Cooking the carbon books

The murky world of carbon accounting desperately needs greater transparency – and a consumption-based approach.

Including imported goods in national carbon targets would usefully cast more light on the murky world of emissions accounting, which has until now flattered rich countries and helped emerging economies avoid targets.

To date carbon targets have focused exclusively on territorial emissions within a country's borders, from factories and power plants, car tail pipes and homes, and only in developed countries.

An alternative, consumption-based approach would focus on where goods are consumed rather than produced, and therefore add imports to and subtract exports from these territorial emissions.

Three issues highlight why that alternative approach deserves more attention.

First, manufacturing of goods has gradually shifted (chasing lower labour costs) to emerging economies from developed countries, meaning a much greater portion of CO2 emissions are now separated from where goods are actually consumed.

In 2008, traded emissions were 80 per cent higher than in 1990, according to a study published in the Proceedings of the National Academy of Sciences (PNAS) last year.

Second, the only existing international agreement, the Kyoto Protocol, exclusively targets the emissions of industrialised countries, meaning a greater proportion of recorded emissions are now entirely missed.

Third, any effort to widen that agreement to emerging economies has all but stalled.

Until now, the approach has been to ignore the whole issue.

Switching to a consumption-based view would have made industrialised countries targets under Kyoto, from 2008-2012, all but impossible to meet, the PNAS article showed.

The study found that a manufacturing shift to China and other emerging economies accounted for the vast part of 'emissions cuts' claimed by industrialised countries from 1990-2008 (at about five times their cut in territorial emissions) – in other words, the present reporting arrangement outrageously flatters them.

Meanwhile, emerging economies have so far eluded any international oversight of their emissions, although that is due to change.

They are also wary of the risk that industrialised countries may one day add a carbon border tariff on imports – to balance the effect of more rigorous environmental laws – another reason to avoid reporting the rise in their manufacturing emissions.

A UK parliamentary panel on Wednesday found that when measured by consumption, Britain's emissions had actually risen just as sharply (by 20 per cent) since 1990 as they had appeared to fall according to a purely territorial measure, citing academic data.

Traded CO2 has largely added to the territorial emissions inventory of countries such as China and India, and subtracted from western Europe, the United States and Japan.

The European Union has now taken the first step in regulating emissions beyond its borders, forcing airlines to pay for the emissions from full flights into and departing from the bloc, prompting a backlash from China and the United States.

Diplomatically, in this case the EU has gone much further than measuring the CO2 of imports, by charging for them as well.

The EU move was a response to a lack of global action.

The International Civil Aviation Organisation (ICAO) has achieved nothing in curbing global aviation CO2, a job it was given 15 years ago.

That inaction mirrors the snail's pace of wider UN-backed talks to agree a global climate deal: countries recently agreed to implement a deal by 2020, after missing previous deadlines.

A consumption-based measure could be applied across all sectors, not just aviation, perhaps in a ratcheted way, to address a vacuum in international action and increase transparency.

The first step would be simply to measure CO2 emissions from imports, and report these nationally, to bring a new focus.

Including full consumption emissions in national carbon emissions targets would formalise that focus.

A more drastic step would be to add a border tariff (called a carbon border adjustment, or CBA) on the emissions of imports from countries which do not have a carbon price, as the EU has done with airlines. No other country regulates aviation emissions.

One aim of such CBAs would be to protect domestic industry, to stop companies fleeing to jurisdictions with softer environmental laws.

A wider use of CBAs may also turn out to be essential to clinch broader, multilateral climate action, by threatening tariffs against countries which do not sign up.

That could be useful if countries miss their next deadline in 2020, as seems entirely plausible.

"A new climate framework could arise indirectly from the threat of unilateral trade policies," say researchers in a forthcoming paper to be published in the journal, Oxford Review of Economic Policy, in an article titled "Trade, climate change and the political game theory of border carbon adjustments."

This article was originally published by Reuters. Republished with permission.

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