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Demand Changes with a GDP Growth Constraint

Column 5 reports the changes to final demand when 2 percent growth in GDP is imposed in addition to the 1 percent reduction in carbon dioxide emissions. The two constraints exert opposing influences on final demand. The GDP growth constraint prompts increases in final demand, while the carbon dioxide constraint necessitates reductions.

The objective function requires minimising the sum of the square of the proportionate changes in final demand of each industry. To achieve the GDP growth constraint, increasing the final demands of industries which have relatively larger final demands, gives smaller proportionate changes, thereby minimising the objective function. Figure 2 clearly shows the positive correlation between the final demand of an industry and its associated required change in final demand. Similarly, in achieving the carbon constraint, industries whose outputs have higher carbon contents achieve greater reductions in emissions for given reductions in final demand. The negative correlation between carbon content per dollar of output and the required change in final demand is shown in Figure 3.

An industry’s required change in final demand is therefore determined by balancing the carbon intensity of output against the level of final demand. Accordingly, ownership of owner-occupied dwellings (industry no. 41) which has the largest final demand coupled with one of the smallest carbon contents is required to achieve the largest increase in final demand of 8.4695 percent. Similarly, health and community services (industry no. 47), wholesale trade (industry no. 30), retail trade (industry no. 31) and education (industry no. 46) are all required to achieve substantial increases in final demand. All four of these industries may be classified as service industries which produce low carbon dioxide emissions, yet have high levels of final demand. Regarding industries required to reduce their final demand, petroleum and industrial chemical manufacturing (industry no. 18) and rubber, plastic and other chemical product manufacturing (industry no. 19), which have the two highest carbon intensities require the greatest reductions in final demand of respectively -9.5474 and -5.8031 percent.

Figure 2 – Final Demand and Changes in Final Demands with Growth of 2 Percent
Final Demand and Changes in Final Demands with Growth of 2 Percent.
Figure 3 – Carbon Intensity and Changes in Final Demands with Growth of 2 Percent
Carbon Intensity and Changes in Final Demands with Growth of 2 Percent.

Column 7 of Table 2 shows the required changes to final demand when the carbon dioxide constraint is raised from 1 to 2 percent, while holding the GDP growth constraint constant. Variations in the changes to final demand which arise from raising the carbon constraint are displayed in Figure 4. If the points were all to lie on the 45 degree line, the higher carbon constraint would have no effect. However, as Figure 4 clearly shows, the higher constraint requires greater reductions to be achieved in final demand. Consequently, increases in final demand must also be accentuated so as to achieve the growth constraint. These two effects combine to increase the spread of the distribution, thereby increasing the costs of disruption. However, the relative positions of the industries are seen to change only slightly.

Figure 4 – Changes in Final Demands and Raising the CO2 Reduction Target
Changes in Final Demands and Raising the CO<sub>2</sub> Reduction Target.
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