The need to focus on production based measures of emissions

Consumption based accounting for emissions can provide valuable insights, but focussing on production based accounting is the right approach for most policy work.

There has been much discussion of whether it is more useful for policy purposes to measure emissions on a production basis or consumption basis. Production based accounting looks at emissions from a jurisdiction, including in making goods for exports.  Consumption based accounting looks at emissions from the entire production chain for all the goods and services consumed in a jurisdiction.  This means including emissions occurring elsewhere in the manufacturing process – looking at the total carbon footprint.  For example, if a car includes steel made in another jurisdiction, then the emissions from that steel production will be counted under a consumption based approach.  However, to exclude double counting, consumption based accounting should exclude emissions from making exports.

Many advocate for the use of consumption-based accounting for judging policy, as representing the full impact of consuming goods.  However, while both approaches have merit, there are good reasons for preferring production-based accounting for most policy making.

The international policy architecture that covers emissions reduction is based on commitments by governments under the Paris Agreement to reduce emissions from within their borders, a production-based approach.  This architecture does not appear likely to change. This means that production-based accounting must at least play a significant role in efforts to reduce emissions.

Furthermore, this international policy architecture is based on sound principles.  It reflects that fact that while the effect of emissions is global, control over emissions is largely national.  This means production-based accounting makes more sense, as it puts measurement where the control is.

It is possible to influence emissions elsewhere, for example by introducing border adjustments and product standards in some cases, most likely mainly for bulk commodities.  This could in principle extend to limiting consumption emissions in some cases.  For example, imports of steel could be included in the EUETS (see here), restricting total emissions from steel consumption in Europe.  However in most cases the ability to control of emissions still fundamentally lies with production.

Finally, the economic benefit of production usually accompanies the emissions.  For example, if steel production relocated from Europe to China the economic benefits of that production also relocate.

Without either the direct control over the emissions from production, or the economic benefits of production, it does not seem appropriate to hold jurisdictions responsible for emissions beyond their borders (although imposing border taxes or similar measures on some types of emissions may make sense to prevent carbon leakage).  Put bluntly, reducing emissions resulting from (for example) Chinese production for export is and should be China’s responsibility, not that of importing countries.  And when, for example, it is said that the UK has reduced its emissions by around 40% since 1990 (a production-based figure) this is both accurate, and a good measure of the progress that has been made, even though a significant proportion of this has been due to changes in economic structure.

This is not intended to suggest that no attention should paid to consumption-based accounting. Consumption-based emissions have fallen less rapidly than production emissions from the UK, as industry has relocated.  This does indicate the need to put continuing pressure on exporters to the UK to reduce their emissions.  It also helps individuals to make different choices, and to put pressure companies to produce lower carbon products.

Indeed, from the point of view of an individual seeking to take action to reduce their carbon footprint consumption-based emissions can provide valuable insights into the appropriate choices. And there are of course good reasons for reducing consumption of many goods, with benefits that go beyond limiting climate change.  And policies to reduce consumption can clearly have many merits as well.

However, the main focus needs to be on each country putting its own house in order, and that means focusing on reducing emissions within its borders.

Adam Whitmore – 19^th February 2020