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Carbon as a commodity: a trade in pollution could help clean up dirty economies

Is it fair that China is blamed for the carbon dioxide emissions it generates to manufacture products destined for the West? Would the West do more to reduce greenhouse gases if it had to pay for the emissions…

We pay for the product, but not the carbon cost. Kin Cheung/AP

Is it fair that China is blamed for the carbon dioxide emissions it generates to manufacture products destined for the West? Would the West do more to reduce greenhouse gases if it had to pay for the emissions caused in producing the products it imports? Welcome to the world of carbon accounting, where changes to the way the books are kept could improve our chances of driving down greenhouse gas emissions worldwide.

Carbon dioxide emissions from burning fossil fuels such as coal, oil and gas have soared. In 2013 they were more than 60% higher than in 1990. This is despite significant progress in global climate policy, with numerous international agreements promising emission cutbacks.

This contradiction reflects the structure of most international agreements: industrialised countries are allotted emissions targets while developing countries are not. Unsurprisingly, emissions have largely stabilised in the countries with targets to meet, and more than doubled in countries without them. China has seen the largest amount of emissions growth and now emits more carbon dioxide per person than the entire European Union.

This increase in carbon dioxide emissions from developing countries was expected as their economies catch up with the rest of the industrialised world. This has been fuelled by a rapid growth in international trade, particularly in the case of China. In fact, around one-quarter of Chinese carbon dioxide emissions in recent years stem from the manufacture of products destined for export and hence consumption in another the country.

Whose products? Whose responsibility?

In response, researchers have conducted numerous studies that allocate emissions to the point of consumption. In contrast to the conventional territorial system of allocating emissions at the point that they are produced – for example, out of the chimney of a power station or factory – these studies allocate the emissions created in producing products to the country where the products were consumed. This is known as their carbon footprint.

Many industrialised countries have succeeded in reducing their territorial emissions, such as by moving to lower-carbon power generation and moving from manufacturing to a services industry. But these have been more than offset by increases in consumption-based emissions. This is primarily due to a rapid increase in imports of manufactured products – your clothes, electronics, and children’s toys.

China’s pollution is not just a Chinese problem. Robert Thomson, CC BY-NC

A recent study found that EU member states have reduced territorial emissions by over 15% since 1990, but have reduced consumption-based emissions by only 2%. The UK has made a 20% reduction in its territorial emissions, but is just 1% lower in its consumption.

Even local air pollutants, such as sulphur dioxide (responsible for acid rain) and black carbon (soot), are not immune to these trends. In a somewhat ironic twist, local air pollutants can be transported from the place they were first generated to the point where the end products were consumed. In a form of atmospheric poetic justice, a study recently calculated that between 12–24% of sulfate pollution over the western United States was transported by westerly winds, from factories in China back to the consumers in the US.

Finding a better system

It’s clear the current system of measuring emission levels can be misleading. An obvious response is to ensure all countries enact and uphold meaningful emissions targets. This would mean all emissions are accounted for, irrespective of whether they are exported or imported.

But progress is slow. The UN’s climate principle of sharing responsibility in relation to responsibility is likely to ensure that developing countries will always have weaker emissions targets as they seek to develop their economies and societies.

Alternatively, some argue that consumption-based emissions targets would be fairer. In this case, China’s emissions generated by its huge export economy would be allocated to the importing countries. Given that this would actually reduce China’s share of emissions, it’s surprising China has not pursued this argument – officials have only mentioned it rhetorically to media, never in formal climate negotiations.

Any carbon to declare?

If China and other carbon exporters gave up their responsibility for their exported emissions, then they implicitly allow the carbon importers to regulate their exports. This can be implemented by using a border carbon adjustment, where a carbon price is placed on products imported from countries without sufficient climate policies – in effect a customs duty on carbon. It’s something that’s been discussed by the US, EU, and other industrialised countries.

Since industrialised countries are net importers of emissions, the use of a border carbon adjustment would lead to larger global cuts in emissions. But it would also reduce income for net exporters as demand for products falls. Perhaps this is a reason why China and other major carbon exporters haven’t pushed the issue.

To keep things fair, a consumption-based climate policy would need to ensure a share of the border tax on imported carbon is actually returned to the exporter. Potentially based on the amount of carbon exported, these payments would fund for installing cleaner technologies in the exporting countries. Some argue that the fear of such complex and provocative policies may be just what we need to force nations towards agreeing a comprehensive global agreement using the simpler territorial system.

Despite the numerous studies on the consequences of consumption-based carbon accounting, there is still no thorough analysis of the policy implications. But this may be changing: the latest IPCC Assessment Report may highlight how changing the way we quantify and allocate emissions between countries could improve international efforts to mitigate climate change. Whether an improved carbon accounting mechanism can speed up the glacially slow speed of negotiations is, however, another question.