Trade in the Carbon-Constrained Future: Exploiting the Comparative Carbon Advantage of Swedish Trade

This paper introduces a new concept of comparative carbon advantage as a potential climate mitigation tool. According to the concept, welfare gains in terms of reduced global CO2 emissions can be achieved by exploiting cross-country sectoral differences in carbon intensity and decarbonized electricity system. The paper empirically tests the concept by utilizing annual data of Sweden between 1995 and 2008. Overall, the results show that Sweden contributed nearly 590 million tons of potential CO2 emissions savings through its exports by having an efficient and low-carbon production and electricity system. This total amount of 590 million tons of CO2 emissions relates to the total savings made if the same amount and composition of Swedish exports was produced using the world average technology. Furthermore, the contribution of Sweden&rsquo
s low carbon electricity generation was over 34% of the total savings, of which some 20% were direct exports of electricity and 80% was electricity embodied in exported products. This research provides a critical understanding of the impact of efficient production and low carbon electricity in generating relative comparative carbon advantage&mdash
a policy relevant aspect for the increasingly globalized, and carbon-constrained, world.