1 A “Carbonizing Dragon”: China’s Fast Growing CO2 Emissions2 Revisited3 Jan C. Minx,†,‡,* Giovanni Baiocchi,§ Glen P. Peters,|| Christopher L. Weber,^,( Dabo Guan,z,Δ,# and4 Klaus Hubacek3

5†Department Economics of Climate Change, Department Sustainable Engineering, Technical University Berlin, D-10623 Berlin,

6 Germany

7‡Potsdam Institute for Climate Impact Research (PIK), D-14412 Potsdam, Germany

8§Norwich Business School, University of East Anglia, Norwich Research Park, NR4 7TJ Norwich, United Kingdom

9

)Center for International Climate and Environmental Research�Oslo (CICERO), PB 1129 Blindern, Oslo, Norway

10^Science and Technology Policy Institute, Washington, D.C. 20010, United States

11(Department for Civil and Environmental Engineering, Carnegie Mellon University, Pittsburgh, PA15213, United States

12zInstitute of Applied Ecology, Chinese Academy of Sciences, Shenyang, 110016, China

13ΔSchool of Earth and Environment, University of Leeds, Leeds, LS2 9JT, United Kingdom

14#St Edmund's College, University of Cambridge, Cambridge, CB3 0BN, United Kingdom.

153Department of Geography, University of Maryland, College Park, Maryland 20742, United States

16 bS Supporting Information

36 ’ INTRODUCTION

37 China recently became the world’s largest consumer of energy1

38 and emitter of CO2,2 overtaking the U.S. earlier than expected.3 A

39 growing body of literature has analyzed these trends in energy use40 andCO2 emissions in China.

2,4�8 A key challenge to understanding41 these trends is the joint influence of several technological and socio-42 economic drivers, which affect levels of CO2 emissions and energy43 use in China in different directions and to varying degrees.44 Given the rapid pace of development in China, monitoring the45 trends in emission drivers over time is important. China’s annual46 industrial CO2 emissions have grown by a factor of 2.7 (166%),47 that is almost 3992million tonnes (Mt), between 1992 and 2007,

48but more than 70% (2815 Mt) of this emission growth has49occurred between 2002 and 2007. Hence, the rate of growth of50CO2 emissions in China has increased (Figure S2, Table S10 in51the Supporting Information (SI)), whereas the average annual52emission growth rate was 5% for the period 1992�2002, it was5316% for the period 2002�2007. Extrapolation from 2002 to the54year 2007 of the linear trend in annual emissions over the

Received: May 2, 2011Accepted: September 2, 2011Revised: September 2, 2011

17 ABSTRACT:China’s annual CO2 emissions grew by around 4 billion tonnes between18 1992 and 2007. More than 70% of this increase occurred between 2002 and 2007.19 While growing export demand contributed more than 50% to the CO2 emission20 growth between 2002 and 2005, capital investments have been responsible for 61% of21 emission growth in China between 2005 and 2007. We use structural decomposition22 analysis to identify the drivers for China’s emission growth between 1992 and 2007,23 with special focus on the period 2002 to 2007 when growth was most rapid. In contrast24 to previous analysis, we find that efficiency improvements have largely offset additional25 CO2 emissions from increased final consumption between 2002 and 2007. The strong26 increases in emissions growth between 2002 and 2007 are instead explained by27 structural change in China’s economy, which has newly emerged as the third major28 emission driver. This structural change is mainly the result of capital investments, in29 particular, the growing prominence of construction services and their carbon intensive30 supply chain. By closing the model for capital investment, we can now show that the majority of emissions embodied in capital31 investment are utilized for domestic household and government consumption (35�49% and 19�36%, respectively) with smaller32 amounts for the production of exports (21�31%). Urbanization and the associated changes in lifestyle are shown to bemore important33 than other socio-demographic drivers like the decreasing household size or growing population. We argue that mitigation efforts will34 depend on the future development of these key drivers, particularly capital investments which dictate future mitigation costs.

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55 1992�2002 period yields an increment of only 649 Mt of CO2

56 emissions, so that the 2166 Mt above the projected value can be57 considered “additional CO2 emission growth” compared to the58 earlier periods in our data (see Figure S4, SI). Hence, almost 80%59 (2166 Mt) of the 2815 Mt CO2 emission growth between 200260 and 2007 is considered “additional” here.61 This additional emission growth is not the sole reflection of62 the higher GDP growth rates (see Table S13, SI) achieved63 between 2002 and 2007. The CO2 intensity per unit GDP has64 also started to increase between 2002 and 2007 (Figure S6, Table65 S15, SI). This reverses a long-term trend of a decreasing CO2

66 intensity of GDP observed for the period 1992�2002. China has67 become a “carbonizing dragon” over recent years, but none of the68 available literature (e.g., refs 4,9), to our knowledge, has so far69 provided an in-depth understanding of the driving forces. Instead70 most of the recent literature on China has focused on the structural71 analysis of China’s emissions for the year 2007,10�12 China’s carbon72 emissions associated with international trade,9,13�17 emission73 patterns and trade at the provincial level, 18�20 as well as the supply74 chain of high emitting sectors such as buildings or construction.21,22

75 Peters et al.23 used structural decomposition analysis (SDA) to76 quantify the contribution of a set of emission drivers to changes in77 industrial CO2emissions in China between 1992 and 2002. The78 results show that CO2 emission increases from growing domestic79 and foreign final demands outweighed emission reductions from80 efficiency improvements. Other factors contributed insignificantly81 to CO2 emission changes in China over this period.82 In this paper we extend our earlier analysis by (1) updating the83 available evidence on emission drivers and trends inChina through84 the inclusion of the most recent input-output data for the year85 2007; (2) providing specific analysis for newly emerging trends not86 apparent in earlier studies; (3) providing more detailed decom-87 positions to account for a larger variety of drivers such as process88 emissions, energy mix, urbanization, and so on, Table 1T1 ; (4)89 treating capital investments as input to production to demonstrate90 the importance of allocation issues in emission accounting.

91 ’METHODS AND DATA

92 Our calculations use environmental input-output (EIO) anal-93 ysis, which is a commonly accepted way of quantifying sectoral94 CO2 emissions and other environmental interventions under full95 consideration of the supply chain. The methodological details96 have been described elsewhere 24,25 and a complete description97 of the model is provided in the SI. Structural decomposition98 analysis (SDA) uses EIO to estimate the relative contribution of

99changes in a set of emission drivers over time—such as carbon100intensity, energy mix, production structure, final demand level,101and composition and demographic factors—to overall changes102in CO2 emissions,23,26�28 Table 1. Each of these factors is103analyzed with regards to their respective contribution to changes104in CO2 emissions over a given time period by keeping all other105emission drivers constant. This ceteris paribus interpretation106applies to all SDA interpretations undertaken in this paper107without permanently referring to it.108A challenge for any structural decomposition exercise is deal-109ing with the existence of equally acceptable decomposition forms110for the same changes.27�29 To resolve the issue, we compute the111average of all possible decompositions, as has become common112practice.9,23,28�30 For reference we report the standard errors113and ranges for all our results in the SI and discuss sensitivities.114We use three data sets throughout this study: time-series input-115output tables (IOTs), corresponding sectoral energy and CO2

116emission statistics and capital investment data. We obtained the117IOTs from the Chinese National Bureau of Statistics (NBS) for1181992 with 118 sectors,31 1997 with 122 sectors,32 2002 with 124119sectors 33and 2007 with 135 sectors.34 As we are interested in120Chinese emissions only, we remove imports from the IOT and121only consider domestic supply chains. To facilitate comparisons122we aggregated all tables to 95 sectors and converted the IOTs from123current into constant prices using the double deflation method.35

124Deflators were compiled based on the price data provided from125Chinese Statistics Yearbooks of the various years.36

126We documented our energy and emission data set previously127for the years 1992�2002.23,37 We apply the same method to128extend this data set to the year 2007 using information from129China’s Energy Statistical Yearbook 2008.38 The complete data130set consists of 18 types of fuel, heat, and electricity consumption131in physical units and is available at a 44 sector level which we132mapped to the 95 sectors of the IOTs. CO2 emissions from133industrial processes are included in our analysis as well.134For one part of our analysis we close the model for capital135investment using the augmentation method in the absence of a136detailed capital flowmatrix for China,39 that is, we treat capital as137an input to production rather than final demand. We take the138required capital investment data from the China Statistical139Yearbook 2008.40 The data available for 2007 showed investment140in both construction and equipment by economic sector,141whereas in years before 2007, data were only available for142construction. Thus given no better data, for years before 2007143we assume that investment in equipment is proportional to144investment in construction projects based on the 2007 ratio.

Table 1. � Decomposition Factors Considered in This Analysis. A Comprehensive List Is Provided in SI Table S-3

abbreviation name definition

Emix fuel mix the use of fuel type k as a share of total fuel use

ei fuel intensity TJ of total fuel used per unit Renminbi (RMB) of total economic output

f process CO2 intensity tonnes of industrial process CO2 emission used per RMB of total economic output

fp CO2 intensity tonnes of industrial (energy and process) CO2 emissions per RMB of total economic output

L production structure the direct and indirect input requirements throughout the Chinese economy to produce one unit of final demand

yl final demand levels the sum of all sector final demands measured in RMB

yc final demand composition final demand share of sector i in total final demand (yl)

yh per household final demand levels sum of all household final demand per household measured in RMB

u urbanisation share of urban population in China

hs household size households per person in China (inverse definition)

F population size size of population in China

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145 ’RESULTS

146 Structural Decomposition—General. Figure 1F1 (Table S5, SI)147 presents the overall results of the SDA and identifies the drivers148 behind the growth in CO2 emissions. It is derived bymerging results149 from two separate decompositions: one focusing on changes in fossil150 fuel based CO2 emissions and one focusing on changes in CO2

151 emissions from industrial processes. Model and variable definitions152 are provided in the SI (Table S3 and Table S4, SI). Focusing on the153 entire period 1992�2007 additional CO2 emissions from growing154 consumption (yl) continue to outstrip emission reductions from155 efficiency gains (f) as in Peters et al.23 Reductions in the CO2

156 intensity (f) of production activities decreased emissions in China by157 3737Mt of CO2 between 1992 and 2007. Increases in final demand158 levels (yl) added 5421 Mt of CO2 emissions.159 While CO2 emission increases from growing consumption160 outpaced emission reductions from efficiency improvements by a161 factor two between 1992 and 2002,23 this is no longer the case162 when we only consider emission changes for the most recent163 period (2002�2007). The 2509Mt rise in annual CO2 emissions164 from growing consumption (yl) was largely offset by CO2

165 emission savings from reductions in the CO2 intensity (f) of166 production activities (�2284MtCO2). Hence, efficiency savings167 have been catching up with consumption growth in terms of CO2

168 emissions in recent years (2002�2007) despite the higher GDP169 growth rate than before. This could be seen as evidence that170 China’s efforts to improve production efficiencies as detailed in171 the 11th Five Year Plan for National Economic and Social172 Development41 have shown some success.

173The increase in CO2 emission growth in China between 2002174and 2007 is explained by the emergence of production structure175changes as a new major emission driver. Even though final176demand growth (yl) remains the largest individual emission177determinant for the period 2002 to 2007, production structure178changes (L) cause a CO2 emission increase of a magnitude179similar to that of the “additional”CO2 emission growth (108% or1802344Mt of 2166MtCO2) estimated for that period. Our analysis181therefore suggests that the steep rise in CO2 emissions in China182between 2002 and 2007 is the result of structural changes in183China’s economy toward more carbon intensive activities.184Instead of focusing on overall changes in the CO2 intensity185of production (f), we show contributions of fuel mix (Emix),186fuel intensity (ei), and process CO2 intensity (fp) changes in187Figure 1.9,23,42 This analysis reveals that almost all emission188savings in China were linked to improvements in the energy189efficiency of production (ei). CO2 savings from reductions in190process CO2 emission intensity (fp) were negligible between1911992 and 2002, but have gained some relevance between 2002192and 2007 (�583 Mt CO2). The industrial energy mix (Emix)193remained stable and did not contribute to any significant CO2

194emission changes between 1992 and 2007. Even though 1.5 GW195of new capacity has been added on average to the Chinese196electricity grid through the equivalent of building new or197extending existing “large” coal power plants each week since1982005 to meet growing energy demand,43 this has not greatly199affected the industrial energy mix due to considerable invest-200ments of the Chinese government into other energy technologies201including renewables and nuclear. In the remainder of the paper202we analyze emission drivers in each of three major final demand203categories (capital, exports, and households) individually.204Capital Investment. Emissions released to satisfy the growing205demand for capital investment amounted to an annual increase of2061884 Mt CO2 between 1992 and 2007, of which 74% (1388 Mt207CO2) occurred between 2002 and 2007. In absolute terms, this is208the largest contribution to CO2 emission growth in China among209all final demand categories (Table S10, SI).210Most of the capital investment related CO2 emission changes211in China can be attributed to changes in the production structure212(L) and growth in final demand levels (yl,cap), Figure 2 F2(Table S6, SI).213While production structure changes (L) contributed to reduc-214tions of CO2 emissions between 1992 and 2002, they were the215largest component (1442 Mt) of capital investment related CO2

216emission growth over the period 2002 to 2007. In fact, this217contribution is also larger than the CO2 emission increase218attributable to the growth in the level (yl,cap) of capital invest-219ments (1204 Mt CO2). It outstrips the joint emission savings220from changes in the composition yc,cap of capital investments221(�219 Mt CO2) and reductions in the CO2 intensity (f) of222production processes (�1039 Mt CO2). Altogether, more than22360% of the additional CO2 emission growth estimated for the224period 2002 and 2007 can be attributed to production structure225changes (L) associated with final demands for capital investments.226From a consumption perspective, 68% (944 Mt CO2) of227China’s CO2 emission growth associated with capital invest-228ments from 2002 to 2007 are related to increased final demands229for construction services, 22% (305 Mt) to heavy manufacturing230sectors such as iron and steel or aluminum production and the231remaining 10% to other sectors (139 Mt), Figure 2. The232contribution of the construction sector as the dominant driver233of change varies in importance across individual emission234determinants: while between 63% and 78% of the CO2 emission

Figure 1. Cumulative changes in industrial CO2 emissions in China1992�2007 by emission determinants (in million tonnes of CO2 emis-sions per year). The graph highlights the emergence of productionstructure changes (dash-dotted blue line) as the third major emissiondriver explaining observed increases in annual CO2 emissions (solid grayline) between 2002 and 2007 beside the two historically important driversof fuel intensity of industrial activities (short-dash red line) and finaldemand level growth (dash-dotted magenta line) explaining observedincreases in annual CO2 emissions (solid gray line) between 2002 and2007. The underlying models are outlined in Table S4 in the SI.

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235 changes associated with the CO2 intensity (f), final demand236 composition (yc,cap) and final demand level (yl,cap) components237 can be attributed to construction demands, this number is 97%238 (1402 of 1442 Mt CO2) for production structure changes (L).239 The importance of construction is directly related to its carbon240 intensive supply chain, mainly associated with cement manufac-241 turing (46% of total CO2 emissions), iron and steel production242 (20% of total CO2 emissions) and electricity demand (30% of243 total CO2 emissions). Hence, growing demand for construction244 from infrastructure investments—building of roads, houses,245 and other infrastructure—are the major driver of the carboniza-246 tion (increase in CO2 emissions per unit of GDP) of China’s247 economy and explain the majority of the recent increases in CO2

248 emission growth observed between 2002 and 2007.249 Exports.While final demands for capital investments show the250 largest CO2 emission growth in China between 1992 and 2007 in251 absolute terms, export final demands have grown most rapidly252 compared to all other final demands (225% increase). In 1992253 emissions from the production of goods and services destined for254 exports represented 408 Mt CO2 (17% of total emissions),255 whereas in 2007 export related emissions accounted for 1732 Mt256 CO2 (27% of total emissions). Hence, emissions from the pro-257 duction of exports in China in 2007 alone were greater than the258 total emissions from any country other than the U.S. During the259 period 1992 to 2007 the average emission growth associated with260 export production inChinawas 225% compared to 130% for capital

261investments. Export-related emission growth peaked during the262period 2002�2005, when it accounted for 50% of the overall263growth in China’s CO2 emissions.

9 However, this importance of264exports for CO2 emission growth has been declining since, account-265ing only for 18% of the total emission changes between 2005 and2662007 (Table S10, SI).267Between 2002 and 2007 the total CO2 emission growth from268the production of export products amounted to about 985 Mt.269Figure 3 F3(Table 7, SI) attributes the emission growth to a set of270emission determinants as well as to producing and consuming271sectors. Export related CO2 emission increases are almost entirely272attributable to final demand level growth (yl,exp). In fact, for the273period 2002�2007 exports have overtaken capital investments274and contribute the largest share to CO2 emission growth asso-275ciated with growing final demand levels across all final demand276categories (yl). Overall, growing exports levels (yl,exp) contributed277an additional 1257 Mt of CO2 emissions between 2002 and 2007.278This is 46% of total CO2 emission increases from final demand279level growth observed for that period across all final demand280categories. In difference to the trends observed for capital invest-281ments, export final demand only made a relatively minor con-282tribution (10% or 215Mt) to emission growth related to changes283in the production structure of China’s economy (L).284Exports are not only growing, their composition (yc,exp) is also285changing. Even though the resulting changes in CO2 emissions286are comparatively small (approximately 10% (103 Mt CO2) of

Figure 2. Stacked bar chart showing components of capital investment related CO2 emission changes in China between 2002 and 2007 (in milliontonnes of CO2 emissions). The horizontal axis identifies major sector final demands for capital investments (sector of consumption) by emissiondeterminant. The vertical axis shows changes in CO2 emissions. Negative changes are represented as bars stacking below zero. Production sectorsreleasing the CO2 in the supply chain of sector final demands are identified as colored segments of the stacks. The graph highlights production structurechanges as the dominant factor associated with emission growth from capital investments as well as the importance of the construction sector and itssupply chain for understanding recent CO2 emissions changes in China. The underlying model is outlined in Table S4 in the SI.

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287 the 985 Mt export related CO2 emission increase between 2002288 and 2007), a brief analysis is instructive for better understanding289 China’s economic development path. Compared to previous290 periods demand for China’s typical export products such as toys,291 textiles or electrical devices remained strong, but there has been292 particularly strong growth in both energy-intensive and manu-293 factured products of higher quality. Between 2002 and 2007294 emissions associated with the export of “primary iron and steel295 manufacturing” increased 10-fold, while “metal products”296 doubled. For example, the export of rolled steel grew from 5.5297 million tons in 2002 to 62.7 million tons in 2007 (11 times).298 Billet and crude forgings grew from 1.3 to 6.4 million tons (five299 times):38 other sectors expanding faster than in previous years300 include “household electric appliances”, “motor vehicles”, and301 “cement and asbestos materials” which all grew by over 500%302 between 2002 and 2007. This diversification of China’s export303 base may suggest a changing role of China in the global economy304 from a provider of cheap, labor intensive manufacturing toward305 high-end and more capital-intensive products.306 While CO2 emission increases attributable to changes in the307 domestic supply chains (L) of light and heavy manufacturing308 goods were very similar (428 Mt and 481 Mt respectively),309 variations were larger across other emission determinants. Light310 manufacturing, for example, contributed 57% to emission reduc-311 tions from decreases in the CO2 intensity of sectors (f) and 49%312 to emission increases from growth in final demand (yl,exp), while313 this was 33% in both cases for heavy manufacturing. Even though

314the sales of light manufacturing products to other countries are315still overall the most rapidly expanding export segment, this does316not directly translate into CO2 emission trends, because the317respective domestic supply chains of these products are decar-318bonizing more strongly.319Household Consumption and Lifestyles. Household con-320sumption was the singlemost important final demand category in3211992 with a share of 40% (including direct and indirect322emissions) in China’s CO2 emissions. In 2007 households were323responsible for only 25% (1611Mt) of total CO2 emissions. This324is comparable in size to the export related emission share (27%).325Between 2002 and 2007 households only had a minor role in the326CO2 emission growth (12% or 340 Mt). This trend is distinct327from evidence provided for many developed countries as well as328the global average, where emissions from household consump-329tion usually make up the largest share across final demand330categories and growing household consumption is the dominant331final demand force behind CO2 emission growth.44�50 However,332these aggregate figures hide important differences between rural333and urban households: while the direct and indirect CO2

334emissions from rural household consumption fell by 55 Mt335between 1992 and 2007, emissions from urban household336consumption grew by 710 Mt CO2 over the same period.337Key emission drivers behind changes in households’ CO2

338emissions are typically population, income level, consumption339patterns, and household structure.20,51�53 In China urbanization340is another important socio-economic process that needs to be

Figure 3. Stacked bar chart of components of export related CO2 emission changes in China between 2002 and 2007. On the horizontal axis majorsectors of final demand are identified, whereas on the vertical axis the cumulative changes in emissions released to meet that demand by different sectorsof a specific supply chain are identified as colored segments of the stacks. Negative changes are represented as bars stacking below zero. The graph showsthe importance of the final demand level component of CO2 emission increases associated with growth in exports. The underlying model is outlined inTable S4 in the SI.

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341 considered. Migration to urban growth centers led to an 85%342 increase in the urban and a 14% decrease in the rural population343 (Table S16, SI). An emission increase of 339 Mt CO2 and an344 emission decrease of 101 Mt associated with urban and rural345 household consumption, respectively, can be attributed to urba-346 nization (u), Figure 4F4 (Table S8, SI). The overall net emission347 growth from urbanization (u) of 238 Mt of CO2 emissions is348 larger than the CO2 emission growth from the 13% overall349 increase in the Chinese population (F) and the contribution of350 decreasing household size (hs) in rural and urban China.351 This highlights systematic differences between rural and urban352 lifestyles, which also manifest in differences in the composition353 and level of household consumption. Per capita household354 spending (in constant, 1997 producer prices) increased for both355 rural and urban households between 1992 and 2007. These356 increases in per household final spending levels were the357 dominant drivers of CO2 emission growth associated with358 household consumption (yh): 529 Mt for urban and 147 Mt359 CO2 emissions for rural households. Our data generally supports360 other evidence suggesting that the rapid growth of the Chinese361 economy has been accompanied by an increase in economic362 wealth across the Chinese population and a sharp decrease in363 poverty.54,55 However, it also highlights an important second364 trend: the growing inequality in China, here exemplified by the365 differences between rural and urban living in China. Per capita366 household consumption was 2.3 times larger for urban than for367 rural households in 1992 and 3.6 times larger in 2007.368 The key aspect of urbanization (u) in the Chinese context is369 that migration is often associated with higher incomes and hence

370wealthier urban lifestyles. This lifestyle effect dominates potential371carbon savings associated with the reaping of economies of scale372associated with life in cities.56�58 If inequalities between urban373and rural life continue to grow as observed between 1992 and3742007, the overall CO2 emissions increase associated with a375switching in lifestyle will also continue to grow.376Revisiting Results—treating Capital Investments As In-377puts to Production. So far we have shown the distinct relation-378ship between CO2 emission drivers and different final demand379categories and their importance for understanding the increased380CO2 emission growth in China between 2002 and 2007. In this381section we highlight the importance of modeling assumptions in382discussions of China’s CO2 emission growth.While the importance383of capital investments for understanding trends in China’s CO2

384emissions has been increasingly recognized,9,23 the question of how385capital goods are treated has been largely neglected. In the previous386sections we chose to treat capital investments as a domestic final387demand. This is the default procedure in the input-output388literature.9,11�13,23 However, capital goods could be equally con-389sidered an input to production. In this case CO2 emissions from390capital investments arise within the domestic supply chain and are391assigned to household, government and export final demands.How392capital related emissions are accounted for is a policy relevant issue:393For instance, one could argue that standard estimates of China’s394emissions embodied in exports are underestimated since they do395not include the emissions embedded in the factories and equipment396used to produce the exported goods.397The results in Table 2 T2are derived from an input-output model398that treats capital investment as an input to production (see SI for

Figure 4. Determinants of changes in industrial energy related CO2 emissions from household consumption in China 1992�2007 (inmillion tonnes ofCO2 emissions per year). Urbanization and consumption growth together with production structure changes are driving CO2 emission growth fromhousehold final demand rather than socio-demographic factors such as household and population size. The underlyingmodel is outlined inTable S4 in the SI.

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399 methodological details). We find that a majority of emissions400 embodied in capital investment are utilized for domestic house-401 hold and governmental consumption (35�49% and 19�36%,402 respectively) with smaller amounts for the production of exports403 (21�31%), Figure 5F5 (Table S9, SI). This can be explained by an404 examination of the different types of capital flows in different405 years, which tend to be concentrated in domestic sectors such as406 electricity generation and coal mining (4�20% of total RMB407 invested between years), public administration (3�8%), educa-408 tion and health care (3�5%), road and rail transport (5�13%),409 and telecommunications (2�19%). Smaller amounts have been410 invested in export sectors in different years, though the sum of411 these small values does add up to appreciable amounts in total, as412 seen in Table 2. This means the major share of capital invest-413 ments are induced by domestic final demand.414 Figure 5 shows how the closure of model for capital invest-415 ment changes the overall perception of Chinese emissions,416 contrasting with Figure S2 (SI) where capital is treated as a final417 demand (like in the rest of the analysis presented). Household418 consumption clearly becomes more important, responsible for419 nearly half of emissions in all years. In the case of government420 consumption capital induced CO2 emissions make the larger421 share compared to emissions not induced by capital investments.422 Export related CO2 emissions still grow fast, but the growth is423 less pronounced in relative terms compared to a situation where424 capital is treated as final demand. Exports are now responsible for425 37% of Chinese emissions (2.5 Gt CO2) in 2007, a large increase426 from only 27% and 28% in 1997 and 2002, respectively.

427’DISCUSSION

428China’s annual CO2 emissions have grown by 3992 Mt between4291992 and 2007, but more than 70% of this emission growth has430occurred between 2002 and 2007. Unlike many industrialized431countries, China’s emission growth is mainly accruing in capital432investment (47%) and exports (33%), rather than household (16%)433and government consumption (3%). While previous analyses9,13

434highlighted exports to explain more than 50% of the sharp emission435increase between 2002 and 2005, our new data shows that capital436investment seem to have taken the lead in this emission race, being437responsible for 61% of the emission growth between 2005 and 2007438compared to only 18% in the case of exports.439CO2 emission growth in China is no longer the sole result of a440race between efficiency gains and rapidly growing consumption:23

441while efficiency savings (f) are catching up with consumption442growth (yl) in terms of CO2 emissions, changes in the production443structure (L) have emerged as the third major emission driver.444This more recent development can fully account for the sharp445increase in China’s emission growth between 2002 and 2007. It is446also the major driver behind the observed increase in the CO2

447intensity ofGDPover this period due to the growing dominance of448the carbon intensive supply chain of construction in China’s449economy.Hence, with the recent shift ofChina’s economic growth450away from export (external) demand and toward capital invest-451ments, production is shifting toward energy and pollution inten-452sive electricity, iron, cement and steel production and away from453light industries like toys and electric appliances. Even though we454find a large range in our results across equally acceptable decom-455position forms, the observed effects remain prominent in all cases456and are consistent with observed economic trends. We provide an457extensive discussion of result sensitivities in the SI and also address458potential dependency problems associated with SDA.28

459Production structure changes (L) as a significant emission460driver in China were first observed by Guan et al.9 for the period4612002 to 2005, but not further analyzed. Since then this effect has462considerably gained in strength according to our model. Further-463more, while Guan et al.9 argue that fast growing exports as the464main driver of these production structure changes, our data

Table 2. Capital Investment Emissions Re-Allocated to FinalDemand Categories through a Partial Closure of Input-Out-put Model (Mt CO2 and % of Total Yearly Capital Emissions)

households government exports

1992 347 (42%) 295 (36%) 178 (22%)

1997 609 (49%) 240 (19%) 387 (31%)

2002 462 (35%) 572 (44%) 270 (21%)

2007 1320 (49%) 627 (23%) 742 (28%)

Figure 5. CO2 Emissions in China allocated to final demands for the period 1992�2007 after capital closure of the model. The bracketed term ‘capital’indicates the emission component induced in the supply chain by capital investments. The figure highlights that the majority of capital induced CO2

emissions are for domestic and not export consumption.

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465 suggests that more than 60% of the changes are associated with466 growing capital investments and the rapid expansion of the467 construction industry and its supply chain in recent years.468 Exports are, in fact, the smallest individual contributor across469 final demand categories (households, government, capital, ex-470 port). Zhang4 does not find changes in the production structure471 to be an important emission determinant for the period 1991 to472 2006. The analysis by Zhang for the years 2003�2006 is based on473 annual input-output data derived by updating the input-output474 table for the year 2002 based on a RAS methodology.25 Not475 finding structural changes to be an important emission driver for476 the post 2002 period may point toward the potential risk of477 missing important trends when analysis for fast growing econo-478 mies such as China is based on nonsurvey tables.479 The energy and carbon intensive nature of capital investment480 might be hard to avoid. China as an emerging economy is481 currently building up its infrastructure. The high levels of CO2

482 emissions from capital investment might therefore only be of483 temporary nature. This is particularly true if the immense build-484 up in stocks of recyclable energy-intensive goods like steel485 increase the proportion of recycled goods in future years.59 If486 these investments meet long-term environmental objectives,487 then short-term emission spikes may be justified in the long-488 run. At the same time these developments raise concerns about489 the creation of path dependencies through capacity extensions in490 key sectors of the construction supply chain and infrastructure491 lock-in (see also ref 60). For example, China currently adds more492 than 2 billion square meters of floor area in buildings every493 year—faster than anywhere else in the world.Whilemore stringent494 building standards have been put in place by the government,61

495 large parts of the new building stock put in place at the moment496 may not be constructed in an energy efficient way62 nor for a long497 lifetime. The resulting lock-in effects are largely avoidable498 because energy-efficient new-built can be created at negative or499 little extra costs (e.g., ref 63). Similarly, strict land-use policies and500 transport infrastructure development, particularly in urban areas,501 are economically sensible and directly benefit the quality of life502 of millions, because unnecessary pollution—including CO2

503 emissions—is avoided.64,65

504 CO2 emissions from the production of exports in China are505 arguably more challenging to address as they are intertwined in506 the consumption patterns of other countries. First, China has507 become the largest exporter in the world. Regular monitoring of508 international trade related emissions is needed to quantify if the509 CO2 emission growth in China offsets reductions in developed510 country emissions, as this could limit the effectiveness of the511 international climate change regime as established under the512 United Nations Framework Convention on Climate Change.66�68

513 Second, given China’s current role as the world’s manufacturing514 powerhouse, the idea of “exports reliefs” has been introduced into515 international climate change discussions, that is, continued transfer of516 emissions from developed to developing countries could be com-517 pensated with more stringent targets in developed countries.69,70

518 Among others this would require a discussion on how export related519 CO2 emission should be calculated—an issue that has been largely520 neglected so far. In this analysis we show that export related CO2

521 emission are 43% higher (742Mt), if the capital requirements in the522 domestic supply chain are taken into account. Along similar lines,523 Dietzenbacher et al.71 identifies a non-negligible bias associated with524 the treatment of processing trade, which could lead to a considerable525 overestimation (38% reported in study) of export related CO2

526 emissions. Third, border tax adjustments (BTAs) on Chinese

527exports or similar trade sanctions could be used to incentivize a528low carbon transition in China. While BTAs are often proposed for529carbon intensive products such as iron and steel, our analysis shows530that such a focus on a few carbon intensive products could be of531limited effectiveness:72 despite a recent growth of emissions from532carbon intensive exports, a large emission share is still triggered by a533high number of less carbon intensive goods exported such as534computers, toys etc., which might not be affected by such a trade535measure. A careful evaluation of such measures and their effects on536CO2 emissions needs to be undertaken and balanced against the537potential misuse by importing countries for protecting domestic538industries from competition.539There is still a widespread belief that government action to540reduce China’s global, regional and local environmental impacts541should focus on household related issues such as encouraging542greener purchasing decisions or decreasing household formation543rates.73 While this overlooks the important role of capital invest-544ments and exports as drivers of growth and emissions in China,74

545our analysis provides evidence that in relation to households there546aremore pressing issues: China is urbanizing at a considerable pace547and this process is a more important emission determinant than548socio-demographic pressures such as household formation rates or549population growth. The net emission increases associated with a550transition from a rural to an urban lifestyle offsets the carbon saving551potential of urban life.56,58,75 While consumption growth still552remains themost important emission driver, it is deeply connected553with urbanization. First, people are changing from a low consum-554ing to a high consuming lifestyle due to increased incomes.555Second, given the rapidly growing inequalities between rural and556urban consumption, this effect is strengthening over time. A557detailed analysis of the effects of growing inequalities on emissions558and quality of life in China remains an interesting research avenue559for the future given the growing inequalities in Chinese society.

560’ASSOCIATED CONTENT

561bS Supporting Information. Additional technical details about562the model, data, and methodology; additional tables and figures563for other decomposition factors; sensitivity analysis of metho-564dology. This material is available free of charge via the Internet at565http://pubs.acs.org.

566’AUTHOR INFORMATION

567Corresponding Author568*E-mail: jan.minx@pik-potsdam.de.

569’ACKNOWLEDGMENT

570We thank four anonymous reviewers for useful comments,571which have helped to improve the quality of the manuscript. We572are further indebted to Jan Steckel at the Potsdam Institute for573Climate Impact Research and the staff at the Department for the574Economics of Climate Change at Technische Universit€at Berlin,575in particular Felix Creutzig, for comments on and fruitful576discussions of earlier versions of the manuscript. Any mistakes577remain the sole responsibility of the authors.

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