Interpreting China's carbon flows.

Feng et al. present an insightful analysis of China’s interregional carbon flows, using a consumption-based approach and multiple region input–output model (1). Their report shows convincingly that the production, consumption, and export of high-value goods and services in rich regions depend upon the emissions-intensive products from poorer regions in China, consistent with what has become clear about embodied carbon in international trade (1–3). As the authors write: “. . .the high standard of living enjoyed by people in the richest countries often comes at the expense of CO2 emissions produced with technologies of low efficiency in less affluent, developing countries” (1). Their analysis demonstrates that, within China, more affluent coastal regions have “outsourced” large shares of their emissions to their lessdeveloped counterparts inland. The implications, both positive and normative, must be seriously considered in domestic and international policymaking on climate, trade, and economic growth. Efficiency, Equity, and Carbon Leakage The first positive implication concerns the carbon efficiency of production patterns. When production relies upon inefficient technologies in less-developed countries and regions, it leaves unfulfilled potential toward the production possibilities frontier, which could be realized with better technologies existing in affluent countries and regions. Efficiency loss is often an inevitable side effect of globalization, as emissions are outsourced to less-developed nations because investors maximize capital returns on investment by taking advantage of low-cost labor, natural resources, and emissions space in developing countries, which tend to reduce global carbon productivity. This is a key tension between economic growth and environmental protection, actuated by the principle of comparative advantage in developing versus developed countries. For example, looking at data from 1997 to 2003, Shui and Harriss (4) show that United States–China trade has increased global carbon emissions by 720 million metric tons, compared with a situation absent their bilateral trade. The second positive implication of carbon outsourcing is carbon leakage (2). Developed nations can meet their mitigation targets by importing carbon-intensive goods from less-affluent trading partners, which results in an emissions increase in exporting countries, undermining global efforts to mitigate climate change (2). The normative implication concerns equity loss when carbon is outsourced. Under the current international climate regime, producing countries shoulder the burden of embodied emissions for importing countries’ consumers (3). Moreover, the poorer exporting nations are vulnerable to being locked into a high-carbon model of growth with the intensification of trade patterns. These implications seem to be applicable to both international and intranational trade. However, further scrutiny suggests that the drivers and rationale behind domestic carbon flows may differ from those of international trade, and thus an alternative interpretation is needed. There may not necessarily be an efficiency loss because of carbon outsourcing within China; in fact, there could be an efficiency gain. In the global economic system, some production factors, such as labor and technology, tend not to move freely across national borders because of various barriers, notably immigration restrictions and intellectual property rights protection. Thus, an optimal allocation of production factors (including labor, land, capital, energy, and technology) is unlikely to be achieved. A key feature of China’s industrial production system is the spatial heterogeneity of production factors. The distribution of energy and other industrial resources does not match that of population centers and ports for trade. Energy and mineral resources are located inland but population and transportation hubs are strung along the coast (Fig. 1). As industrialization expands, many energy-intensive industries have been moving into the central and western regions to seek more efficient production, because energy