A new dimension of productivity

Dieter Adam, 30 January 2023

Thirty years ago not many people would have known – or cared for – the amount of C02 produced by their car for each kilometer travelled. Today a low figure will be a key reason to choose a particular model for some, and of interest to most, because it forms the basis for a tax on car sales imposed by our government.

We can extend the analysis to other products and services we use, but the analyses get very compli­cated very quickly. There is an – admittedly very coarse – way of doing this for entire countries at a very high level, however. We have a way of measuring the total value of every product and service created and consumed in an economy – GDP – and reasonably good estimates by now of the total CO2-equivalent [CO2eq] output of that economy. CO2eq, because we need to capture other green­house gases, like methane, and include it in the calculation. We also need to consider greenhouse gas emissions from land-use change, for example deforestation, but for most industrialised countries these are relatively minor.

Going back to a simple analysis, and one which is most relevant for manufacturers, a recent study in Germany has found the following results when calculating the amount of value (in terms of GDP in USD) created per ton of emitted C02 for the ten ‘worst polluters’ globally; in this case only the direct emissions of C02 from the use of fossil fuels are considered:

These calculations are based on data from the Global Carbon Atlas and are said to already be cor­rected for transfer emissions, i.e. emissions for the production of a country’s total exported goods and services minus the amount generated (by their trading partners) for producing their total im­ported goods and services. A country can make its own steel, for example, and create a lot of CO2 emissions in the process, or import the steel and turn it into higher-value products like cars or ma­chinery & equipment. These transfer emissions will play a key role in future trade, and will result in the imposition of carbon border adjustments, as already consider-ed by the EU, for example. But that’s a topic for another day.

There is certainly an element of self-promotion by German industry in the simple analysis above, but it does introduce an additional dimension in the way we measure productivity. We already calculate productivity as a ratio of output (GDP) and resource use (per hour worked = labour productivity; or per unit of capital employed); now we are expressing productivity in terms of the use of another critical resource, CO2 emitted. The authors of the German study calculated that if the other 9 worst emitters were as productive in those terms as Germany, their total CO2 output would drop by 55%, from 23.5 to 10.5 gigatonnes (2021 figures).

For New Zealand, using this approach for different parts of our economy produces some interesting results. If we look at the country’s total output by sector, this time in CO2eq to include agricultural emissions, we get the following picture[1]

The picture shown is based on 2012 data, but it is safe to assume that the relative contributions haven’t changed dramatically since then. So, back in 2012, all of manu-facturing together accounted for 11.5% (9,361 kt) of emissions, and for 11.6% ($22,670m in 2020 $) of GDP. Agriculture accounted for 52.2% of all emissions, and 5.4% of GDP. Of course, for a whole raft of reasons we cannot just shift economic activity into less carbon-intensive sectors overnight, but if we use the above data as a basis, had we reduced agricultural activities by 10% and increased manufacturing output by 4.7% to achieve a constant GDP figure in 2012, the net change in New Zealand’s output of CO2eq would have been a reduction by 3,819 kt or 4.7%. To put that into perspective, such a saving would almost account for CO2 emissions from all our domestic freight movements (trucks, ships and rail) in 2019 – 4,118 kt.

These calculations aren’t particularly relevant in absolute terms, but they do show a way forward if we want to improve the country’s productivity in terms of CO2 emis-sions. Looking at productivity this way will become more important as the ability to emit greenhouse gases without penalty is bound to become an increasingly scarce resource as our planet heats up.

[1] Understanding New Zealand’s consumption-based greenhouse gas emissions: an application of multi-regional input-output analysis. Chandrakumar, Ch. et al. The International Journal of Life Cycle Assessment; Vol. 25, pages 1323–1332 (2020)