A long held principle of economics is that the polluter pays, but allocating financial responsibility for the damage caused is a highly contentious topic, as is how best to reward industry for sustainable behaviour
SENSITIVE MATTERS
Should the producer of a product pay for the pollution generated in making it, or should the end consumer of that product be held responsible? The answer tends to depend on the perspective of the person asking the question and whether they are in a country that mass produces consumer goods or a country of mass consumption of those goods. What is needed is an equitable system for allocating responsibility that reflect how countries’ policies and economies affect global emissions. Nevertheless international trade, which accounts for about a quarter of global CO2 emissions, did not figure prominently in last year’s Paris Agreement. As countries that signed the agreement are now preparing their climate plans, officially known as nationally determined contributions, a new accounting method has been proposed. The new proposed method of counting CO2 emissions holds the promise of solving not just one, but two of the major hurdles countries face in implementing the plans successfully.
First, it focuses on carbon transfers among nations that trade with each other and can be used as an incentive to reduce carbon in exports. Second, it provides new insights into the di cult discussions on allocating responsibility for reducing global emissions, by redrawing the map of carbon emissions. The two main carbon accounting methods used today are “production-based accounting” (PBA) and “consumption-based accounting” (CBA). PBA, which is used in the UNFCCC, holds countries responsible for the emissions generated within their borders. This penalises large export countries such as China, where almost a third of its emissions are caused by producing goods for other countries. At the same time, it does not account for carbon displacement, often referred to as leakage, where restrictions on heavy industries in one country not only drive related factories and jobs abroad, but also transfer rather than reduce the emissions associated with them. There are clear benefits in a method that promotes innovation at home while lowering the volume of carbon emitted per unit of output, referred to as carbon intensity.
CBA represents a country’s carbon footprint. It holds countries responsible for emissions inherent in products consumed, regardless of origin. The problem with this method is that it does not provide incentives for exporting industries to improve their carbon intensity, because responsibility lies with the importers. Neither does it take into account differences in carbon intensity for similar production in different countries. As a result, CBA does not encourage a climate efficient distribution of global production.
“TCBA holds countries causally responsible for what they can influence, both in terms of their production and consumption”
The solution could lie in adoption of a new method: technology-adjusted consumption-based accounting (TCBA). It builds on CBA, but deals with the issue of carbon intensity in exports. Like CBA, TCBA incorporates emissions connected with trade, but it also adjusts for differences in carbon intensity in export sectors of different countries. One of the basic premises of TCBA is that it reflects how good a country’s individual sectors are compared to the world average. This gives an indication of what would happen if a certain commodity was produced elsewhere. In this way TCBA holds countries responsible for what they can influence, both in terms of their production and consumption.
Redrawing the map
One of the most persistent and di cult discussions at the UNFCCC is on allocating responsibility for global mitigation. Is it only the responsibility of developed countries or do emerging economies have a responsibility to mitigate as well? TCBA provides nuance to these discussions.
In an article published in Nature Climate Change, a team of researchers describes how countries would perform when going from PBA to CBA and from CBA to TCBA (see table). The new TCBA approach indicates that the EU has made significant gains in increasing its carbon efficiency, outpacing that of the United States. It adds nuance to the conventionally held wisdom that developed countries reduce emission by outsourcing dirty industries. China’s emissions would be lower with TCBA than with PBA, but not as low as if CBA was used. This means that China is not penalised for producing goods on behalf of other countries, but is still held responsible for improving its carbon efficiency. As such, TCBA does not give a clear advantage to either developed or developing countries, but adds a more nuanced picture to the de- bate on allocating responsibility by bringing carbon intensity into the debate. Effectively, TCBA redraws the global emissions map. By continually assessing each country’s performance against a global average of technology advances, TCBA can encourage increased ambition as this average improves. By identifying how individual industrial sectors perform, rather than the country as a whole, TCBA provides a tool for policy makers to facilitate better mitigation in sectors that are underperforming, regardless of whether it is a developed or developing country. In this way, TCBA also serves to increase the focus on technology transfer and capacity building.
Windy example
Danish wind generated electricity could be an example of how TCBA changes the accounting of a country’s emissions. Today, Denmark’s export of green electricity is not credited to its carbon account under PBA or CBA, but it may be credited in recipient countries. Under TCBA, green electricity would be accounted for as a low carbon export, with the effect of reducing Denmark’s carbon intensity. Allocating responsibility is a thorny topic, but TCBA arguably presents a more nuanced picture than PBA and CBA provide. As countries prepare for the post-COP21 “era of implementation,” countries need to consider how to boost time and money spent on innovating sustainable business products, especially in the heavy industries. Though no silver bullet, TCBA creates a more comprehensive picture to inform policymakers on how to meet the Paris Agreement. •
TEXT Tobias Dan Nielsen
