A demand perspective on greenhouse gas emissions
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Joe St. Lawrence, Environment Accounts and Statistics Division
It is a well-reported fact that Canadian greenhouse gas emissions have risen substantially over the last fifteen years. To be specific, emissions increased 25% between 1990 and 2005 to 747 Mt,1 a level 33% higher than the nation's Kyoto target.2
Typically, emissions are reported from this "supply" perspective, showing how much pollutant is produced and by whom. While this supply perspective is important, it is the demand for products and services that drives greenhouse gas emissions. The famous economist Adam Smith once wrote that "consumption is the sole end and purpose of all production," meaning that there would be no economic production or associated pollution, without a demand for products and services.
When demand for a good or service is sufficient, industry will meet the need. Greenhouse gas emissions are an unfortunate by-product of the associated production. This article considers the main drivers of greenhouse gas emissions during the period 1990 to 2002 from this demand perspective.
Background to the methodology and data sources
The results of this study are derived from a hybrid input-output model that combines physical data on greenhouse gas emissions by industry with economic data on production and consumption of goods and services. The model allows estimation of greenhouse gas emissions associated with the production of each good and service in the Canadian economy. It considers both the emissions associated directly with the industry producing the good or service as well emissions that are further up the supply chain. The latter emissions can be referred to as "indirect" or "embedded" emissions.
Canada is a signatory to the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and is therefore required to submit annually on April 15th an inventory of its greenhouse gas emissions to the UNFCCC. Environment Canada is the department mandated to prepare the national inventory report for Canada. The inventory is prepared following UNFCCC guidelines. Upon ratification of the Kyoto Protocol to the UNFCCC in December of 2002, Canada committed to a 6% reduction in emissions by 2008-2012 (average) compared to the 1990 baseline. To support measurement of these reductions, new reporting guidelines and methodological guidance for national inventory reporting were developed by the Intergovernmental Panel on Climate Change (IPCC) and endorsed for use by the UNFCCC.
Statistics Canada's Report on Energy Supply-Demand and Environment Canada's National Inventory Report represent the most current information available on energy use and greenhouse gas emissions for Canada. To supplement the official international greenhouse gas reporting by Environment Canada, more detailed estimates of energy use and greenhouse gas emissions are produced by Statistics Canada according to the accounting framework of the Canadian System of National Accounts (CSNA). In addition to providing more industrial detail, these energy use and greenhouse gas emissions accounts can be linked with economic data in the CSNA to show how energy use and emissions are influenced by economic activity in the market.
Readers may notice that the emissions estimates in this document differ from the totals that appear in the official Environment Canada submission to the UNFCCC. This is due to adjustments that have to be made to IPCC sectoring and definitions in order to ensure consistency with the requirements of the CSNA. The accounts used for this analysis also include only the three main greenhouse gases, namely carbon dioxide, methane, and nitrous oxide, and do not include emissions from the decomposition or incineration of waste.
What is behind the increase in greenhouse gases from a demand perspective?
Canada is heavily integrated into the international economy and runs trade surpluses. As a result, we produce more greenhouse gases than we need to satisfy our demand for Canadian-made goods and services.
In fact, the greenhouse gas emissions created to satisfy internal demand for domestic goods and services accounted for 54% of the 574 Mt of greenhouse gases produced by industry in 2002 (Table 1).
Final demand categories
In the final demand perspective, greenhouse gases emitted by industry are attributed to the end-user of goods and services rather than the producer and can be referred to as indirect emissions.
Final demand in the Canadian System of National Accounts is broken into the following categories:
Personal expenditure: represents the purchases of commodities, commodity taxes, wages and salaries and supplementary labour income of persons employed by the personal sector. Includes individuals, families and private non-profit organizations.
Construction and Machinery and Equipment: the value of a producer's acquisitions, less disposals, of fixed assets during the accounting period plus certain additions to the value of non-produced assets (such as subsoil assets or major improvements in the quantity, quality or productivity of land) realized by the productive activity of institutional units.
Government net current expenditure: economic activities of the federal government (including defence), the provincial and territorial governments, local (municipal) governments, universities, colleges, vocational and trade schools, publicly funded hospitals and residential care facilities, and publicly funded schools and school boards.
Inventories: consist of stocks of outputs that are still held by the units that produced them prior to their being further processed, sold or delivered to other units or used in other ways, and stocks of products acquired from other units that are intended to be used for intermediate consumption or for resale without further processing.
Exports: receipts from other provinces and territories or from abroad for sales of merchandise or services. The barter, grant and giving of goods and services as gifts would also constitute exports.
Table 1
Sources of industrial greenhouse gas emissions from the demand perspective, 1990 and 2002
In other words, exports accounted for 46% of the industrial emissions of greenhouse gases, the largest share of emissions from a demand perspective.
As globalization has led to better access to world markets, Canada has increased the degree to which it trades with the rest of the world. While this has benefited the Canadian economy, it has also caused greenhouse gas production to increase. In fact, much of the increase in total greenhouse gas emissions in Canada between 1990 and 2002 was due to emissions associated with exports (Chart 1).
Chart 1
Industrial emissions associated with the production of goods and services for domestic final demand1 and exports, 1990 to 2002
Compared to 1990, the year 2002 showed a 50% increase in greenhouse gas emissions from the production of goods and services sent to external markets. In contrast, there was only a 0.4% increase in greenhouse gases from emissions caused by the production of goods and services to satisfy the demands of the domestic market. Combined, these two sources of demand led to an overall 18% increase in industrial emissions.
What is behind this increase in greenhouse gas emissions from the production of goods and services for export? The largest source of this growth was the export of mineral fuels, including coal, crude oil, and natural gas. In both 1990 and 2002, the production of these fuels for export emitted more greenhouse gases than the production of any other exported commodity (Table 2). Over the period, as worldwide demand for fuels surged, greenhouse gas emissions from the production of exported fuels jumped 135%.
Much of the strength in the Canadian economy right now can be tied to the remarkable boom in Alberta, which is due to the surge in demand for its valuable oil and gas.3 While Ontario and Quebec remain much more populous than Alberta, greenhouse gas emissions from Alberta are the highest in the nation,4 partly on account of the large amounts of greenhouse gases emitted to produce oil and gas for the export market.
The flip-side to this look at exports is that normal supply-side estimates of emissions do not include the greenhouse gases that the Canadian economy creates elsewhere through the importation of goods and services.
As exports have increased in quantity and value, so too have imports. Imports also have associated emissions of greenhouse gases, but these emissions do not occur in Canada and are not typically included in Canada's emissions estimates. Between 1990 and 2002, emissions outside the country associated with Canadian demand for imported goods and services increased an estimated 15% (Chart 1).
What about domestic emissions due to demands by Canadian households?
Next to exports, personal (or household) expenditures in Canada were the second largest source of greenhouse gas emissions when looked at from a demand perspective (Table 1). Production to meet household demand for goods and services was the cause of approximately 37% of domestic industrial emissions in 2002.
Because of the greater rate of growth in greenhouse gas emissions from exports, personal expenditure and exports switched positions between 1990 and 2002 in terms of their relative importance. Personal expenditure accounted for the largest share of domestic industrial emissions in 1990 at 41%, but dropped to 37% by 2002. For the same year, industrial emissions due to exports jumped to 46% while they were at 36% just 11 years earlier.
Table 2
Domestic industrial greenhouse gas emissions associated with the production of exports, 1990 and 2002
Motor fuels the largest source of direct household emissions
In the preceding section, the analysis looked at the industrial emissions associated with household consumption. These can be referred to as "indirect" household emissions. In 2002, the commodity leading to the highest indirect household emissions was electricity (13.5% of total household emissions), followed by "other" services (12.2%), food and non-alcoholic beverages (12.1%) and the combined fuel categories5 (7.8%). Table 3 shows a full breakdown of the indirect and direct emissions that can be attributed to household purchases in 1990 and 2002. Now we turn to the emissions that come directly from households.
Household use of motor fuels was the main source of greenhouse gas emissions associated directly with households in both 1990 and 2002 (Table 3). Emissions associated with this fuel use are considered direct, since they are the result of household rather than industrial activity. The other principal direct emissions from households are those caused by burning fuel oil and natural gas to heat homes.6
Table 3
Direct and indirect emissions from personal expenditure, 1990 and 2002
Direct emissions from household use of heating and motor fuels accounted for approximately one-third of the total direct and indirect emissions associated with households in 2002. Households were directly or indirectly responsible for almost half of all domestic emissions in 2002 (321 Mt out of the total 685 Mt of greenhouse gases emitted in Canada).7
Household emissions intensity
In the case of households, greenhouse gas emissions intensity is a measure of the greenhouse gases that are produced per unit of personal expenditure.
Household direct greenhouse gas emissions grew 14% between 1990 and 2002, while indirect emissions grew 7% (Table 4). In addition to these domestic emissions are those that occur abroad from the production of imported goods that are used to satisfy household demand. Emissions associated with the production of these goods grew 17% over the period.
Taken together, these three types of emissions yielded an 11% increase in total emissions attributable to households, both at home and abroad.
Between 1990 and 2002, personal expenditure increased 35% from $444.5 billion to $600.5 billion in constant prices.8 Since household greenhouse gas emissions grew much less than this, household emissions intensity fell by almost 18% over the period (Table 4).
Table 4
Direct and indirect household greenhouse gas emissions, 1990 to 2002
Had it not been for this decline in emissions intensity, the greenhouse gas emissions associated with household spending would have been higher by 2002.
The decrease in household emissions intensity was partially due to changes in personal expenditure patterns. Households spent relatively less on greenhouse gas-intensive goods and services in 2002 compared with 1990. It was also influenced by improvements in the energy efficiency of industrial output.
Conclusion
While the traditional supply perspective provides essential information for understanding greenhouse gas emissions, a demand perspective also sheds light on this issue. The analysis in this paper has shown that growing exports of mineral fuels played an important part in the growth of greenhouse gas emissions between 1990 and 2002. At the same time, this export growth contributed significantly to Canada's healthy economic performance. Reconciling these two imperatives—the need to control greenhouse gas emissions on the one hand and the need to create jobs and economic well-being on the other—is complex, with both short-and long-term implications for the economy an the environment.
Footnotes
- All emission figures in this report are expressed in carbon dioxide equivalent emissions. These are calculated by weighting emissions of individual greenhouse gases relative to the global warming potential of carbon dioxide (which is assigned a value of 1) and then aggregating over all gases.
- Environment Canada, 2007, National Inventory Report: Greenhouse Gas Sources and Sinks in Canada, 1990-2005, Greenhouse Gas Division, Ottawa, Ontario.
- Cross, P. and Bowlby, G., 2006, "The Alberta Economic Juggernaut: The Boom on the Rose," Canadian Economic Observer, Statistics Canada catalogue no. 11-010-XIB, vol. 19, no. 9, Ottawa.
- Environment Canada, 2007, National Inventory Report: Greenhouse Gas Sources and Sinks in Canada, 1990-2005, Greenhouse Gas Division, Ottawa, Ontario.
- This includes natural gas, motor fuels and lubricants, and other fuels.
- There are also direct household emissions associated with fuelwood combustion and outdoor cooking. These relatively small amounts are not considered in this analysis.
- The emissions accounts used for this analysis are available on CANSIM Table 153-0034. For 2002, these accounts cover 685 Mt of the 720 Mt officially submitted to the IPCC by Environment Canada. The difference is due to the adjustments outlined in the Background text box.
- Statistics Canada, n.d., CANSIM table 380-0017.
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