Environmental Impacts of Capital Formation

• Published in: Journal of industrial ecology Vol. 22; no. 1; pp. 55 - 67
• Main Authors: Södersten, Carl‐Johan, Wood, Richard, Hertwich, Edgar G.
• Format: Journal Article
• Language: English
• Published: New Haven Wiley Subscription Services, Inc 01.02.2018
• Subjects: Capital assets; Capital formation; Capital goods; carbon footprint; Computers; Decoupling; Developed countries; Developing countries; Economic activity; Economic conditions; Economic models; Environmental impact; environmentally extended multiregional input output (EE MRIO) analysis; EXIOBASE; GDP; Gross Domestic Product; gross fixed capital formation; Hierarchies; Impact analysis; Infrastructure; Investment; Investments; KLEMS; LDCs; Machinery and equipment; national accounts; Software
• ISSN: 1088-1980; 1530-9290
• DOI: 10.1111/jiec.12532

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.