The European Central Bank published research setting out a new methodology to build inter-country input-output tables that distinguish green products from other goods, and used it to assess vulnerabilities in green value chains. In a simulated scenario where a US-centric West and a China-centric East stop trading green products with each other, the analysis estimates global trade in green products could fall by up to 20%, welfare could decline by up to 3%, and annual global greenhouse gas emissions could rise by about 50 million tonnes. The methodology splits broad sectors into sub-categories and, in the green application, isolates 129 products critical to the green transition and groups them into eight green input sectors (including rare earths, green-transition chemicals, electric batteries, renewable energy equipment, electric vehicles and green electricity), combining detailed trade data with supply-chain linkages from academic and industry sources. In the modelled fragmentation scenario, West-East trade in green products drops by around 15% while trade within blocs and with a neutral bloc increases by 1% to 4%, indicating diversion, with green chemicals and renewable energy equipment among the most affected categories; welfare losses are larger in the China-centric bloc (up to 3%) than in the US-centric bloc (up to 2%). The paper also finds that using more granular input-output matrices materially increases estimated welfare and consumer-price impacts in stylised autarky scenarios, implying that standard, more aggregated tables can understate the scale of trade shocks for hard-to-substitute green inputs.
European Central Bank 2026-03-24
European Central Bank research models green supply chain decoupling cutting green trade up to 20% and raising emissions by about 50 million tonnes a year
The European Central Bank introduced a methodology for inter-country input-output tables distinguishing green products, assessing vulnerabilities in green value chains. A simulated trade cessation between a US-centric West and a China-centric East predicts a 20% drop in global green product trade, a 3% welfare decline, and a 50 million tonne rise in annual global greenhouse gas emissions. The study highlights significant impacts on green chemicals and renewable energy equipment, with larger welfare losses in the China-centric bloc.