporting the fulfilment of emission reduction targets in host countries, so we propose a simulation to evaluate this role. Specifically, if the MNE affiliates adopt the Intended Nationally Determined Contributions (INDC) set by the controlling country regardless of where they are located, the emissions of MNEs would be reduced by 15.6% (395,864 KtCO2), 4% more than they would be reduced under current emission reduction targets in 2016. However, if MNEs apply the more ambitious INDC, regardless of origin or destination, the emissions would be reduced by 18% (455,910 KtCO2), 7% more than scenario 1 and 1.7% of global emissions in 2016.