Carbon-intensive Sectors Research Articles

Divestment of Fossil Fuel Assets

Fossil fuel divestment refers to activist-led campaigns aiming to convince large institutional investors to sell their holdings in companies that operate in carbon-intensive sectors and industries. Part of a larger anti-fossil fuel movement, the growing momentum of the fossil fuel divestment movement has put forward a real-world experiment of the interplay between global capital markets and transnational activist discourse in the context of climate policy and climate change mitigation. This chapter analyses divestment of fossil fuel assets as an emerging trend in climate finance and climate governance from two main perspectives. First, the chapter discusses the history, the political and financial logic and the impact of fossil fuel divestment. Second, the chapter focuses on the legal and governance implications of fossil fuel divestment. The chapter concludes by identifying further research opportunities.

Transformation of India's steel and cement industry in a sustainable 1.5 °C world

The anticipated economic and population growth in India will increase demand for material resources, energy and consequently carbon emissions. The global ambition to limit global warming to 1.5 °C by the end of the century calls for rapid and unprecedented action. As the most carbon-intensive sectors, India's steel and cement industry will require a more transformative shift, both on the demand and supply side.Strategies from both supply and demand-side are analysed for steel and cement sector to understand consequences for energy and emissions using two modelling approaches i) energy system and ii) material flow models. A portfolio of technically feasible options to reduce the material, energy and CO2 intensity is explored under four alternate scenarios spanning till 2050 differentiated by their mitigation ambition and development paradigm.Results show that current policies in India will provide adequate incentives for achieving the climate targets India has submitted within its Nationally Determined Contribution (NDC) however, dematerialisation, reuse and recycling will be necessary for achieving the global ambition of 1.5 °C. The study concludes that a stringent carbon policy in combination with strong sustainability principles can reduce CO2 emissions by 68% in the steel and cement sector in 1.5 °C Scenario compared to NDC Scenario.

The economic and emissions benefits of engineered wood products in a low-carbon future

There has been rapid growth in the use of engineered wood products in the construction sector in recent decades. We evaluate the economy-wide impacts on CO2 emissions from fossil energy use of replacing carbon-intensive construction inputs, such as steel and cement, with lumber products in the US under an emissions constraint. We find that the ability to substitute lumber-based building materials increases production from the lumber and forestry sectors and decreases production from carbon-intensive sectors such as cement. Under a carbon cap-and-trade policy, the ability to substitute lumber products lowers the carbon price and the GDP cost of meeting the carbon cap, with more overall emissions abatement in the construction industry. We briefly review the broader impact of forest harvest on carbon levels in forests, critical to determining the full life cycle impacts of greater lumber use, but do not add anything new to this literature.

Decarbonizing strategies of the retail sector following the Paris Agreement

The retail industry is one of the top 10 most carbon-intensive sectors. This paper is original in addressing what has changed in corporate retail with the Paris Agreement, accessing trends to decarbonize the sector. A qualitative comparison was performed regarding the policy, strategy and energy-related building solutions of the top 27 global retailers, ranked according to their revenue, regarding the reporting periods of 2014–2015 and 2016–2017. For each retailer, data were searched on retailers’ sustainability reports was organized in different tables according to the variables policy, strategy and energy-related building practice. A comparison analysis was carried out, in order to identify differentiating decarbonizing measures.Corporate governance is increasingly relevant to manage climate change issues. Strategies to decarbonize the retail sector include establishing ambitious energy goals, invest in sustainability of supply chain with more efficient logistics and in greener retail operations, with buildings designed and managed under a life-cycle perspective (energy-efficiency, renewable energy and natural refrigerants). Retailers are progressively aligning their energy targets to those of the Paris Agreement and converging in business principles and reporting standards. With forthcoming regulation on GHG emissions, retailers could benefit from a business case on low-carbon opportunities and financial incentives to accelerate low-carbon transition investments.

Impacts of international export on global and regional carbon intensity

Carbon intensity is a valuable indicator for balancing economic growth and environmental pollution, and plays an important role in mitigating global climate change and promoting environmental sustainability. This study attempts to examine the impacts of export on carbon intensity by proposing a novel framework that targeting at the gap between export aggregate carbon intensity (EACI) and self aggregate carbon intensity (SACI) which constitute the total carbon intensity to reveal export effects. Multi-region input-output model was used to calculate EACI and SACI in 44 world regions in 2014. LMDI approach was further adopted to decompose the gap between EACI and SACI from sectoral perspective. Some main results are concluded. (1) On global scale, exports increased 7.2% in carbon intensity. On national scale, exports showed increased effects on most countries (42/44). The regional EACI/SACI ranged from 0.79 to 3.53. (2) Sectoral aggregate carbon intensity (ACI) of export decreased EACI by 51 g/$, while sectoral aggregate structure (AS) of export increased EACI by 186 g/$, resulting in 135 g/$ increase in EACI globally. (3) For most regions, although ACI of carbon-intensive sectors (Elec., Metal, Nonmetal, Trans., Chem. and Coke&petrol.) in exports was lower than that in self, the high AS of these sectors in exports resulted in EACI higher than SACI, causing pulling force of export on global carbon intensity. Thus reducing carbon-intensive industries’ weights in exports would have great effects on global and national carbon intensity mitigation.

Supply-side carbon accounting and mitigation analysis for Beijing-Tianjin-Hebei urban agglomeration in China

Cities play an important role in controlling climate change. Previous ‘city-scale studies’ have investigated consumption-based emission accounting for demand-side mitigation analysis. However, to date very few studies have presented income-based emissions accounting for supply-side mitigation strategies at the level of an urban agglomeration. To fill this gap, this research begins by accounting for the income-based carbon footprint of the Beijing-Tianjin-Hebei (BTH) urban agglomeration. The 14 cities that make up the BTH region were grouped into 4 types in order to analyse the emission patterns of each and to identify both labour-intensive and carbon-efficient sectors. The results from this analysis are presented in a number of heatmaps, which show emission patterns, labour-capital ratios and carbon efficiencies. The industry relocation among the 14 cities is then discussed with regards to the Beijing-Tianjin-Hebei Coordinated Development Strategy. The results indicate that the service sector of Beijing, several mining sectors of resource-oriented cities and the electricity production for all of the cities are the most carbon-intensive sectors from an income-based perspective; the labour-intensive sectors are typically carbon-efficient, and the combination of supply-side carbon emissions, carbon efficiency and labour-to-capital ratio helps identify the key sectors for providing policy-makers the direction of industrial adjustment and relocation.

Greening the South Africa’s Economy Could Benefit the Food Sector: Evidence from a Carbon Tax Policy Assessment

South Africa has a competitive and viable food production sector which enables the country to be a consistent net exporter of agricultural products. Lately, the business and labour organisations have raised concerns that the government’s intention to implement the carbon tax policy will affect the food supply, subsequently exacerbating the unemployment and food insecurity in the country. Carbon tax is one of the policy tools to be implemented in order to reduce the growing greenhouse gas emissions thus helping the government meets its Paris Agreement commitments. South Africa’s National Treasury released a second draft of the carbon tax bill in 2017, which takes into account the concerns raised by different organisations. In this paper, we evaluate the potential impact of the carbon tax policy on agriculture, food and other sectors using a dynamic computable general equilibrium model. The results show that the carbon tax is an effective policy tool to mitigate emissions, as they decline by 33% relative to the baseline by 2035. This also leads to a welfare loss of R98.326 billion as the country transforms into a green economy. The carbon-intensive sectors like transport, steel and coal-generated electricity experiences significant output decline. However, the agriculture and food sectors show improvements in terms of jobs and production when the carbon tax is implemented. The positive effects on these two sectors are greatly reduced if tax exemptions provided to the agricultural sector are removed and the tax revenue is not recycled in the form of production subsidy to industries.

Addressing climate change through price and non-price interventions

Recognizing the importance of the second-best nature of economies, the Stern–Stiglitz report on carbon pricing departed from the recommendation of a single carbon price for all uses at all places and times. This paper provides some of the analytics behind these recommendations. First, I analyze the circumstances in which distributional concerns make desirable a tax or regulation inducing significant reductions in carbon usage in a carbon-intensive sector for which consumers are disproportionately rich. Such policies allow lower carbon prices elsewhere without exceeding carbon emission targets. The cost of the resulting production inefficiency may, under the identified circumstances, be less than the distributional benefits. The paper considers the circumstances in which such differential policies may be best implemented through regulation vs. differential pricing, as well as differential effects on political economy and norm setting. Second, I consider the effect of carbon price trajectories on induced innovation, providing general conditions under which the optimal carbon path should, at least eventually, be falling over time. Finally, I revisit the price-versus-quantity debate and highlight important aspects of the dynamic nature of the problem.

Industry relocation or emission relocation? Visualizing and decomposing the dislocation between China's economy and carbon emissions

Dirty industries tend to relocate to regions with looser environmental regulations, thus turning those regions into pollution havens. Numerous studies have tested the pollution haven effect of inter-country industrial relocation. However, little attention has been paid to the effect that is hidden in domestic industry relocation. Considering that domestic investment is about 10-fold that of foreign investment, it is vital to examine this issue to ensure the achievability of China's international pledge of mitigating carbon emissions. This research integrated multiregional input-output analysis and a center of gravity model to visualize the dislocation between carbon emissions, value added, and outputs at a sectoral level from 2007 to 2012 in China. Carbon emissions were also decomposed to three segments of final demand. We also investigated the movement of the center of gravity of these segments, and their dislocation with the outputs. Our analysis found that more carbon emissions had relocated from east to west with domestic industry relocation, yet the opposite was found for value added. Specifically, carbon intensive sectors showed clear tendencies of shifting west. Capital formation was the major cause of the pollution haven effects for the economy as a whole. Thus, our results suggest that pollution haven effects exist in the relocation processes of most sectors. In turn, our findings support the idea that mitigation policies should differ by region and by industry. Our recommendations include a negative list for regions in the west, a mitigation policy for industries with high pollution, and differentiated supply chain management for final demands.

Optimising embodied carbon and U-value in load bearing walls: A mathematical bi-objective mixed integer programming approach

The construction and building industry is known to be a carbon intensive sector. Of the various opportunities present for minimising the carbon footprint of buildings, optimising the material selection of building components is one plausible avenue for significant carbon reductions. In the construction of opaque load-bearing walls, the thermal performance of the construction build up is the parameter that has the greatest influence over building operational carbon emissions, with thicker profile walls leading to lower U-values and hence lower operational carbon from heating and cooling. Conversely, the extra wall material contributes to increased embodied carbon. The aim of this study is to capture such trade-off between embodied carbon and U-value by presenting a practical optimisation model to design load bearing walls in commercial and residential buildings. In particular, two objective functions are incorporated within the proposed model for the structural design and material selection of the wall layers; the first objective minimises the embodied carbon of the wall while the other minimises the U-value of the wall. The variables forming the optimisation model include the thickness of each wall layer, and the choice of material forming each layer. The proposed model is tested on a practical case example applicable in Australia and the UK, involving a load bearing wall. Results are reported in the form of a Pareto efficient frontier. Utilising the model enables the realisation of the impacts of material selection and wall layering on embodied carbon and U-value of the building structure.

Getting ready for future carbon abatement under uncertainty – Key factors driving investment with policy implications

Carbon capture and storage (CCS) is considered a key technology option for abating CO2 emissions in carbon-intensive sectors, e.g. the power sector. However, high investment costs and risk hinder the diffusion of CCS. To avoid stranded assets or high future costs for retrofitting, new plants can be made carbon capture ready (CCR) to enable them to accommodate future CCS retrofitting at low additional costs. Current CCR investment decisions are closely related to future CCS retrofitting and CCS operation decisions in subsequent stages, all of which would be affected by uncertainties. We develop a three-stage CCR investment decision model under multiple uncertainties which allows for investment and especially operating flexibilities. Applying this model to China shows that CCS operating flexibility under the carbon-pricing scheme may actually lower the probability of investing in a CCR plant, and neglecting it may overestimate the propensity for investing in CCR. Moreover, learning effects, which reduce the costs of future CCS retrofitting, may be detrimental to CCR investment, indicating that the policy support for research on, development of, and deployment of CCS to reduce CCS costs should be coordinated with CCR investments. Although higher electricity prices can increase the value of an investment opportunity, it may restrain CCR investment. Finally, CCR investment does not appear to be economically viable under current conditions in China because of low carbon prices, high carbon price risks, high CCR investment costs and the high opportunity costs of CCS operation.

Financial Development and Industrial Pollution

We study how countries' financial structure affects their transition to low-carbon growth. Using global industry-level data, we document that carbon-intensive industries reduce emissions faster in economies with deeper stock markets. Two channels underpin this stylized fact. First, stock markets reallocate investment towards energy-efficient sectors. Second, in countries with deeper stock markets, carbon-intensive sectors engage in more green innovation, resulting in lower carbon emissions per unit of output. Only one-tenth of these industry-level reductions in domestic emissions are offset by carbon embedded in imports. A firm-level analysis of an exogenous shock to the cost of equity in Belgium confirms our findings.

Central Banks and the Transition to a Low-Carbon Economy

Climate change is a fundamental challenge for our societies. Containing it will require a profound and radical transformation of our economic system, including a substantial reorientation of investments toward low-carbon technologies. The question to what extent central banks can and should contribute to this effort is moving up agendas worldwide. Building on the research presented at a CEP DNB workshop on “Central Banking and Green Finance” in November 2017, this discussion note explores policy options available to central banks to contribute to the transition to a low-carbon economy. The studies presented in the workshop reassert that climate change is a potential risk for the stability of the financial system. Against this background, and as a first step, central banks should develop a comprehensive evaluation of climate-related systemic risks in the financial sector. They should also consider regulatory measures to mitigate these risks, in particular by implementing higher capital requirements for loans to carbon-intensive economic activities – a measure which would support the transition to a low-carbon economy, increase capital levels and thus strengthen financial system stability. Academic research also highlights that current large-scale asset purchases by central banks are biased toward incumbent carbon-intensive sectors. Central banks should further assess these biases and ensure that climate-related risks are adequately reflected in their own balance sheets as well as their collateral frameworks.

CO2-enhanced and humidified operation of a micro-gas turbine for carbon capture

As greenhouse gas emissions are a key driver of climate change, sources of CO2 must be mitigated, particularly from carbon-intensive sectors, like power production. Natural gas provides an increasingly large percentage of electricity; however its lower carbon intensity is insufficient to make proportional reduction contributions to circumvent 2 °C global warming. The low partial pressure of CO2 in its flue gas makes post-combustion capture more challenging – increasing the CO2 in the exhaust assists in enhancing capture efficiency. This paper experimentally investigates the impact of the combination of humidified air turbines and exhaust gas recirculation to increase CO2 partial pressures, with the aim of evaluating their effects on emissions and turbine parameters at various turndown ratios. It was found that CO2 levels could be increased from 1.5 to 5.3 vol%, meaning more efficient post-combustion capture would be possible. CO2 and steam additions increased incomplete combustion when used together at high levels for low turndown ratios (below 60%), with CO increasing from 49 to 211 ppm and CH4 from 2.5 to 52 ppm; this effect was negated at higher power outputs. Turbine cycle humidification resulted in net improvements to the turbine efficiency, by up to 5.5% on a specific fuel consumption basis.

Analysis of the Potential Impacts on China’s Industrial Structure in Energy Consumption

Industrial structure is one of the main factors that determine energy consumption. Based on China’s energy consumption in 2015 and the goals in 13th Five-Year Plan for Economic and Social Development of the People’s Republic of China (The 13th Five-Year Plan), this paper established an input–output fuzzy multi-objective optimization model to estimate the potential impacts of China’s industrial structure on energy consumption in 2015. Results showed that adjustments to industrial structure could save energy by 19% (1129.17 million ton standard coal equivalent (Mtce)). Second, China’s equipment manufacturing industry has a large potential to save energy. Third, the development of several high energy intensive and high carbon intensive sectors needs to be strictly controlled, including Sector 25 (electricity, heat production, and supply industry), Sector 11 (manufacture of paper and stationery, printing), and Sector 14 (non-metallic mineral products industry). Fourth, the territory industry in China has a great potential for energy saving, while its internal structure still needs to be upgraded. Finally, we provide policy suggestions that may be adopted to reduce energy consumption by adjusting China’s industrial structure.

Examining distinct carbon cost structures and climate change abatement strategies in CO2 polluting firms

PurposeA management accounting perspective that underscores a quest for reducing conventionally appraised costs, negative output costs as well as heightened eco-efficiency has been used in pursuit of the study’s two main study objectives. The purpose of this paper is twofold: first, the study seeks to further understanding of the relationship between product output volume, carbon costs, and CO2 emission volume in carbon-intensive firms. Second, it identifies factors affecting climate change abatement strategies pursued by these firms. Heightening appreciation of the climate change challenge, combined with minimal CO2 emission research undertaken from a cost management perspective, underscores the significance of the study.Design/methodology/approachA triangulation of quantitative and qualitative data collected from Slovenian firms that operate in the European Union Emissions Trading Scheme has been deployed.FindingsCO2 polluting firms exhibit differing carbon cost structures that result from distinctive drivers of carbon consumption (product output vs capacity level). Climate change abatement strategies also differ across carbon-intensive sectors (energy, manufacturing firms transforming non-fossil carbon-based materials, and other manufacturing firms) but are relatively homogeneous within them.Practical implicationsFrom a managerial perspective, the study demonstrates that carbon efficiency improvements are generally not effective in triggering corporate CO2 emission reduction when firms pursue a growth strategy.Social implicationsGlobal warming signifies that CO2 emissions constitute a social problem. The study has the potential to raise societal awareness that the causality of the manufacturing sector’s CO2 emissions is complex. Further, the study highlights that while more efficient use of environmental resources is a prerequisite of enhanced ecological sustainability, in isolation it fails to signify improved ecological sustainability in manufacturing operations.Originality/valueThe paper has high originality as it reports one of the first management accounting studies to explore the distinction between combustion- and process-related CO2 emissions. In addition, it provides distinctive support for the view that eco-efficiency is more consistent with the economic than the environmental pillar of sustainability.

Energy and Industrial Growth in India: The Next Emissions Superpower?

India is often referred to as the next development superpower and is widely seen as a potential destination for large scale manufacturing hubs. In this work we draw comparisons between India, Indonesia and China and find that all countries have a carbon intensive energy sector. However, there is a staggering difference between industrial energy intensity between them where India and Indonesia require double the amount of energy to produce the same output as China. We look into the decomposed industrial sectors and find that iron and steel and non-metallic minerals present the highest energy intensity in India. We argue that a production transition from China to India and Indonesia would result in a dangerous global emissions growth which has to be countered with rapid adoption of innovative energy technologies and policies.

Using Output-Based Allocations to Manage Volatility and Leakage in Pollution Markets

Output-based allocations (OBAs) are typically used in emission trading schemes to mitigate leakage in sectors at risk. Recent work has shown they may also help to stabilize prices in markets subject to supply and demand shocks. We extend previous work to simultaneously include both leakage and volatility. Motivated by discussions on how to reform carbon markets around the world, and in Europe in particular, we use our model to revisit several critical issues in the design of these markets. In particular, we look at how different OBA schemes manage permit price uctuations and what are the implications of deducting OBA permits (the majority going to trade-exposed and carbon intensive sectors) from the overall permit allocation, so as to keep the global cap on emissions fixed (as it is the case in California and in the EU).

Influencing mechanism of energy-related carbon emissions in Xinjiang based on the input-output and structural decomposition analysis

Analysis of carbon emission mechanism based on regional perspectives is an important research method capable of achieving energy savings and emission reductions. Xinjiang, an important Chinese energy production base, is currently going through a period of strategic opportunities for rapid development. Ensuring stable socio-economic development while achieving energy savings and meeting emission reductions targets, is the key issue currently facing the region. This paper is based on the input-output theory, and conducts a structural decomposition analysis on the factors affecting energy-related carbon emissions in Xinjiang from 1997 to 2007; this analysis employs a hybrid input-output analysis framework of “energy - economy - carbon emissions”. (1) Xinjiang’s carbon emissions from energy consumption increased from 20.70 million tons in 1997 to 40.34 million tons in 2007; carbon emissions growth was mainly concentrated in the production and processing of energy resources, the mining of mineral resources, and the processing industry. (2) The analysis of the direct effects of the influencing factors on carbon emissions showed that the change in per capita GDP, the final demand structure, the population scale, and the production structure were the important factors causing an increase in carbon emissions, while the decrease in carbon emission intensity during this period was the important influencing factor in stopping the growth of carbon emissions. This showed that while the sizes of Xinjiang’s economy and population were growing, the economic structure had not been effectively optimized and the production technology had not been efficiently improved, resulting in a rapid growth of carbon emissions from energy consumption. (3) The analysis of the indirect effects of the influencing factors of carbon emission showed that the inter-provincial export, fixed capital formation, and the consumption by urban residents had significant influence on the changes in carbon emissions from energy consumption in Xinjiang. (4) The growth of investments in fixed assets of carbon intensive industry sectors, in addition to the growth of inter-provincial exports of energy resource products, makes the transfer effect of inter-provincial “embodied carbon” very significant.

Uncovering driving factors of carbon emissions from China’s mining sector

China has proposed its ambitious cap targets of carbon emissions in both carbon intensity (CO2 emissions per unit of GDP) and carbon scale (gross carbon emissions). Since mining sector is the foundation of the whole industrial production as well as a carbon intensive sector, it is critical to uncover the key driving factors on inducing corresponding carbon emissions so that appropriate mitigation policies can be raised. Under such a circumstance, this paper aims to fill such a research gap by employing a novel index decomposition method, namely, Generalized Divisia Index Method (GDIM), so that the driving factors of energy-related carbon emissions changes in China’s mining sector and its five sub-sectors over the period of 1999–2013 can be identified. In addition, a scenario analysis approach is applied in order to seek the feasible mitigation pathways on China’s mining sector and its five sub-sectors. The results indicate that output scale effect is the primary contributor of the increase in carbon emissions of both mining sector and its five sub-sectors and energy use effect also plays a positive role, while carbon intensity effect contributes most to the decrease in carbon emissions. All sub-sectors have achieved the target of 45% carbon intensity reduction except the extraction industry of petroleum and natural gas. Nevertheless, more efforts should be made for the whole mining sector in order to achieve the 2030 peak target of carbon scale.