Trade, Technology, and Carbon Emissions: A CGE Analysis for West Germany

This paper examines the determinants of the substantial decline of West German production-related carbon intensity in the face of falling energy prices. A computable general equilibrium model is used to determine the simulated effects of observed changes of world energy prices and domestic energy policy on the sectoral patterns of carbon emissions energy consumption output value added and other indicators of structural change. The structural changes not accounted for by energy prices and energy policy are attributed to changing patterns of productivity growth in Germany and the rest of the world (ROW) and changing patterns of ROW demand. Weights on these driving forces are selected by least squares. One key finding is that the contribution of ROW productivity and demand patterns to emission-relevant structural change unaccounted for by energy prices and energy policy is just under 30%. The remainder is split almost equally among patterns of domestic autonomous energy efficiency improvement and domestic labor efficiency patterns.