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Pollution Offshoring and Emission Reductions in EU and US Manufacturing

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Abstract

Between 1995 and 2008, the European Union and the United States raised environmental standards and concurrently experienced important reductions in emissions from manufacturing despite a rise in output. Levinson (Am Econ Rev 99(5):2177–2192, 2009) finds that the offshoring of polluting industries to countries with lower environmental standards played only small role in the cleanup of US manufacturing, which was largely due to improvements in production technique. But there is no evidence of whether US patterns hold in other developed economies. I provide the first analysis of the pollution intensity of EU production and imports to examine which forces drove the EU cleanup. I find that concerns about the effect of pollution offshoring were unfounded in the European Union, not because the effect was small like in the United States, but because the patterns of specialization of EU production and imports were exactly opposite to what pollution offshoring would predict. Starting in the early 2000s, EU manufacturing increasingly produced more pollution-intensive goods while imports became progressively less pollution-intensive, especially from low-income countries. There are two notable exceptions: primary aluminum and electrometallurgical products, except steel, which do provide evidence of offshoring from the EU to lower income countries. The “brown” specialization of EU production is difficult to explain, but about a quarter can be matched by increased demand for EU exports of polluting goods. However, similar to the US cleanup, changes in production and imports were overwhelmed by improvements in production technique, which were the main drivers of the cleanup of manufacturing.

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Notes

  1. The EU Emissions Trading Scheme (ETS) and the Kyoto protocol concern greenhouse gases (GHG), but they could have spillover effects on the local pollutants studied here by reducing the quantity of production or encouraging the use of abatement techniques that reduce both GHG and SO\(_2\) for example.

  2. A related branch of the literature studies the effects on foreign direct investment. For surveys of the literature, see Millimet and Roy (2012) and Rezza (2015).

  3. See also Hoekstra and Wiedmann (2014), Davis et al. (2011), Wiedmann et al. (2013), Meyfroidt et al. (2010), Weinzettel et al. (2013), Peters et al. (2012), Hoekstra and Mekonnen (2012), Lenzen (2012), Steen-Olsen et al. (2012).

  4. Note that the concept of pollution offshoring is different for global pollutants (such as greenhouse gases—GHG). Global pollutants have a detrimental effect on the world regardless of where they are emitted. Therefore, switching the location of production does not decrease the detrimental environmental consequences unless production is offshored to a country that has lower GHG emissions intensity. In this paper, however, I study local pollutants for which delocalizing production abroad will move the detrimental environmental effects of production to the recipient of offshoring.

  5. Earlier papers which also use this same decomposition but at a higher level of aggregation for industries include Selden et al. (1999) and Ang and Zhang (2000).

  6. Grossman and Krueger (1993); Copeland and Scott Taylor (2003).

  7. To avoid issues related to enlargement of the European Union, the study is restricted to the “EU-15”: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal, Spain, Sweden, and the United Kingdom.

  8. EU manufacturing data are classified using the Nomenclature Générale des Activités Economiques de la Communauté Européenne (NACE rev 2). With the use of concordances provided by Eurostat and the US Census Bureau, NACE rev 2 can be converted into US SIC 1987 classification.

  9. The reporting guidelines are available in the annexes of the following document: http://eur-lex.europa.eu/LexUriServ/site/en/oj/2006/l_033/l_03320060204en00010017.pdf (accessed December 12, 2012).

  10. If a new technology allows for the same production process to emit 10 % less SO\(_2\), the magnitude of the decrease will be large for industries with high pollution intensities (level of emission per unit of output), and small for industries with low pollution intensities. Therefore, the range of pollution intensity narrows.

  11. Appendix 2 Figs. 5 and 6 reproduce Figs. 1 and 3, respectively, and Tables 8 and 9 replicate Tables 1 and 3, respectively, using EU emissions intensity data.

  12. No other sector exhibits such a strong decrease in PPI.

  13. In France, purchases of electricity as a share of electricity consumption remained between 93 and 96 % from 1996 to 2010 (INSEE 1996, 2010). The same figure for the United Kingdom went from 89 % in 1996 to 91 % in 2010 (UK DECC 2011). In Germany, the quantity of electricity produced as a share of consumption for manufacturing and mining went from 22 to 23 % between 2002 and 2009 (Destatis 2006, 2009, AGEB 2002, 2009). Similarly, in the United States, purchases of electricity as a share of net demand of electricity in the manufacturing sector were 87 % in 1998 and 86 % in 2006 (US EIA 2006).

  14. The graphs and discussion focus on SO\(_2\) for simplicity, but the tables include the results for all three pollutants. The results are also summed over all three pollutants as an indication, though the sum of a ton of SO\(_2\) and a ton a NO\(_2\) does not have an obvious interpretation.

  15. The patterns are the same for 2009 but I end the discussion in 2008 to avoid distortions due to the global financial crisis.

  16. This large increase could be the consequence of the sharp rise in steel prices in 2004–2005, which also led to an increase in the price of electrometallurgical products commonly used to enhance steel products. http://business.highbeam.com/industry-reports/metal/electrometallurgical-products-except-steel.

  17. Those tables use their own classification but the BEA provides a concordance with US Standard Industrial Classification (US SIC) in 1987.

  18. http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Consolidated_supply,_use_and_input-output_tables_-_data_2008-2009 (accessed November 15, 2014). There could remain differences across EU countries.

  19. The plot shows a sharp increase in real imports after 2002, in line with renewed economic expansion http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-CV-08-001/EN/KS-CV-08-001-EN.PDF.

  20. Based on the scale effect, emissions should have increased from a base level of 100 % in 1995 to 243 % in 2008. Accounting for changes in composition, emissions actually displaced by imports increased from 100 % in 1995 to 177 % in 2008. The composition effect was to change emissions by \(\frac{(177-243)}{243}=-27\) %.

  21. The income groups are formed according to the World Bank definitions, available at http://data.worldbank.org/about/country-classifications/country-and-lending-groups, accessed May 10, 2012. For the European Union, the high-income country group excludes EU-15 members so as not to count intra-EU trade.

  22. The results for high- and higher-middle-income country imports are not driven by outliers and so include all goods.

  23. None of these 12 countries are included in this paper’s definition of the “European Union”, which only looks at the EU-15. The 10 countries that acceded in 2004 are: Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia. Bulgaria and Romania acceded in 2007.

  24. That is not to say that EU imports were not in fact produced with dirtier technologies than would have been used in the European Union. This paper can only comment on the pollution embodied in goods based on US technology.

  25. By comparison, Levinson (2009) finds that for 1987 to 2001, the scale effect predicted a 112 % increase in SO\(_2\) emissions embodied in US imports and that accounting for changing composition and inputs, the figure was actually 16 % lower.

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Authors and Affiliations

  1. American University, 4400 Massachusetts Avenue NW, Washington, DC, 20016-8071, USA

    Claire Brunel

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  1. Claire Brunel
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Correspondence to Claire Brunel.

Appendices

Appendix 1

See Table 7.

Table 7 Difference between pollution predicted by total imports and industry specific production: the composition effect in the European Union (1995–2008), all industries
Full size table

Appendix 2: Results Using EU Emissions Intensity Data

See Figs. 5, 6 and Tables 8, 9.

Fig. 5
figure 5

SO\(_2\) emissions from EU manufacturing, 1995–2008

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Fig. 6
figure 6

EU Imports from all countries and displaced SO\(_2\) emissions, 1995–2008

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Table 8 EU scale composition and technique effects, 1995–2008
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Table 9 Difference between pollution predicted by total imports and industry specific production: the composition effect in the European Union (1995–2008), excluding outlier industries
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Brunel, C. Pollution Offshoring and Emission Reductions in EU and US Manufacturing. Environ Resource Econ 68, 621–641 (2017). https://doi.org/10.1007/s10640-016-0035-1

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