Examining the Efforts of a Small, Open Economy to Reduce Carbon Emissions: The Case of Denmark

It is generally understood that greenhouse gasses produced by human activities are having a warming effect on the climate. Discussions concerning efforts to curb carbon dioxide emissions often focus on large countries. However, considerable resources have been spent to reduce carbon dioxide emissions by relatively small, open economies. Although, these economies are small players in international markets, international trade has an important influence on their economies. Investigating the outcome of efforts to curb emissions by these small, open economies provides insights into the situation faced by a large set of the world's economies. This paper has three objectives: (1) investigate the outcome of Denmark's efforts to reduce its carbon emissions by characterizing the relationship between Denmark's macroeconomic activity and carbon emissions; (2) determine the carbon content of Danish trade and document the important effects that growing trade with China has had on Danish consumption emissions; and (3), investigate the robustness of measures of consumption emissions under varying information requirements. Our analysis of the outcomes of Danish efforts to reduce carbon emissions suggest two, related lessons. First, small, open economies, should track both production and consumption emissions when evaluating their progress towards reducing carbon emissions. Second, international trade should be considered in the design of environmental policy. The Danish experience indicates that increasing trade with a much larger and more emission intensive country can have substantial influence on consumption emissions.