Decomposition of embodied exergy flows in manufactured products and implications for carbon tariff policies

This article uses the concept of embodied exergy as metrics in designing incentive policy instruments to tackle the inefficiency of energy operations. Based on the second law of thermodynamics and energy's economic properties as both a private commodity and a public good, it maintains that energy can be measured by separating the useful exergy embodied in a manufactured product from its waste exergy (anergy) as emissions and sunk wastes in a production process. It is rational to benchmark the content of useful exergy embodied in products for any incentive policy design to encourage green production. This article uses trade data between China, Japan and the EU countries to compare the embodied exergy and waste exergy embodied in traded manufactured products. It proposes using a negative value-added tax as an incentive instrument instead of full-scale carbon tariffs to encourage green production and to fence against carbon evasion behaviour.