Identifying critical EU carbon emissions risk through global value chains

Abstract

Global value chains (GVC) are a key element in discussions about trade dependencies/bottlenecks and recent EU policy proposals. Similarly, carbon-emissions reduction measures feature predominantly in the design of EU strategies and require sector-detailed knowledge about where emissions are generated along GVC.

We use input-output techniques to identify carbon upstream and downstream sectoral hotspots within EU’s GVC and classify industries according to their exposure to changes in carbon-related and trade policy. We introduce a novel (climate-reshoring, CRI) index to measure carbon dependency and apply it to sectors currently targeted by EU policy for potential backshoring.

Our results show that sectors demanding and supplying high-carbon-emissions goods are different, implying that EU countries' differences in exposure depend on their industrial structure and trade patterns. Top downstream-imported emissions come from Russian refined petroleum products, while upstream-emissions EU hotspots include Electricity & gas, Basic metals from China and Russia, and Chinese Chemical and Other non-metallic products. Regarding CRI, the sectors most at risk by carbon dependencies and trade disruptions are Computer, electronic and optical equipment; Pharmaceutical; and Electrical equipment, all identified as critical by EU’s Open Strategic Autonomy. Core-EU economies and large Southern countries show the highest levels of CRI, mainly due to their dependence on critical foreign sectors rather than a high imported emissions risk index.

These findings highlight the need to consider sectoral-level carbon exposure in policy-making. Specific measures aimed at increasing the UE production in sectors and countries with high CRI would be beneficial both in terms of resilience and climate-change fight.