National Policies for Global Emission Reductions: Effectiveness of Carbon Emission Reductions in International Supply Chains

In a world with diverging emission reduction targets, national climate policies might be ineffective in reducing consumption-based CO2 emissions (carbon footprints), i.e. emissions of final demand that are embodied across the whole supply chain, including international fractions. We analyse a set of different policies in three areas with particularly high consumption-based emissions in Austria: building construction, public health, and transport. To capture the substitution possibilities triggered by these policies and the induced emission reductions along the full global supply chain, our analysis combines a Computable General Equilibrium with a Multi Regional Input-Output model. For construction of buildings we find that a carbon added tax is highly effective in reducing consumption-based emissions whereas an information obligation on vacant dwellings combined with a penalty payment when vacant buildings are not made available is ineffective because of reallocated investment capital. Mandatory energy efficiency improvements in public health and mobility are found equally effective in reducing consumption- and production-based emissions while a decarbonization of freight transport logistics stronger reduces production-based emissions. Overall, the effectiveness of policies, to mitigate consumption-based emissions, is therefore determined by the backward and forward linkages of the sector addressed by the policy as well as the substitution effects within final demand.