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Archive:SDG cross-cutting issues - spillover effects

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Indicators for estimating spillover effects caused by EU consumption


Data extracted in April 2022.

Planned article update: June 2023.

Highlights


This article is a part of a set of statistical articles, which are based on the Eurostat publication ’Sustainable development in the European Union — Monitoring report on progress towards the SDGs in an EU context — 2022 edition’. This report is the sixth edition of Eurostat’s series of monitoring reports on sustainable development, which provide a quantitative assessment of progress of the EU towards the SDGs in an EU context.

Full article

Summary

Trade with the EU is a crucial source of income and economic activity for many partner countries, including some of the poorest countries in the world. EU consumption generated EUR 1 537 billion of gross value added (GVA) in the rest of the world in 2019. The EU is also the leading donor of Official Development Assistance (ODA) in the world [1] and the biggest contributor to the USD 100 billion commitment [2].

However, the different analyses for environmental spillovers presented in this article also reveal that EU consumption has a significant environmental effect on other parts of the world. CO2 emissions embodied in EU imports are around one third higher than those embodied in exports. While the EU’s grassland footprint has only a minimal share in imported land use, the EU imports around 45 % of cropland and forestry land use to satisfy EU consumption, and imports around one third more of this land use than it exports. Finally, the EU imports 1.1 gigatonnes of materials more than it exports, which is around 17 % of its total material consumption. This may cause additional environmental pressure elsewhere, as raw material extraction and processing are often associated with high carbon emissions, land cover changes and other negative environmental impacts. The trends over the past decade reveal a diversified picture - the EU’s negative balance for CO2 emissions and materials has slightly decreased while the land footprint spillover effect has increased during the same period.

The footprints presented in this article also show that the EU’s share of global consumption of materials extracted (7 %), CO2 emitted (10 %) and land used (5 %) seems to be relatively small and not significantly larger than its share of global population (around 6 %), while its share of global GVA (17 %) is substantially larger.

The important role of trade for sustainable development is recognised notably under SDG 17 (Partnerships for the goals). The SDGs call on developed regions such as the EU to reduce the global negative effects of consumption and trade by transferring cleaner and more modern production technologies and by helping to raise global social standards. The European Green Deal therefore outlines the Commission’s commitment to transforming global value chains, by promoting new environmental and social standards for sustainable growth. The EU’s bilateral trade agreements include commitments to effectively implement international labour standards and facilitate trade in green technologies, goods, services and investments and support the diffusion of clean and more efficient production methods and technologies to help achieve sustainable development globally.

Introduction

Strategies to achieve the Sustainable Development Goals (SDGs) need to be implemented at all levels, from local to global. In a globalised world, countries’ actions towards sustainable development may positively or negatively influence other countries and their capacity to achieve the SDGs [3]. Therefore, governments need to consider the impacts that their domestic policies may have beyond national borders, to avoid negative environmental, social and economic externalities and to foster sustainable development on a global scale [4]. The impacts that activities in one sector, region or country have on other sectors, regions or countries are called spillover effects (or simply ‘spillovers’). At the national level, the term ‘transboundary effects’ is also often used. Spillovers may be a result of deliberate transboundary actions, such as official development assistance (ODA), or an unintended consequence of domestically focused policies or of the consumption of natural resources embodied in trade [5].

International spillovers have the capacity to either foster mutual sustainable development or to hinder and counteract individual countries’ actions towards achieving the SDGs nationally. Therefore, measuring and understanding international spillovers is of high importance for designing sustainable development strategies with positive impacts beyond domestic borders. Different organisations and researchers have used different methods for calculating spillovers. Prominent methods prioritise consumption-based over production-based accounts [6], thereby focusing on international environmental, social and economic impacts that are driven by domestic consumption.

International trade in goods and services is one of the most important triggers of international spillovers, both negative and positive. Trade generates jobs in exporting countries and is a crucial source of income and economic activity. Trade and investment liberalisation promote the transfer of environmentally sound technologies and trade also provides incentives to companies to apply higher environmental and social standards in their business models and supply chains. However, trade also drives negative spillovers that may counteract countries’ efforts to achieve the SDGs. For example, environmental spillovers occur when countries import commodities that generate high levels of greenhouse gas emissions in the country where they are made, instead of producing these (and the emissions) themselves. Thus, the importing countries avoid domestic emissions and the emissions are attributed to the producing countries. Eliminating child labour and forced labour as well as ensuring that labour rights are respected along the supply chain are further challenges.

There are other types of spillover effects that are relevant in the context of the SDGs, such as those related to international financing (for example, ODA but also profit-shifting), those linked to physical flows of air and water carrying pollution across borders as well as energy flows, and those related to peacekeeping, migration and security. However, only few of these spillover effects – ODA, energy flows and migration – are reflected in the EU SDG indicator set. There is also the notion of transgenerational spillovers, which goes back to the heart of sustainability: development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Due to data availability issues, these other types of spillover effects are not systematically covered in this article. Further work on assessing spillover effects in a broader sense will be necessary over the coming years.

As all countries export and import, they simultaneously cause and experience negative and positive spillovers resulting from international trade. It is therefore important to look at the net balance of spillovers between countries and regions. Globally, the positive impacts of trade should be increased while at the same time the negative impacts should be reduced and unavoidable negative spillovers should be distributed fairly between trading partners.

Spillovers from EU consumption: overview and key trends

This article presents a selection of indicators on the environmental and economic spillover effects of consumption in EU Member States. The indicators were selected primarily on the basis of data availability and therefore do not yet cover the full range of SDGs concerned by spillover effects. Whether the environmental effects of EU or global consumption are within safe planetary boundaries goes beyond the considerations of this article.

Environmental spillovers

Three environmental indicators are available and can be used to give an insight into spillover effects: carbon dioxide (CO2) emissions, land footprint and material footprint.

CO2 emissions embodied in EU imports are higher than emissions embodied in EU exports

In 2018, the EU emitted around 3.2 gigatonnes (Gt) of CO2, which was 9 % of worldwide CO2 emissions. Consumption in the EU was responsible for 3.6 Gt of CO2 emissions, which was 10 % of global CO2 emissions. This was moderately higher than the share of the EU population in the global population, which was around 6 % [7]. Using the FIGARO Multi-Regional Input-Output (MRIO) model [8], Eurostat estimates the volume of CO2 emitted in the rest of the world serving EU consumption at 0.9 Gt, while around 2.7 Gt were emitted by the EU production system for EU consumption. On the other hand, 0.6 Gt CO2 were emitted by the EU economy for the production of goods that were exported to the rest of the world. This means that in 2018, the emissions embodied in imported goods and services were higher than the emissions embodied in the EU’s exports, making the EU a net importer of CO2 emissions.

Table 1: CO2 emissions, EU versus rest of the world, 2010 and 2018 (Gt [%])
Source: Eurostat, JRC (estimates based on FIGARO data)


Compared with 2010, the balance has improved in favour of the EU. While CO2 emissions in the EU embodied in exported goods are estimated to be stable (0.6 Gt), CO2 emissions generated outside the EU for its consumption decreased by about 10 %, from 1.0 Gt in 2010 to 0.9 Gt in 2018. Thanks to a similar reduction for goods and services produced in the EU for domestic consumption, the EU’s total CO2 footprint decreased from 4.0 Gt in 2010 to 3.6 Gt in 2018.

By 2030, the situation will need to change significantly if the EU is to achieve its ambitious climate policy targets [9]. Worldwide emissions are expected to increase to around 55 Gt [10], while the EU intends to emit around 1.5 Gt by 2030, which would reduce its share of worldwide emissions from 9 % to less than 3 %. The EU’s ambitious climate targets will therefore increase the focus on the consumption perspective. The question by 2030 will be: how much of the world’s CO2 emissions will be the result of the EU’s consumption? Besides the volume and type of imported goods, this will very much depend on the carbon efficiency of the rest of the world’s production systems, particularly in those economies producing significant CO2 emissions to serve the EU’s consumption (see Figure 1). To avoid simply shifting CO2 emissions outside Europe (carbon leakage), the Commission’s proposed carbon border adjustment mechanism will put a fair price on the carbon emitted during production, encouraging cleaner industry in the rest of the world. The EU’s contribution to a shared USD 100 billion commitment by wealthy nations for climate finance is also expected to reduce CO2 emissions in developing countries and thus contribute to the reduction of CO2 imports.

Most CO2 emissions imported for EU consumption are emitted in China, Russia and the United States

Some 0.9 Gt of global CO2 emissions serving EU consumption originated from non-EU countries in 2018. China was the most important source of these CO2 emissions, with 0.25 Gt. This reflects that China is the EU’s main trading partner for imports: in 2018, the share of EU total imports (in value) originating from China amounted to 17.9 % [11]. Russia accounted for 0.11 Gt CO2 emissions [12], followed by the United States (US) (0.07 Gt) and India (0.05 Gt). Notably, while embodied emissions from Russia exceeded those from the US, the share in the value of US imports in total EU imports was higher (11.2 %) than from Russia (8.4 %) [13]. This might be explained by the fact that a substantial part of imports from Russia were semi-manufactured low value products such as steel [14], produced with relatively high CO2 emissions. In absolute terms, imported emissions from these countries decreased between 2010 and 2018, except for those from India.

Figure 1: CO2 emissions serving EU consumption by origin, 2010 and 2018 (Gt)
Source: Eurostat, JRC (FIGARO)

More than 4 000 m² of farmland needed for each EU resident

The land footprint — or virtual land — refers to the estimated amount of land needed to produce one unit of a given final product consumed in a country, regardless of where in the world this land was used. Land footprints highlight the dependency of the EU on foreign land embodied in goods and services consumed within the EU. While land use itself does not show concrete and direct environmental impacts, it may serve as a proxy for pressure on ecosystems and biodiversity stemming from production and consumption systems in a given country. There are three different land footprints included in this article, modelled based on land use coefficients of imported agricultural products: cropland used to cultivate crops, grassland used to produce meat and dairy products, and forestry land used to produce timber. Cropland and grassland together constitute the farmland footprint [15].

In 2019, an estimated 111 million hectare (ha) of cropland in the EU were used for the production of agricultural goods, amounting to about 7 % of global cropland. Around two-thirds of this land served EU consumption, while the rest (around 3 % of global cropland) was farmed for exports to other parts of the world. At the same time, the EU consumed crops cultivated on an equivalent of about 130 million ha of cropland located both inside and outside the EU, which represent some 8 % of worldwide cropland. The EU imported crops that required around 60 million ha to grow, while crops exported outside the EU required around 41 million ha of cropland. This makes the EU a net importer of around 20 million ha cropland, which is about 17 % of EU cropland and approximately the size of Belgium, the Netherlands, Denmark and Austria together.

Table 2: Land footprints, EU versus rest of the world, 2019 (million ha [%])
Source: JRC, Eurostat, FAOSTAT (Land use and Global Forest Resources Assessment)

Around 48 million ha and therefore almost all (92 %) of grassland needed for EU consumption were located in the EU in 2019. Grassland is mainly used to feed livestock. However, since EU livestock are also fed with significant amounts of fodder crops produced on cropland, this number does not reflect the total land use embodied in EU consumption of livestock products. As the EU is a net importer of cropland, a certain amount of this imported cropland may also be used to sustain livestock-rearing in the EU. While the EU is also a net importer of grassland, the net balance of 1 million ha is relatively small compared with the total amount of EU grassland serving EU consumption, which was 52 million ha.

The global farmland footprint (cropland and grassland combined) of EU consumption was around 180 million ha in 2019, which represented around 4 % of farmland worldwide. Producing the agricultural products imported by the EU required around 64 million ha of farmland, while the rest of the world consumed products requiring 44 million ha of farmland in the EU making the EU a net importer of around 20 million ha farmland corresponding to around 12 % of EU farmland. Hence, in absolute terms each EU resident consumed agricultural products that required more than 1 400 m2 of farmland located outside the EU, while people in the rest of the world required around 60 m2 of EU farmland per person [16]. However, in relative terms, the share of the total available farmland outside the EU that each EU resident required was slightly smaller than the share of EU farmland that a person in the rest of the world demanded. The 1 400 m2 of imported farmland per EU resident came on top of the estimated 2 600 m2 of farmland within the EU needed to satisfy EU consumption [17].

About 109 million ha of forest land equivalents in the EU were used for timber production in 2019, representing 6 % of worldwide productive forest area. Around 40 % of the produced timber were exported, serving consumption in the rest of the world. The forest land embodied in these exports, however, only made up some 2 % of non-EU consumption of timber-based products. The EU consumed timber-based products associated with an equivalent of about 125 million ha forest area, which was about 7 % of the world’s productive forest area. Almost half of the timber-based goods consumed in the EU were produced on forest land outside the EU. Producing the timber-based products imported by the EU required around 60 million ha of forest land, while the rest of the world consumed products requiring 42 million ha of forest land located in the EU. This makes the EU a net importer of around 20 million ha of forest land corresponding to around 15 % of the productive forest area in the EU.

Imports account for nearly 40 % of the materials needed for EU consumption

The material footprint, also referred to as raw material consumption (RMC), shows the amount of materials required along the supply chains of the goods and services finally consumed in a country. Eurostat’s material footprint indicators quantify the worldwide demand for material extraction triggered by consumption and investment in the EU. Eurostat estimates the material footprint by calculating the actual weight of materials extracted to produce the traded goods — the so-called raw material equivalents (RME) of imports and exports — instead of the weight of the goods crossing country borders. In other words, the weight of processed goods traded internationally is converted into the corresponding raw material extractions they required. This is typically two to three times more than the actual weight.

Since the material footprint is able to capture resources used along international supply chains for the production of final goods, it is a useful tool for assessing spillovers in material consumption. It highlights the increasing spatial separation of production and consumption and the relocation of environmental impacts associated with material extraction. All raw materials extracted and used worldwide are allocated to domestic final consumption. Thus, outsourcing of material-intensive extraction and processing does not reduce a country’s overall material footprint.

File:Material footprint, EU versus rest of the world, 2019 (Gt raw material extraction in raw material equivalents, %).png
Table 3: Material footprint, EU versus rest of the world, 2019 (Gt raw material extraction in raw material equivalents [%])
Source: OECD, Imprint [18], Eurostat (env_ac_rme)

In 2019, the EU’s material footprint amounted to 6.5 Gt, representing 6.6 % of worldwide material extraction. In 2019, the EU was a net importer of materials, meaning that more of the materials needed for EU consumption were extracted outside the EU (2.5 Gt or around 40 % of the volume needed for EU consumption) than the EU exported to third countries for their consumption (1.4 Gt or around 55 % of imported materials serving EU consumption).

Compared with 2010, the total material extracted in the rest of the world to serve EU consumption, representing the EU’s material spillover, remained stable at 2.5 Gt, despite growth in the EU’s gross domestic product (GDP) of around 14 % and of around 1 % in population between 2010 and 2019 [19]. Hence, the EU’s material footprint did not seem to contribute to the nearly 30 % increase in the global material footprint between 2010 and 2019. This is further illustrated by the consumption footprint [20] of the EU calculated from product-level life cycle assessments, which increased by 4 % between 2010 and 2018.

In terms of volume, the EU is more or less self-sufficient in the material categories of biomass and non-metallic minerals. For the category of metal ores, the EU consumed approximately 2.7 times more metal ores than the amount extracted within its borders in 2019. This means the EU relies heavily on imports of metal ores. The situation is similar regarding fossil-energy materials. In 2019, the EU consumed 2.9 times more fossil energy materials than it extracted domestically. While around 40 % of domestically extracted fossil energy carriers were exported, the EU relied on imports for around 80 % of its domestic energy demand. This negative trade balance of fossil energy materials is also illustrated by the EU’s energy import dependency, which was slightly more than 60 % of the gross available energy in the EU in 2019 [21].

Environmental pressures vary depending on the type of product

Not all materials used for the production of consumer goods create the same environmental pressure at their places of origin; for example, mining and agriculture have different impacts on land use. A deeper analysis per sector of the economy and final product is therefore useful to better understand the full picture. The consumption footprint [22] calculated by the Joint Research Centre of the European Commission aims to quantify the environmental impacts of consumption by evaluating 16 Life Cycle Assessment (LCA)-based indicators with physical models of 160 representative products. The indicators are modelled from the estimated environmental pressures (emissions and resources used) along the life cycle and supply chains of these products.

The consumption footprint [23] of the EU has increased by 4 % between 2010 and 2018 mainly due to an increased per capita consumption intensity of food products, mobility, and specific household goods, many of which are fully or in part imported from outside the EU [24], and is only partially explained by a population increase [25].

Complementary to the consumption footprint, the domestic footprint [26] evaluates only domestic impacts without considering the impacts embodied in imports. The consumption footprint in absolute terms is therefore larger than the domestic footprint. By comparing the two footprints, spillovers can be observed. The domestic footprint decreased by 13 % during the 2010-2018 period, in contrast to the growing consumption footprint. Thus, the domestic reduction of environmental impacts are likely to be the result of the delocalisation of certain production processes.

Social and economic spillover effects

EU consumption can have positive spillover effects in terms of jobs and economic growth, but may also have negative effects on labour conditions in other parts of the world. To avoid the latter, it is necessary to ensure that EU trading partners effectively implement international labour standards and human rights. Currently, FIGARO data allow one related economic indicator to be monitored, gross value added (GVA).

Producing goods and services for EU imports generated 2.1 % of worldwide GVA in 2019

GVA is the difference between the output of an economy and the intermediate consumption and is one of the main elements of GDP. It is a very good approximation of the size of the economy from a production perspective. FIGARO data allow GVA to be estimated for economies inside and outside the EU and therefore can be used to show the economic value generated outside the EU for consumption inside the EU.

Total GVA induced by EU consumption in 2019 was nearly EUR 12 000 billion or 17 % of global GVA. From this amount, EUR 1 537 billion or nearly 13 % were induced in non-EU economies. GVA generated in the EU as a result of consumption outside the EU is around one third higher (EUR 2 031 billion). This makes the EU a net exporter of GVA and mirrors the export surplus of the EU economy.

Table 4: Gross Value Added, EU versus rest of the world, 2010 and 2018 (billion EUR [%])
Source:Eurostat, JRC (estimates based on FIGARO data)

The bulk of GVA induced by EU consumption is generated in the EU, with around 87 %. Of the remaining 13 %, the EU’s five biggest trade partners (the United States, China, the United Kingdom, Switzerland and Russia) have a share of around half of GVA generated by EU consumption in non-EU countries. China is the EU’s biggest import partner, while the EU is the main export partner for the UK and Switzerland. Since 2010, GVA induced in the rest of the world by EU consumption has increased by around 36 %, while GVA as a result of exports to the rest of the world has increased by around 56 %. This means that the negative balance between GVA resulting from EU imports and exports is widening.

When comparing the carbon intensities of GVA inside and outside the EU, in 2018 the EU emitted around 260 g [27] of CO2 per EUR of GVA, while the rest of the world emitted more than double this amount (610 g) per EUR. This illustrates the character of the EU economy as a manufacturer of relatively high-value products compared with the rest of the world. Between 2010 and 2018, the carbon intensity of the EU economy fell by around 26 %, and slightly faster than in the rest of the world (23 %).

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More detailed information on EU SDG indicators for monitoring of progress towards the UN Sustainable Development Goals (SDGs), such as indicator relevance, definitions, methodological notes, background and potential linkages, can be found in the introduction of the publication ’Sustainable development in the European Union — Monitoring report on progress towards the SDGs in an EU context — 2022 edition’.

Notes

  1. ↑ European Commission (2020), The European Union remains world's leading donor of Official Development Assistance with €75.2 billion in 2019, Press release, Brussels.
  2. ↑ European Commission, International climate finance.
  3. ↑ Sustainable Development Solutions Network (SDSN) (2019), Policy Brief: International Spillovers and the Sustainable Development Goals (SDGs). Measuring how a country’s progress towards the SDGs is affected by actions in other countries.
  4. ↑ Joint Research Centre-European Commission (2021), Understanding the Spillovers and Transboundary Impacts of Public Policies Implementing the 2030 Agenda for More Resilient Societies: Implementing the 2030 Agenda for More Resilient Societies. OECD Publishing.
  5. ↑ Joint Research Centre-European Commission (2021), Understanding the Spillovers and Transboundary Impacts of Public Policies Implementing the 2030 Agenda for More Resilient Societies: Implementing the 2030 Agenda for More Resilient Societies. OECD Publishing.
  6. ↑ ‘Production-based’ means, for example, direct observation of CO2 emissions as they are generated, while ‘consumption-based’ refers to, for example, CO2 emissions that are generated throughout the supply chain and are hence ‘embodied’ in the products and services consumed. These CO2 emissions are generated before the products are consumed, in different locations, and scattered across supply chains that may involve many countries. To get the full picture of the net balance of a country or region in terms of inward and outward spillover effects, a combination of both approaches is needed.
  7. ↑ Eurostat (2020), The EU in the world. 2020 edition, Publications Office of the European Union, Luxembourg, p. 13.
  8. ↑ Eurostat (2019), European Union Inter-Country Supply, Use and Input-Output Tables — Full International and Global Accounts for Research in Input-Output Analysis (FIGARO).
  9. ↑ The EU plans to reduce its production of greenhouse gas emissions by 55% in 2030. This target is notably related to the production perspective, and not to the consumption perspective. It also includes other greenhouse gases than CO2.
  10. ↑ UNFCCC (2021), Nationally determined contributions under the Paris Agreement. Synthesis report by the secretariat, United Nations Climate Change, Glasgow Climate Change Conference.
  11. ↑ Eurostat (EXT_LT_MAINEU)
  12. ↑ CO2 contained in energy carriers such as crude oil or gas and imported into the EU is not included in the exporting country emission account, but will show up in the importing country’s balance when combusted for power generation. The CO2 emitted in Russia for serving EU consumption is therefore not a result of Russian gas imported into the EU.
  13. ↑ Eurostat (EXT_LT_MAINEU)
  14. ↑ Imports of iron and steel in 2018 amounted to 11 262 109 tonnes from Russia and to 721 396 tonnes from the US.
  15. ↑ The farmland footprint is the sum of cropland and grassland. 1 ha equals 10 000 m², hence 4 000 m² equals 0.4 ha.
  16. ↑ Calculated using https://population.un.org/wpp/.
  17. ↑ Calculated with: Eurostat (DEMO_GIND).
  18. ↑ WU Vienna (2022), Material flows by material group, 1970–2019. Visualisation based on the UN IRP Global Material Flows Database, Vienna University of Economics and Business.
  19. ↑ Eurostat (nama_10_gdp) and (DEMO_PJAN).
  20. ↑ Data at EU and Member State level for the period 2010–2018 are published in the Consumption Footprint Platform, available at https://eplca.jrc.ec.europa.eu/ConsumptionFootprintPlatform.html.
  21. ↑ Eurostat (sdg_07_50).
  22. ↑ https://eplca.jrc.ec.europa.eu/sustainableConsumption.html.
  23. ↑ Data at EU and Member State level for the period 2010-2018 are published in the Consumption Footprint Platform. Available at: https://eplca.jrc.ec.europa.eu/ConsumptionFootprintPlatform.html.
  24. ↑ Sala S, Sanyé Mengual E (2022), Consumption Footprint: assessing the environmental impacts of EU consumption, European Commission, JRC126257.
  25. ↑ Sala S, Sanyé Mengual E (2022), Consumption Footprint: assessing the environmental impacts of EU consumption, European Commission, JRC126257.
  26. ↑ Sanye Mengual, E., Tosches, D. and Sala, S. (2022), Domestic Footprint of the EU and Member States: methodology and results (2010-2018), EUR 30796 EN, Publications Office of the European Union, Luxembourg, ISBN 978-92-76-40829-1, doi:10.2760/563812, JRC125941.
  27. ↑ This calculation includes direct CO2 emissions by private households e.g. for transport and heating. In 2018 the EU these CO2 emissions were around 0.7 Gt i.e. around 20 % of the emissions serving EU consumption.
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