Differences in CO₂ emissions – A Cross-Country Structural Decomposition Analysis

The main objective of the present article is to determine the reasons for the differences in CO2 emissions between Denmark, Sweden and Germany. I apply input-output based structural decomposition analysis and decompose the effects on CO2 emissions of energy mix, energy intensity, input mix and final demand. I find that the main contributor to the differences in CO2 emissions is the size of the economy, i.e. the German emissions are greater than the emissions of Denmark and Sweden mainly because Germany is a much bigger country. However, I also show that the Danish energy intensity reduces the emissions, that the German final demand composition is favourable with respect to reducing CO2 emissions, and finally that the Swedish energy mix has a positive effect with respect to CO2 emissions. Furthermore, I estimate potential emission improvements from learning better practices. I estimate the learning gains under several scenarios ranging from a very optimistic upper bound scenario where energy mix, energy intensity, input mix and final demand can be changed, to a more realistic scenario where only energy intensity and input mix can be transferred. I find that there is great potential for reducing CO2 emissions for Sweden and Germany by learning from the Danish energy intensity.