Carbon Emissions Embodied in India–United Kingdom Trade: A Case Study on North–South Debate

Publication Date01 May 2020
AuthorSuvajit Banerjee
05_FTR894149.indd Article
Carbon Emissions
Foreign Trade Review
55(2) 199–215, 2020
Embodied in India–
© 2020 Indian Institute of
Foreign Trade
United Kingdom Trade:
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A Case Study on
DOI: 10.1177/0015732519894149
North–South Debate
Suvajit Banerjee1
This study is an appraisal of North–South trade and environmental debate on
the context of ‘carbon leakage hypothesis’. This article attempts to quantify the
CO emissions embodied in the bilateral trade between India and the United
Kingdom (hereafter mentioned as the UK) using an input–output model-based
analysis for the year 2015. It further proposes a hypothetical situation of no
trade between India and UK in order to calculate and analyse the contribu-
tion of this bilateral trade in global CO emissions. The results from this study
confirm the possibility of ‘carbon leakage’ from Indian commodity production
sectors and find that among two trade partners, the UK is able to avoid more
carbon emissions than India through trade which helps the UK to reach their
carbon emission mitigation targets. On the average, manufacturing of commodi-
ties in India those are to be exported to the UK generates 1.053 kilo-tonnes
of CO emission per million dollars of export annually and manufacturing of
commodities in the UK which are imported to India generates only 0.141 kilo-
tonnes of CO emission per million dollars of import from the UK annually for
the years 2011, 2013 and 2015. This is because of the proportionately higher
consumption of more emission-intensive energy items, like coal, and coal prod-
ucts by India in industrial production than the UK. At the end of the article, this
study proposes a few suggestions to ensure a decent level of emission imbalance
in the trade flows for the anticipation of increasing India–UK bilateral trade in
coming days due to post-BREXIT eventualities to reduce the pressure on the
global environment.
1 Department of Economics and Politics, Vidya Bhavana, Visva Bharati University, Santiniketan, West
Bengal, India.
Corresponding author:
Suvajit Banerjee, Department of Economics and Politics, Vidya Bhavana, Visva Bharati University,
Santiniketan, West Bengal, India.

Foreign Trade Review 55(2)
JEL Codes: C67, F64, Q37, Q42
CO emission embodied in bilateral trade, carbon leakage hypothesis, North–
South debate, input–output model
Pollution haven hypothesis (hereafter mentioned as PHH) represents a situation
where the incentive-driven economic activities those are polluting in nature, argu-
ably getting necessary zest in some countries and stringent regulations in some
others which creating a scope of comparative advantage for those pollution havens
in pollution intensive commodity trade (Copeland & Taylor, 1994). Concrete
decision of whether PHH holds or not is not yet arrived in a recognisable fashion
from either theoretical or empirical studies and there is a complete array of argu-
ments and counter-arguments in the literature behind this inconclusiveness.1
However, CO emissions are creating severe global environmental problems
from various anthropogenic activities throughout the world is an unambiguous
truth no matter where they are taking place. Shifting of pollution loads from the
highly regulated developed countries to the under-regulated developing coun-
tries could not solve the adverse effects of pollution in any meaningful way
because the atmospheric concentration of the greenhouse gases (GHGs) can
harm every citizen of this world potentially equally by affecting the global cli-
matic conditions. International cooperation is therefore felt as a pre-condition in
the process to limit these GHG emissions. However, the Kyoto Protocol (signed
in December 1997) allocated the carbon emission reduction targets unevenly
between Annex-I or developed countries and non-Annex-I or developing coun-
tries. Mostly, the high-income countries came under this obligation and they are
called Annex-B countries. The non-Annex-I countries were exempted from
such legally binding targets and allowed to maintain a voluntary and nationally
appropriate mitigation policy for GHG emissions. This created many doubts
and debates from both academic and political fields of thought on the effective-
ness of unilateral carbon mitigation initiatives attempted by individual countries
or country-groups for limiting the aggregate world emissions and that gave birth
to a new possibility and presumption of ‘carbon leakage’ (Kallbekken, Flottorp,
& Rive, 2007; Kuik, 2002; Paltsev, 2001).
This study in the context of ‘carbon leakage hypothesis’ is an attempt to inves-
tigate the North–South2 international trade and the associated CO emission
embodied in bilateral trade, of both directions. In this regard, India–UK country
pair is taken as a case for calculating the CO emissions embodied in this develop-
ing–developed bilateral trade. The UK stands as the fifth largest trading partner
for India after the USA, UAE, Hong Kong and China and the largest export des-
tination among the 43 Annex-I countries including the European Union which
ratified the Kyoto Protocol before the treaty came into force in February 2005.

Banerjee 201
On the other hand, in the post-BREXIT situation, India and the UK are expected
to come much closer in terms of preparing new trade ties, such as a free trade
agreement (FTA). According to a recent Commonwealth report,3 if India and the
UK enter into such an FTA with tariff rates reduced to zero levels, then that could
expand the bilateral trade at 26 per cent per annum. Therefore, a study on India’s
bilateral trade and environment under a North–South framework can be best ana-
lysed with an India–UK perspective.
This present article is organised as follows: Second section briefly discusses
about some relevant literature as the background and motivation of this study. The
third section explains the methodology applied and data collected, processed and
used in this study. In the fourth section, the calculated results are shown and dis-
cussed, and the fifth section finally concludes.
Literature Summary
With emission abatement making the developed countries produce their exporta-
ble commodities with a relatively higher cost than the non-abating countries, this
is placing them in a comparatively disadvantageous position to trade (Branger &
Quirion, 2014; Chang, 2013; Li & Zhang, 2012; Rocchi, Serrano, Roca, & Arto,
2018). Carbon emission embodiment in trade investigates this aspect and pro-
vides some result for comparative discussion on two issues, first, how far the
carbon mitigation attempts becoming successful when there exist leakage oppor-
tunities, and second, how much competitive loss these emission-abating countries
will face because of their conscious attempts to abate. Studies on emission-
embodied in bilateral trade are mostly done with China as the important non-
Annex-B country (Du et al., 2011; Li & Hewitt, 2008; Liu, Ishikawa, Wang,
Dong, & Liu, 2010; Long, Li, Chen, Zhang, & Li, 2018; Lopez, Arce, & Zafrilla,
2013; Tan, Sun, & Lau, 2013; Wu, Geng, Dong, Fujita, & Tian, 2016). Although
India is also a big CO emitter nation in the world and makes a huge export year
after year as large as USD 276 billion in 2017, the literature on carbon emission
embodied in trade is very rare with an Indian perspective. Dietzenbacher and
Mukhopadhyay (2007) calculated the extra CO , SO and NO emissions from 1
billion rupees of additional Indian exports and compare these calculations with
the reduction of pollution caused by an increase in the Indian imports of the same
size from abroad. They used an open, static input–output (IO) model and calculate
how much fossil fuels are required to produce gross output and therefore required
to satisfy the final demands of each commodity. They concluded in contrast to
what PHH states for developing countries, India gained considerably from free
trade. Parikh, Panda, Ganesh-Kumar, and Singh (2009) conducted a study using
both input–output table (IOT) and social accounting matrix (SAM) for the year
2003–2004 with 25 production sectors and 10 household classes and calculated
the embodied CO emission for the sectors and household classes based on final
consumption. Adopting a single regional input–output (SRIO) model, the study
by Sun, Ding, and Yang (2017) calculated and analysed the carbon footprint of

Foreign Trade Review 55(2)
economic sectors for India during the period from 1995 to 2009 where they took
into account the energy-related CO emissions embodied in intermediate produc-
tion processes also.
In the present study, a comparison in terms of the emission content of Indian
exports to the UK with the emission content of Indian imports from the UK is
exhibited and discussed. This exercise reveals which trade partner among the
India–UK country pair mostly benefited from this bilateral trade in terms of

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