The carbon content of Japan–US trade

We analyze the greenhouse gas emissions embodied in trade between Japan and the US, extending the Japanese governmentʹs linked Japan–US input–output model to include carbon emission coefficients for each sector. We estimate that in 1995, Japan–US trade reduced US industrial emissions by 14.6 million tons of CO2-equivalent, and increased emissions in Japan by 6.7 million tons, for a global savings of 7.9 million tons. These quantities are less than one percent of each countryʹs total emissions. Trade with the rest of the world reduced emissions by much larger amounts, roughly four percent of each countryʹs emissions. The sectoral patterns of carbon intensity are strongly correlated between Japan and the US; in addition, greater carbon intensity has a small but significantly positive effect on net exports. Policies that tax or otherwise regulate carbon emissions are needed to discourage this destructive route to competitiveness. However, the most important policy implication may be that US industry could cut its carbon emissions by more than half if it matched the environmental performance of industry in Japan.