By Priyanka Dey

Edited by Liz Maria Kuriakose, Associate Editor, The Indian Economist

The production of goods and services generates pollution through production processes and through the energy consumption required in production. The cumulative pollution emitted through the entire chain of production, starting from resource extraction to final sale, is said to be “embodied” in that product. If the product is further traded across national borders, then this is “pollution embodied in trade”.

The concept of pollution embodied in trade shares many characteristics with material flow analysis. In traditional material flow analysis the physical flow of the material of interest, iron for example, is traced around the globe. For pollution embodied in trade, the pollutant is not physically a part of the traded product, but rather the pollution emitted in the production of that product. Consequently, some published research refers to “hidden” or “virtual” flows of pollution.

There are many ways for including pollution environmental policy in embodied trade. Such as Kyoto Protocol, in which the pollution embodied in trade is used for allocating responsibility for pollution. The current pollution emitted within national territories is production-based emission inventories, while the consumption-based emission accounts compute the production- based inventories, deduct the pollution embodied in exports, and supplement the pollution embodied in imports. The pollution embodied in trade per unit of product produced is useful to identify regions of environmental comparative advantage in production. As an example, it is likely to detect pollution- intensive production near clean energy sources.

The global pollutants impact everyone on the globe, while local pollutants may affect only a region or a small community, depending on the ecosystem some pollutants might be more resilient to particular local pollutants as paralleled to others. The pollution signified in trade is useful in many zones of environmental policy. However, the policy repercussions may vary conditional on whether the pollutant has a local or a global impact.

Pollution embodied trade is unanimous to international trade, however this does not mean that international trade worsens the environment. Consider an example of two countries A and B. Both produces aluminum which in turn requires large amount of electricity. Assume country A produces electricity with hydropower and country B produces electricity with coal. For global pollutants such as greenhouse gases the global environmental consequences are much worse, if country A and B produce their own aluminum than if country A produces its aluminum using hydropower and country B acquires its aluminum through international trade. This shows how pollution embodied in trade benefits the environment.

In spite of its significance, pollution embodied in trade has petite impression in the research community. Most of the works in trade and the environment has been prejudiced by conventional economics and fundamentally report how trade touches income and how income affects environmental routine per capita. The general hypothesis is that “as we get richer we pollute less”, so if trade makes us better-off then it is worthy for the environment (often referred to as the Environmental Kuznets Curve). Despite the many numerical weaknesses that are rarely addressed, such as causality, per capita versus aggregate impacts, and pollution embodied in trade most research have concluded that pollution embodied in trade makes it appear that trade is good for the environment since, as countries get richer, they tend to source more of their pollution-intensive products from other countries.

Pollution embodied in trade has important allegations in global climate policy, predominantly about greenhouse gas emissions. Greenhouse gas emissions have a global impact regardless of the creation ground. Under the Kyoto Protocol simply selected countries have compulsions to bind their greenhouse gas emissions. It has been reasoned that through this policy regime, industry may move production from participating to non-participating countries (sometimes referred to as the pollution haven hypothesis).

While reality check of pollution havens is still debated, many literatures have focused on how an industry can physically move from one country to another. A better useful hypothesis is that stretched production happens in pollution havens. That is as an alternative of moving an industry from one country to another, it forms fresh capacity for enlarged manufacturing in a pollution haven. This pollution haven hypothesis has empirically testified pollution embodied in trade. In particular for the pollution embodied in trade from non- participating to participating countries in case of carbon leakage over time. Growing carbon leakage implies that production is progressively happening in non-participating countries. Initial research also proposes that the pollution embodied in trade flows from developing countries is increasing which are yet to be testified by evidences.

Priyanka is passionate for love , economics , dance, fashion and living life . She builds her life in hope of inspirations. For her bringing change is the cause of our existence and every step that one takes changes assumptions for the superstructure . It gives her pleasure in deconstructing anything and everything . Accordung to her we all know what we actually want and eventually achieve that and the rest that comes in the path is just knowledge creation.

Posted by The Indian Economist | For the Curious Mind