Consumption-Based Emissions Reporting - Energy and Climate Change Contents

5  Climate Change Negotiations

68.  In their 2011 inquiry into Carbon Budgets, the House of Commons Environmental Audit Committee asked the Secretary of State for DECC about the general case for a consumption-based emissions approach, and was told:

The reality is that if you were to tell most members of the United Nations that their territorial sovereignty would henceforth be suspended because we intended to take account of our imported embedded emissions, I think there would be an absolute firefight. The reality is that the territorial principle is very well established. We are responsible for our own territory, and while that remains the case, that is the bit that we can take responsibility for.[128]

69.  The Environmental Audit Committee did not share the Secretary of State's reluctance to take consumption-based emissions into account when making policy, arguing rather that it would "facilitate a more rigorous approach to controlling our contribution to climate change".128 We have explored whether an increased acknowledgement of the UK's consumption emissions—and hence a more complete acknowledgement of the UK's impact on the global climate—could facilitate negotiations on a global, legally binding agreement on greenhouse gas emissions reductions. We acknowledge DECC's point about a potential "firefight" at the United Nations climate negotiations, but we are not suggesting changes to the territorial accounting mechanisms that underpin the negotiations.

70.  The UK Energy Research Centre (UKERC) observed that the UK is especially vulnerable to international criticism at the moment because "the leakage of its emissions is larger than that of all other industrial nations".[129] It was—in part—Britain's leadership on the issue of climate change in the early 1990s that eventually led to the signing of the Kyoto Protocol in 1997. Perhaps in the 2010s an admission of responsibility by the UK for the impacts of its consumption could lead the way for other net importers of emissions to do the same, and allow some of the barriers to a climate change agreement to be surmounted.

71.  Reflecting the argument it made to the Environmental Audit Committee, DECC stated that the territorial approach to emissions reporting is used because countries have a much greater ability to "influence [manufacturing] activities in their own territory" than to influence "emissions from goods which are consumed in their country but [manufactured] overseas".[130] WWF-UK agreed with DECC, and acknowledged that the territorial-based approach to emissions accounting had considerable merit in that the "levers that address these emissions are clearly within the direct control and mandate of UK policy makers".[131] WWF-UK thought the UK should not promote a shift to an international policy framework based on consumption emissions, as it would have "very little support internationally and threaten the emergence of a new binding global deal".[132]

72.  We heard evidence that the UK could have some influence beyond the emissions that it has territorial sovereignty over. UKERC believed that that the "key issue" with regards to reducing emissions globally was the UK's ability to reduce overseas emissions, and that the UK should recognise the influence it has over emissions embodied in the goods it imports.[133] Policy Exchange observed that "the scale and rapid growth of carbon embedded in trade makes negotiation of an international agreement difficult and complex, including making it hard to specify realistic and fair targets for rapidly growing developing countries".[134] The Sustainable Consumption Institute thought that an increased emphasis on consumption-based emissions—in parallel to the territorial approach—would "increase the share of global emissions over which the UK has influence, and therefore broaden its reach".[135] By acknowledging that the UK has partial responsibility for emissions produced in another country, the UK could have more leverage in negotiations aimed at reducing those emissions. Professor Barrett from the University of Leeds told us that, while it may be argued that the UK does not have responsibility for the emissions produced in the manufacture of goods abroad which it then consumes, "we do have some influence over those emissions".[136]

73.  In the paper "Growth in emission transfers via international trade from 1990 to 2008", Glen Peters, from the Norwegian Center for International Climate and Environmental Research in Oslo, and others argued that the consumption approach could inform negotiations on what international agreement takes shape after Kyoto's first commitment period expires.[137] The Kyoto Protocol as it stands was designed at a time when international flows of carbon were much smaller: emissions embedded in trade grew from 4.3 GtCO2 in 1990 to 7.8 GtCO2 in 2008.[138] This rise in the carbon emissions embedded in international trade flows shows the increased importance of a consumption-based approach to assessing the emissions a country is responsible for.

74.  Professor Barrett told us that, at this point in the climate change negotiations, he would not argue for shifting the targets from away from the agreed territorial basis, but an increased acknowledgement of the UK's consumption emissions could:

[…] add further integrity to climate change debates; it helps give insights into responsibility […] it is about additional information to give us greater insight to widen our policy scope, not to try and totally redesign the whole international negotiations […] I think we are at a situation where we need to overcome the barriers [to a global agreement], and so therefore new information to me can only be useful to do that.[139]

75.  The University of Manchester's Dr Alice Bows added, "there will always be some emissions that we cannot necessarily have influence over and so it would be very tricky to set a target on [a consumption] basis".[140] On the other hand, Elena Dawkins of the University of York argued that "other countries might resist territorial emissions targets because they would impinge on their development goals. So maybe they will be more willing to accept that consumption approach".[141]

76.  The UK has been a leader on climate policy for many years. If the UK wishes to lead on low-carbon growth—and encourage emissions reductions in countries that manufacture and export goods to the UK—we recommend that the Government acknowledges the growth in the UK's consumption-based emissions. The Committee is not proposing that a legally binding agreement on emissions reductions should be based on consumption rather than territorial emissions. However, we do recommend that the Government acknowledge that the UK's consumption is driving up territorial emissions in other countries. This admission could increase the UK's leverage over those emissions. DECC should not dismiss out of hand the potential leverage of a more holistic assessment of the UK's emissions, and an acknowledgement that the UK's consumption drives up territorial emissions elsewhere.

Developing countries

77.  DECC were concerned that developing countries would be concerned that an emphasis on consumption-based accounting could lead to protectionist anti-trade policies. The Minister told us that he thought there was a danger "that it could be misinterpreted […] as a way of imposing tariff barriers and a new form of carbon duties on developing countries".[142] However, DECC also stated, "it could also be argued that developing countries should not be entirely responsible for emissions associated with goods and services that are mainly consumed in the developed world".[143]

78.  Sustainability consultants Best Foot Forward noted that territorial emissions accounting typically led to a situation "where developed countries outsource their industries to developing countries and the latter have to bear costs of reducing GHG [greenhouse gas] emissions".[144] Dr. Glen Peters' study estimated the consumption-based carbon dioxide emissions for 113 world regions.[145] A key finding was that although many developed countries (including the UK) stabilised their territorial emissions, there was often an associated increase in emissions in developing countries through manufacturing the imported goods and services.[146]

79.  We put it to the Minister that it was very likely that developing economies would like to have an acknowledgment at the negotiating table of how low their consumption-based emission were on a per capita basis compared to ours, and he acknowledged that this would be "very helpful".[147]

80.  We accept that territorial emissions should remain the basis for international climate negotiations. However, the UK Government's emphasis on territorial emissions means that the responsibility for reducing emissions embedded in the products that we import lies with the—often, developing—countries where the goods are manufactured. We accept there is a risk that some exporters could have concerns that an increased emphasis on consumption-based emissions by the UK could be a precursor to anti-trade policies that penalised high-carbon products. On balance, however, we conclude that the potential benefits of an increased emphasis on consumption based emissions outweigh this risk. We recommend that the Government acknowledges the extent of our responsibility for these emissions in developing countries, in order to encourage a more equitable approach to reducing emissions globally.

Border tariff adjustments

81.  It has been suggested that the emissions embodied in imported goods could be accounted for in a form of carbon taxation, called a "border tariff adjustment", as a product passes through a border. UKERC noted that there were well-documented examples of taxation on consumption (consumption in general, not emissions), such as VAT.[148] As an example, UKERC explained that there had been resistance by the Unites States for the initial proposal for VAT, on the grounds that "a tax on [its] exports presented a trade barrier".[149] However, academic evidence has suggested that a "move from an origin to a destination basis for tax would have the effect of changing [the] price [...] and consequently offered no competitive advantage to Europe".[150] This argument—that consumption taxes do not act as a trade barrier—could then be extended to a border tariff adjustment, or tax, on the carbon content of products as they pass into a country.

82.  EEF, the manufacturer's association noted that the UK has no powers to apply taxes at borders relating to a product's carbon content, as this is an EU prerogative.[151] Ian Rodgers, the Director of UK Steel, argued that, in the absence of a multilateral agreement where all the participants agree to suspend their rights in the World Trade Organisation, "border tax adjustments could lead to some serious trade disputes".[152] However, the University of Leeds' Professor Barrett made us aware of "Recent academic analysis or analysis by lawyers, [that] would suggest that it is possible to introduce border carbon agreements […] there are environmental clauses [under WTO rules] where such a tax could potentially be bought into play".[153] Dr Richard Leese of the Minerals Products Association added that "consumption-based accounting would give you the information to judge whether border adjustment is possible. The possibility of border adjustment mechanisms then gives you the leverage to use in an international agreement".[154] Guy Shrubsole of the Public Interest Research Centre suggested to us, "the potential for integrating environmental standards into bilateral trade deals […] should be looked at in much more detail".[155]

83.  We recognise that the introduction of border tariff adjustments, to account for the carbon embedded in a product as it crosses into a country, is unlikely to be welcomed by exporting countries, particular those whose economies are developing. We recommend that the Government examine the challenges and opportunities that border tariff adjustments present when considering ways to limit consumption emissions and mitigate leakage risks. The Committee on Climate Change has declared its willingness and availability to undertake an investigation into consumption-based emissions, including an exploration of border tariff adjustments.

128   Environmental Audit Committee, Carbon Budgets, September 2011, HC 1080 p 17 Back

129   Ev w30 Back

130   Ev 46 Back

131   Ev 63 Back

132   Ev 63 Back

133   Ev w30 Back

134   Policy Exchange, Carbon Omissions-Consumption-based accounting for international carbon emissions, October 2011, p 2 Back

135   Ev 81 Back

136   Q 9 Back

137   Author Affiliations: Center for International Climate and Environmental Research-Oslo, N-0318 Oslo, Norway; Department for Sustainable Engineering and the Department for the Economics of Climate Change, Technical University Berlin, Germany; Science and Technology Policy Institute, Washington, DC, USA; Civil and Environmental Engineering, Carnegie Mellon University, Pittsburgh, PA, USA; and Potsdam Institute for Climate Impact Research, Germany. Back

138   Peters, G. et al., 'Growth in emission transfers via international trade from 1990 to 2008', Proceedings of the National Academy of Sciences, vol. 108 no. 21, p 8903, March 2011 Back

139   Qq 9, 19 Back

140   Q 24 Back

141   Q 9 Back

142   Q 187 Back

143   Ev 46 Back

144   Ev w42 Back

145   Peters, G. et al., 'Growth in emission transfers via international trade from 1990 to 2008', Proceedings of the National Academy of Sciences, vol. 108 no. 21, p 8903-8908, March 2011 Back

146   Ev w30 Back

147   Q 188 Back

148   Ev w30 Back

149   Ev w30 Back

150   Ev w30 Back

151   Ev 67 Back

152   Q 54 Back

153   Qq 23, 28 Back

154   Q 55 Back

155   Q 86 Back

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Prepared 18 April 2012