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Jul 14, 2015

Technology-adjusted Carbon Emissions Accounting

Kander et al. (2015) proposes a new method to account for countries’ carbon emissions. Their method uses a consumption-based accounting approach (CBA), adjusting for technology differences among countries’ export sectors. The methodology gives credits to “clean” exports (with low carbon emission) and incentivizes nations to reduce carbon emissions embedded in exported goods.

Case Study: Technology-adjusted Consumption-based Accounting of GHG Emissions (TCBA)

Scope: Global

First released: March 9, 2015 in Nature Climate Change

Intended Audience: academic researchers, the general public, and policymakers

Potential applications: to improve consumption-based carbon accounting, to accurately reflect how national policy changes affect total global emissions

Developers: Astrid Kander, Magnus Jiborn, Daniel D. Moran, and Thomas O. Wiedmann

Website: http://www.nature.com/nclimate/journal/v5/n5/full/nclimate2555.html


Weaknesses of Other Carbon Accounting Methods

Kander et al. (2015) argue that production-based accounting (PBA) and consumption-based accounting (CBA) are inadequate and inaccurate methods for measuring national emissions. Used primarily by countries who report carbon emissions to the Kyoto Protocol, PBA does not account for carbon leakage -- when countries reduce their domestic emissions by shifting carbon-intensive production abroad. Apple’s direct emissions inventory, for example, would not account for carbon emitted by its manufacturing processes that occur in China.

CBA resolves carbon leakage by assigning emissions embedded in export goods to consuming countries rather than producing nations. Applying CBS to the previous example, the U.S., rather than China, would account for the CO2 emitted by Apple’s laptop production. CBA, however, is flawed. The authors point out that CBA is not responsive to export countries’ changes in carbon efficiency. Consider the following hypothetical scenarios:

Scenario 1: China produces 4 million water bottles and emits 100 metric tons of CO2 in the process. The U.S. imports these water bottles for domestic consumption. Using CBA methodology, the 100 metric tons of CO2 is added to the U.S.’s total emission.

Scenario 2: China adopts new technology and produces 4 million water bottles while emitting only 80 metric tons of CO2. This time, only 80 metric tons of CO2 is added to the U.S. when it imports the bottles. However, there is no change in China’s total emissions under CBA, despite its efforts to reduce total global carbon emission.

Export countries thus have little incentive to adopt more carbon-efficient manufacturing technologies because these nations’ gains would not affect national emissions using the CBA method.

Making Adjustments for Technology

The authors propose a Technology-adjusted CBA to account for changes in the carbon intensity of exports and address PBA and CBA’s weaknesses.

CBA= Production Emission + Import Emission – Export Emission (based on average emissions intensity of the relevant production sector in the producer country)

TCBA= Production Emission + Import Emission – Export Emission (based on average carbon intensity for the relevant sector on the world market)

TCBA considers how a certain exported commodity was produced and, contrastly to CBA, also the alternative production it replaces (e.g. less carbon-emitting production processes including technological improvements and efficiency gains). By using a global standard for emissions embedded in exports, TCBA encourages countries to increase carbon efficiency in the production of exported commodities.

Comparison of Methods

The authors use a global input–output table to compute the TCBA for 40 countries. The results show emissions levels and trends in many regions of the world and do not systematically benefit either developed or developing regions (Figure 1).

Figure 1 | Emissions responsibilities change considerably between PBA, CBA, and TCBA. Adapted from Figure 4 of “National greenhouse-gas accounting for effective climate policy on international trade.” Kander et al. (2015)

Most of drop in calculated emissions occur in China and Russia. When we switch from PBA to CBA, we see a 30 to 50 percent reduction in these nation’s  emissions. This decrease indicates that China and Russia have carbon-intensive export sectors. When we convert from PBA to TCBA, however, the reduction in emissions is less significant, between 10 to 20 percent, which suggests that China and Russia are behind the world average in cleaning up their export sectors.

The TCBA curves tell a different story for countries with similar PBA and CBA, such as the U.S. and EU-27 (Figure 2). The U.S. profile confirms it as a net importer of embedded emissions. Europe’s carbon footprint  under TCBA is below its PBA projections, indicating that at least some of the observed difference between its CBA and PBA is due to differences in carbon efficiency between Europe and its trading partners, rather than outsourcing of emissions. TCBA demonstrates that the EU has improved its domestic carbon efficiency faster than the rest of the world, whereas the U.S. has not.

Figure 2 | TCBA of the EU-27 and the U.S. compared with PBA and CBA. Adapted from Figure 1 of “National greenhouse-gas accounting for effective climate policy on international trade.” Kander et al. (2015).

Kander et al. (2015) points out three limitations to the TCBA method. Like the other accounting methods, TCBA does not reflect many kinds of indirect and dynamic climate policy effects. When Country B, for example, reduces carbon emissions because of a positive stimulus provided by Country A, the accounting methods do not award Country A’s role in mitigating global emissions. Like CBA, TCBA allocates all responsibility for consumption to consumers, though in many cases producers influence consumption through marketing and innovation. TCBA may also underestimate the effects of technology differences on export trends. Despite these limitations, TCBA represents an improvement on existing accounting methods. Its methodology awards countries for increasing efficiency in export commodity production and improves our understanding of the impact of international trade on global emissions.

Measurement matters -- policymakers would be rudderless without sound emissions accounting. But the method of measurement may matter more, as the case of carbon accounting illustrates.  Different methods can yield distinct indicators, informing different decisions and policy pathways. PBA fails to consider the consumption side of carbon emissions, while CBA neglects carbon embedded in exports. TCBA’s key adjustment for technological gains encourages countries to reduce carbon emissions associated with consumption and to also increase carbon efficiency in export production. TCBA, though imperfect, creates a more comprehensive picture to inform policymakers and incentivize nations to commit to a cleaner energy future.