Environmental Tradeoffs

Hummels examines impact of trade on climate change

For those who seek a straight line between point A and point B, Krannert economics professor David Hummels asks a simple yet increasingly profound question: How do you get there?

As it turns out, the journey really is just as important as the destination.

In his ongoing work with the National Bureau of Economic Research, Hummels is investigating how trade policies affect transportation, and how that might ultimately impact economic development, greenhouse-gas emissions and climate change.

His most recent study uses extensive data on worldwide trade by transportation mode to provide detailed comparisons of the greenhouse gas emissions associated with both the production of traded goods and the international transportation of traded goods.

“Inclusion of transport dramatically changes the ranking of countries by emission intensity,” Hummels says. “U.S. production emissions per dollar of exports are 16 percent below the world average, but once we factor in transport, U.S. emissions per dollar exported are 59 percent above the world average.”

Hummels’ research also found a wide variation across countries in transport’s contribution to trade-related admissions. At the low end, only 14 percent of Indian and Chinese export emissions come from transport, while 66 percent of U.S. export emissions come from transport due to substantial use of air cargo.

According to Hummels, trade composition has a first-order impact on the types of transportation employed and the associated greenhouse-gas emissions.

David Hummels

Video Extra: David Hummels describes his research exploring the impact of trade on greenhouse-gas emissions.

As a result, climate mitigation policies such as a carbon tax could significantly affect how goods move and the kinds of goods that countries trade.

“A clear implication of our research is that production and transportation emissions should be considered when evaluating policy changes designed to curtail emissions,” he says. “Many exporters and products that look relatively ‘clean’ when we focus on output emissions are in fact heavy emitters once incorporating transportation.

“In some countries the impact of mitigation will be felt most acutely on the production side, whereas in countries like the U.S., the main effect will primarily be on transport.”

Hummels’ work also raises significant questions about how the international transport sector is classified within the global framework for emissions.

“Does international transport ‘belong’ to the exporter, to the importer, or should it be treated as a separately capped sector, in essence a country unto itself?” he asks. “Given the imbalance in transport emissions, the U.S. would prefer an import-based allocation rather than an export-based allocation, while East Asian countries would prefer the opposite.”

Another implication is that U.S. manufacturers, who rely heavily on air transport, will continue to be highly vulnerable to rising fuel prices. “It will be increasingly important for them to find alternative and less fuel-intensive methods of moving ideas, inputs, people, and final products through complex global supply chains,” Hummels says.

Video Extras

Follow these links to learn more from David Hummels about global trade, greenhouse-gas emissions and their potential impact on the economy and manufacturing.