Environmental Impacts of Capital Formation

Abstract

Summary The investment in capital goods is a well‐known driver of economic activity, associated resource use, and environmental impact. In national accounting, gross fixed capital formation (GFCF) constitutes a substantial share of the total final demand of goods and services, both in terms of monetary turnover and embodied resources. In this article, we study the structure of GFCF and the environmental impacts associated with it on a global scale, and link it to measures of development. We find that the share of GFCF as part of the total carbon footprint (CF) varies more across countries than GFCF as a share of gross domestic product (GDP). Countries in early phases of development generally tend to invest in resource‐intensive assets, primarily infrastructure and machinery, whereas wealthier countries invest in less resource‐intensive assets, such as computers, software, and services. By performing a structural decomposition analysis, we assess the relative importance of investment structure and input‐output multipliers for the difference in carbon intensity of capital assets, and find that the structure of investments plays a larger role for less‐developed countries than for developed countries. We find a relative decoupling of the CF of GFCF from GDP, but we can neither confirm nor rule out the possibility of an absolute decoupling.

Growth in Environmental Footprints and Environmental Impacts Embodied in Trade: Resource Efficiency Indicators from EXIOBASE3

“…; Södersten et al. ) provide a cause for concern for future growth. Likewise, the International Resource Panel of the UNEP has recently shown that an increase in resource efficiency is key for meeting climate‐change targets in a cost‐effective manner (Ekins et al.…”

Method for endogenizing capital in the United States Environmentally‐Extended Input‐Output model

“…To compare the impacts of creating U K from a more aggregated CFC dataset, we adapt the approach developed in Södersten et al. () for many countries in an MRIO to the USEEIO, aided by communication with the lead author (Miller, Södersten, Berrill, & Hertwich, ). We prepare the comparison matrix for the year 2007 since the CFC data is not available for 2012.…”

“…We enable the distribution of environmental impact of capital formation based on the depreciation of that capital in a given year, rather than the investment in that year, following Södersten et al. (). To demonstrate the advantage of using more detailed depreciation data, we compare outcomes using CFC data from BEA with the more aggregated KLEMS matrices.…”

“…This capital is comprised of a diverse set of fixed assets (FAs), from power plants to trucks, pipes to sewing machines, and courthouses to software. Creating capital requires significant investments and produces substantial environmental impacts: 24% both of global final demand and greenhouse gas emissions in 2007 (Södersten, Wood, & Hertwich, ).…”

“…Södersten et al. () address this shortcoming by modifying the flow matrix method; they use CFC matrices from a multinational EU KLEMS database (Jäger, ) instead of GFCF matrices to endogenize capital in the EXIOBASE MRIO. Key limitations to these KLEMS CFC matrices are their high level of aggregation, with only 8 types of assets and 32 industry categories, and their availability only through the year 2007.…”