Approximation and Regional Aggregation in Multi-Regional Input–output Analysis for National Carbon Footprint Accounting

Multi-regional input–output (MRIO) analysis has been widely used to quantify the global environmental impacts (e.g. energy use, greenhouse gas emissions, water use) embodied in consumption and international trade. Often, analysts have used approximations to a full global MRIO model; however, without access to a full MRIO model the approximation errors are unknown. In this paper we use an MRIO model based on the dataset provided by the Global Trade Analysis Project (GTAP) to quantify the errors introduced by various approximations of the full MRIO model. We find that emissions embodied in imports contribute an average 40% of the total emissions embodied in countries' final demands. For the emissions embodied in imports, we find: (a) that the unidirectional trade model gives a good approximation to the full MRIO model when the number of regions in the model is small; (b) that including only the most important trade partner in terms of emissions embodied in imports can substantially improve the accuracy of estimates; and (c) that a world-average input–output table often provides a good representation of the aggregate ‘rest of world’ economy. Finally, assuming that imports are produced with domestic technology (Domestic Technology Assumption, DTA) in an MRIO model can introduce significant errors and requires careful validation before results are used. However, the DTA generally produces better estimates than ignoring imports altogether.