Post-industrial countries like the UK import an increasing fraction of their manufactured goods from China. The carbon emissions from the Chinese factories making these goods are not included in the UK’s totals. How much greater would the UK’s emissions be if we included the impact of goods manufactured in China?

In this article, we make some estimates based on a briefing note recently produced by the Tyndall Centre. The numbers I use are imprecise – and I am using them for reasons not envisaged by Tyndall – but I believe that the increase in the imports of Chinese goods has probably reduced UK emissions by about 6% below what it would have been. Perhaps more dramatically, the trade deficit is rising so fast that it is depressing UK emissions by a further 2% a year.

Without the safety valve of Chinese imports, the UK would be very likely to breach its Kyoto targets, which only measure domestic emissions. This is important in itself, but a more striking conclusion is that the trade with China has disguised a failure to cut emissions growth below the growth of British GDP. The UK government, and others around the world, regularly claim that CO2 output has been ‘decoupled’ from economic growth. The analysis contained in this note suggests that the apparent decoupling is actually an artefact of the growing deficit in trade with China.

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When a country imports goods or services, the emissions are carried on the account of the exported country. International trade shifts the location of greenhouse gas emissions.

Most rich countries are now sourcing a large fraction of their manufactured goods from Asia. The shift to China and other countries is tending to reduce European and American emissions and increase those of Asia.

The Tyndall Centre recently produced a briefing note which concluded that the enormous Chinese trade surplus was responsible for about 1,100m tonnes of greenhouse gases in 2004. This is about 4% of the world total. Put another way, China’s trading partners would have greenhouse gas emissions figures 4% higher if they included the carbon ‘embedded’ in the goods that they bought. As the China trade surplus increases, the percentage of the developed world’s emissions that are being transferred to the east is growing every year.

The impact on the UK carbon emissions account The UK runs a large and rapidly increasing trade deficit with China. The figures for the last eight years are shown in the chart below. The most recent numbers suggest that the deficit may rise to over $16bn this year.

The UK’s trade deficit with China

Let’s take the numbers for 2006. A £12.3bn net deficit (exports of about £3bn and imports of about £15bn) is equivalent to about 1% of UK GDP. If the trade were typical of the UK economy as a whole, having £12.3bn of economic activity in another country would therefore have reduced UK emissions by about 5m tonnes.

But the material we import from China isn’t typical of the UK economy. It is heavily concentrated on manufactured goods, which will usually have a very much higher carbon footprint than the economy as a whole. By moving our manufacturing to China, we are having an impact on emissions far greater than the share of Chinese imports in our economy.

There is also a second effect. Chinese energy efficiency is much lower than in the West. It takes far more electricity or coal to manufacture Chinese goods than it does in the UK. If we stop making something in the UK and transfer production to China we will add to the total emissions produced by the manufacturing process, increasing global emissions. Of course this will change as China improves its factories but at the moment the country uses about twice as much energy as Western nations per unit of output. We cannot be absolutely certain about this figure but the Chinese steel industry acknowledges that it uses twice the energy to make a tonne of steel as a typical Western plant. The International Energy Agency produces an estimate that similarly suggests that a dollar of Chinese GDP produces twice as much carbon dioxide as in the UK.

We can use the Tyndall Centre figures to estimate the impact of using Chinese factories to make our manufactured goods, though with a substantial range of uncertainty. Tyndall looked at the makeup of Chinese exports and estimated the typical greenhouse gas intensity of the major categories, such as machinery or textiles. The work isn’t precise and the researchers don’t pretend otherwise. But the conclusions seem reasonable and so I use their raw numbers to make estimates of the impact on the UK.

In 2004, was China responsible for about 5m tonnes of greenhouse gases per £1bn of exports. Imports into China from the rest of the world were much less energy intensive and the Tyndall researchers suggest that £1bn of imports were produced with only 1.35m tonnes of carbon dioxide equivalent.

The impact on Chinese emissions from its trade with the UK*

	Million tonnes of CO2 per £1bn of trade	Value of trade 2006 £bn	Total associated greenhouse gases (m tonnes CO2)
Chinese imports from UK	1.35	3.3	4.5
Chinese exports to UK	5.0	15.6	78.2
Net figure for Chinese trade surplus with the UK		12.3	73.7

* Assumes £1 = $2.

So the 2006 trade between the two countries resulted in emissions of approximately 78m tonnes in China and 5m tonnes in the UK giving a net balance of almost 74m tonnes, or about 12% of UK emissions.

But if the Chinese goods had been made in the UK, they wouldn’t have been accompanied by 78m tonnes of CO2. If Chinese energy efficiency is about half the UK’s, then the cost would have been about 39m tonnes, about 6% of the national total.

Broadly speaking, the net impact of 2006 trade between the two countries is as follows:

Buying from China reduced UK emissions in 2006 by about 39m tonnes. This is about 6% of today’s greenhouse gas emissions. Final figures for 2006 have not been released, but the country is currently about 2.5-3% below its Kyoto target. I think we can be reasonably confident that the increasing trade deficit with China, which has risen from about £2bn in 1999 to over £12bn in 2006, has kept the UK from breaching its Kyoto obligations.

The deficit with China is growing at about £4bn each year. According to the figures above, the likely impact of this is to reduce UK emissions by nearly an additional 2% a year. Even without this effect, the UK’s emissions are edging upwards. If we included our extra trade with China, we would be seeing a rate of emissions growth very similar to the UK’s GNP growth rate. This forces us to face a serious issue: we have simply not yet decoupled GDP growth from CO2 output. Our use of energy is growing as fast as national income. The growth is disguised by the burgeoning trade deficit with China.