Academic journal article Journal of the Statistical and Social Inquiry Society of Ireland

Trade, Energy, and Carbon Dioxide: An Analysis for the Two Economies of Ireland

Academic journal article Journal of the Statistical and Social Inquiry Society of Ireland

Trade, Energy, and Carbon Dioxide: An Analysis for the Two Economies of Ireland

Article excerpt

1. INTRODUCTION

Policy measures targeted at one sector in one jurisdiction affect other sectors and jurisdictions through trade. Input-output models describe such interactions. Input-output models, first developed by Leontief (1941), combine transparency and detail with simplicity. For some problems, input-output models are not good enough. For other questions, they provide a useful, first cut at the answer. We here study the propagation of climate policy in the economies of Ireland north and south.

The first application of an input-output model to the environment was undertaken by Leontief in 1970 in which he explained how the environmental externalities of economic activity can be incorporated into a standard input-output model. The first application of Leontief's input-output model to emissions in the Republic of Ireland was undertaken by Bacon (1981), and O'Doherty and Tol (2007) is a more recent study. The first development of an inter-regional input-output (IRIO) model was by Isard (1951); this paper sets out the framework for adapting Leontief's input-output table to account for inter-sectoral interregional trade. However, Isard (1951) notes the high data requirement and restrictive assumptions on which his model was based, thus a number of simplified versions of the IRIO model have been developed (Liang et al., 2007), and these include the multi -regional input-output (MRIO) model. One of the best known versions of the MRIO model is the Chenery-Moses model; Moses (1955) and Chenery (1953), amongst others, (1) independently came up with a method for computing MRIO models which had less restrictive data requirements; according to Hartwick (1971) the Moses-Chenery MRIO model (sometimes referred to as the column-coefficient model) applies known inter-sectoral flows to interregional trade data to compute inter-sectoral interregional coefficients in the MRIO table. Hartwick (1971) notes that: "the information measure of the Isard model is always at least as great as that of the Chenery-Moses model". However, due to the less stringent data requirements of the MRIO model, it is more frequently used than Isard's IRIO model.

In this paper we use an environmental input-output model to analyse the routes through which economic activity leads to energy use and greenhouse gas emissions in the Republic of Ireland and Northern Ireland. Following work done by Llop and Tol (2011), we apply a subsystem decomposition analysis to examine the drivers of greenhouse gas emissions in the Republic of Ireland and Northern Ireland. We focus specifically on the emissions of carbon dioxide, but the appendices to the paper also include an analysis for six other groups of greenhouse gases. We examine trade between the two regions and, following the methodology outlined in Liang et al. (2007), we build a bi-regional input-output model (based on the MRIO model discussed earlier) incorporating the two separate economies on the island of Ireland, which accounts for trade between the two regions. This model allows us to examine how demand for goods in one region leads to energy use and emissions of greenhouse gases in an exporting region.

In the decomposition analysis carried out for the Republic of Ireland by Llop and Tol (2011), the authors found that the source of greenhouse gas emissions is concentrated in a few sectors, but that the sectoral share of emissions depends upon how environmental responsibility is defined. When environmental responsibility accounts for emissions from intermediate inputs, and not just those due final demand, the differences between sectors in terms of emission intensity are less striking. The authors conclude that environmental policies should be designed to take account of emissions from intermediate demand as well as those from final consumption. In their analysis, Liang et al. (2007) also highlight the importance of the definition of environmental responsibility chosen. In their multi-regional analysis they note the discrepancy between emissions emitted in a region and emissions caused by that region. …

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