Innovation and application of inter-provincial carbon emission transfer accounting model in China’s domestic production network

Abstract

The New Development Paradigm will result in the significant development of domestic production networks and the accelerated growth of carbon transfers among provinces in China. However, the existing value chain or the trade of intermediate goods decomposition method cannot completely account for the carbon content of intermediate goods. So the paper developed a accounting model for inter-regional intermediate goods trade based on input-output model. The most significant advantage of this accounting model is that by further decomposing final output into three components—final consumption within the region, final consumption flowing to other regions, and final output flowing to other regions as intermediate goods that are not returned to the region—it achieves a more comprehensive decomposition of the value chain in comparison to the established models. This approach allows for the tracking of longer value chains and the accounting for intermediate goods inflows and outflows simultaneously. Furthermore, the accounting of trade in intermediate goods can be conducted for any number of countries, regions, and sectors within the input-output system, thereby providing a foundation for the comprehensive accounting of inter-regional carbon transfers within production networks. With the input-output tables and carbon emission inventories from the CEADs (the China Carbon Emissions Accounting Database), the paper has calculated the changes of the carbon transfer among provinces in the China’s domestic production network from 2012 to 2017 and find that the inter-provincial intermediate goods trade and carbon transfer among provinces is increasing significantly. Each province has a strong incentive to overuse the carbon embodied in the intermediate goods from others, but lacks the motivation to reduce their own carbon emission. In the inter-provincial transfer of the carbon content of intermediate goods in China’s domestic production network, the difference between the average value of the ratio of the carbon content of intermediate goods from other provinces used by each province and that supplied for use by other provinces to the ratio of the carbon content of intermediate goods produced by itself increased by 13.6% between 2012 and 2017. Only a few provinces are evolving towards a win-win between economic and environmental benefits, while most are still facing the evolutionary dilemma in choosing between economic and environmental benefits. In the future, we should comprehensively explore the cooperative governance of carbon emission reduction in the domestic production network, including establishing a national standard for calculating the carbon transfer in domestic production network, improving the carbon emission responsibility sharing mechanism and carbon emission reduction compensation systems.