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FEATURE: Countries need to count the carbon in globally traded goods – here’s how

Countries’ imported emissions challenge the global governance of climate change – but they can take steps to address this, say Simon Maxwell and Aarti Krishnan. 

A new monograph published by the Overseas Development Institute deals with the rise of emissions traded across national borders, and the growing emphasis on measuring, reporting and certifying emissions, nationally and in global trade. It addresses five questions:

  • How and why is the geography of carbon emissions changing?
  • How are carbon emissions measured and how are the boundaries set?
  • What are the opportunities and challenges of carbon reporting and certification?
  • What are the implications for developing countries?
  • How should the climate regime adjust to ensure efficient and equitable outcomes?

How and why is the geography of carbon emissions changing?

Three decades ago, most Greenhouse Gas (GHG) emissions originated in developed countries, and most were associated with domestic consumption. That is no longer the case. Emissions traded across national borders currently account for up to 38% of global emissions, with developed countries being net importers and emerging economies mostly net exporters. The consequence is that territorial emissions are an increasingly unreliable guide to a country’s climate footprint; and reductions in such emissions an unreliable guide to a country’s contribution to climate action. In the UK, for example, both the absolute volume and share of imported emissions have grown, with imported emissions now accounting for 43% of the country’s total footprint, up from 15% in 1990.

How are carbon emissions measured and how are the boundaries set?

National figures are mostly based on modelling. For companies to measure their own carbon emissions, or the emissions embodied in their products, they need to be able to define the boundaries of the company, and to allocate emissions correctly between subsidiaries, joint ventures and so on. They need to decide whether to include end-of-life and recycling issues. And, most important, they need to decide whether to count only the emissions included within their own direct control, or to include also emissions generated in the supply chain. Emissions are formally classified as falling into Scope 1, Scope 2, and Scope 3:

  • Scope 1 inventory covers a reporting organization’s direct GHG emissions.
  • Scope 2 inventory covers a reporting organization’s emissions associated with the generation of electricity, heating/ cooling, or steam purchased for own consumption.
  • Scope 3 inventory covers a reporting organization’s indirect emissions other than those covered in scope 2.

It is easy to understand that measuring Scope 1 emissions is much easier than measuring Scope 3; and that measuring company emissions is much easier than measuring the emissions of dozens of different products, each of which contains dozens of different materials. In all cases, however, the principles are clear: accounting should be relevant, complete, consistent, transparent and accurate. Accounting should also be linked to action, through target-setting and reporting.

What are the opportunities and challenges of carbon reporting and certification?

There are multiple standards available, and multiple certification options. There are also legal frameworks in place. In the UK, for example, reporting on Scopes 1 and 2 emissions is mandatory, and reporting on Scope 3 emissions voluntary but strongly encouraged. Recent legislation has extended the coverage of reporting requirements from about 1,200 to over 12,000 UK businesses.

Standards can help spread best practice along supply chains and can create local spillovers, for example in technology or management practice. On the other hand, the application of standards can be difficult and costly. Often, standards are adopted in developed countries and then pushed down the supply chain to second and third tier suppliers, offering few opportunities for consultation, and imposing additional costs. This can be described as a ‘green squeeze’ on suppliers.

What are the implications for developing countries?

Developing countries need to be aware of changing standards. Failure to comply may see them facing Border Carbon Adjustments. To avoid a green squeeze, it will important for poorer countries and suppliers within them, including small farmers, to have a voice and to be able to participate in the design and implementation of standards. The objective is to be co-creators of rules and standards, rather than simply rule-takers.

Of course, being active in this way is not straightforward, especially when capacity is limited, resources are constrained, technology is carefully guarded, and power is concentrated elsewhere. Aid donors and philanthropic organisations have a role to play: in finance, technology, and in support of innovative approaches to catalyzing action, for example by developing ‘climate clubs’.

How should the climate regime adjust to ensure efficient and equitable outcomes?

It is surprising that the international climate regime remains so strongly focused on territorial emissions rather than on consumption emissions and total footprints. Policy makers have begun to pay attention. For example, the Science and Technology Select Committee of the UK House of Commons has concluded that ‘we do not accept that territorial emissions should be the sole basis for international negotiations’. This seems an important point for the UNFCCC, given the renewed urgency of climate action, and the emphasis in 2020 on renewing National Determined Contributions, with greater ambition. The question is whether the UNFCCC, at an appropriate time, should consider asking countries submitting revised NDCs also to report on traded emissions, and propose how they might be reduced.

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Simon Maxwell is a Senior Research Associate of the Overseas Development Institute, and a former Chair of CDKN. Aarti Krishnan is a Hallsworth Research Fellow at the University of Manchester.

Image, upper right, boat, Hubei province, China, loaded with goods for transport. Courtesy Boris Kasimov.

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