Energy and Climate ChangeMemorandum submitted WWF-UK

Summary of WWF-UK Position on Consumption-based Emissions Reporting

1. WWF-UK welcomes this inquiry into consumption-based emissions reporting, an issue that we have been promoting awareness of for many years. We don’t believe it is credible for the UK to claim progress towards a sustainable, green economy unless we address the impact of both UK production and UK consumption. The UK’s production emissions are on a downward trajectory, although still at a much slower pace than necessary to meet carbon budgets or to play our fair share in averting dangerous climate change. However, the carbon footprint of our lifestyles increased by almost 20% between 1990 and 2008, mainly due to increased consumption of goods imported from overseas.1

2. For WWF-UK, this is not an either/or issue, as implied by the framing of the questions of this inquiry. The conventional production-based approach to emissions accounting and regulation is a well-established and powerful tool to guide the transition to a low, and ultimately zero-carbon, economy in the UK—notably in ensuring that we make a well-managed transition away from fossil fuel dependency. The consumption perspective should be taken into account alongside production emissions in a comprehensive strategy to minimise the UK’s overall contribution to climate change.

3. WWF-UK recommends that the well-established international framework for regulating and accounting for greenhouse gas emissions should continue to be focused on production rather than consumption data. However, consumption emissions could be one useful metric to feed into discussions on equity, along with existing principles such as historical responsibility and development status.

4. Recommendations:

4.1The Government should commit to reporting on consumption emissions data annually in the National Greenhouse Gas Inventory, alongside production emissions, as is the case in Scotland and Wales.

4.2The Government should commit to reducing emissions from UK consumption, and take into account the impact of policies on consumption emissions in policy appraisal.

4.3The Government should mandate the Committee on Climate Change (CCC) to provide analysis of consumption emissions and take impact on consumption emissions into account when making policy recommendations.

4.4The Government should step up support for efforts to reduce emissions in developing countries, including producer countries which provide goods for UK consumption. This includes provision of additional, new finance to support efforts to reduce deforestation and to promote clean technologies. The Government should redouble its efforts to secure innovative, secure sources of finance such as levies on international transportation and a well-designed financial transaction tax. Action to promote technology transfer and leverage private finance to support low-carbon development must also be a priority.

4.5The Government should confirm the inclusion of international aviation and shipping emissions in UK carbon budgets, and tighten budgets accordingly, when this issue is reviewed in 2012; and promote a global framework for reducing emissions from international aviation and shipping.

Responses to the Inquiry Questions

How do assessments of the UK’s greenhouse gas emissions differ when measured on a consumption rather than a production basis?

5. There are three main ways of reporting greenhouse gas emissions:

Territorial emissions: emissions from UK production reported as per the Kyoto framework, which excludes the UK’s contribution to international aviation and shipping emissions.

Production emissions: emissions from UK production including international aviation and shipping emissions.

Consumption emissions: emissions from goods and services consumed in the UK, including those embedded in imports, plus aviation and shipping emissions, but excluding emissions from goods exported from the UK.

6. According to the latest figures published by the Department for Environment, Food and Rural Affairs (Defra), consumption greenhouse gas emissions increased by almost 20% between 1990 and 2008, while production emissions decreased by 14% over the same period.2 According to the Department of Energy and Climate Change figures, territorial emissions decreased by 20% between 1990 and 2008.

7. The figures for 2008 greenhouse gas emissions were as follows:

Territorial emissions: 623.8 million tonnes of CO2 equivalent (mtCO2e).

Production emissions: 700 mtCO2e.

Consumption emissions: 1076 mtCO2e.

8. These figures demonstrate that the UK’s contribution to climate change extends much further than the territorial emissions included in the Kyoto framework. The stark difference in trends since 1990, with significant increases in consumption emissions, demonstrates that UK lifestyles are becoming increasingly carbon-intensive and unsustainable.

9. Aviation and shipping emissions account for about 17% of the difference between territorial and consumption emissions. The main factor in the difference is increasing reliance on imported goods, mainly from non-OECD countries.3

10. During this period, structural dynamics in the world economy have resulted in a shift towards service sectors and away from manufacturing in the UK economy. According to a 2009 report commissioned by Defra:

“The consumption perspective suggests that [territorial emissions reductions] should be mainly regarded as changes in the international division of labour (ie shifts in the allocation of production processes across the globe and changes in regional/national specialisation in the production of goods and services), where the UK increasingly specialises on the provision of services.”4

Hence broad dynamics of globalisation were the main driver, rather than environmental, climate or social policies implemented in the UK.

Is it possible to develop a robust methodology for measuring emissions on a consumption rather than production basis and what are the challenges that need to be overcome to deliver this?

11. Methodologies for measuring consumption emissions are improving to the extent that they can now be meaningfully monitored. The UK Government (through Defra) is confident enough in its methodology to publish consumption emissions data, though they are not included in the UK’s National Greenhouse Gas Inventory.5 Reports and data have been published relating to Scotland’s consumption emissions,6 and those of local authorities in Scotland7 and the UK as a whole.8 Furthermore, the governments in Scotland and Wales have both committed to publishing consumption emissions data alongside production emissions.9

12. The best methodology that WWF-UK is aware of is Multi-regional Input-Output (MRIO) modelling. WWF-UK is not an expert on methodology, but we have worked with the following and can recommend their authority on this subject:

John Barrett, University of Leeds.

Edgar Hertwhich, Norwegian University of Science and Technology (NTNU).

Glen Peters, Centre for International Climate and Environmental Research (Cicero).

13. Software tools for policy makers are available, based on MRIO, such as the Resource and Energy Analysis Programme (REAP). WWF-UK has led a consortium of European partners to develop a new version of REAP for EU national and regional policy makers (EUREAPA) which will be launched in November 2011, see
http://www.oneplaneteconomynetwork.org/index.html.

What are the benefits and disadvantages associated with taking a consumption-based rather than production-based approach to greenhouse gas emissions accounting?

14. As mentioned in our summary, we do not recommend that a consumption-based approach to emissions accounting is adopted rather than a production-based approach. Consumption emissions should be accounted for alongside production emissions.

15. It is critical that the UK retains its current strong focus on production emissions, as enshrined in the Climate Change Act and carbon budgets. It is in the UK’s national interest to decarbonise as swiftly as possible. This will improve our energy security, reduce reliance on imported and costly fossil fuels, and create opportunities for new green jobs and industries. The production-based approach also has considerable merits in that the levers to address these emissions are clearly within the direct control and mandate of UK policymakers.

16. Strong action to reduce the UK’s emissions, including the Government’s acceptance of the fourth carbon budget, is important in demonstrating commitment and promoting an international effort to minimise the impacts of climate change. Indeed, it is encouraging to see that many countries are now looking to the UK Climate Change Act as a model to guide their own transition to a low-carbon economy, with Denmark and Australia recently confirming that they intend to introduce similar national legislation.

17. We also believe it is critical to address emissions arising from UK consumption for the following reasons:

The UK has a moral responsibility to minimise the impact of its footprint on people and nature around the world.

The UK has a strategic interest in the transition to a low footprint, low carbon society to ensure food, energy and economic security.

Action in the UK inspires action in other countries towards a global effort. Conversely, inaction in the UK undermines our credibility when urging other countries to act.

18. Parallel reporting on the UK’s consumption-based emissions can help to identify any risk of perverse consequences arising from a sole focus on production-based emissions. Any accounting methodology can lead to perverse consequences if applied unthinkingly. For example, the convention that bioenergy is zero-carbon at the point of combustion ignores the sometimes large emissions arising during production of the fuel, with the risk that climate change policies could incentivise net increases in global emissions. Recognising these risks, and taking compensating policy action, is vital.

19. Consumption based accounting can also help to identify areas for specific additional policy interventions to reduce the UK’s consumption footprint. It is a particularly useful tool for companies, notably in the food sector, to examine emissions along the full length of their supply chain.

20. We note that the Government has one early opportunity to address part of the disparity between consumption and territorial emissions. Emissions from international aviation and shipping are growing rapidly, but are not accounted for under the existing Kyoto framework. Under the Climate Change Act, the Government must include the UK’s share of international aviation and shipping emissions within the carbon budgets by the end of 2012, or give a clear justification for failing to do so. WWF-UK believes that the Government should clearly include the UK’s share of international transport emissions within the carbon budgets, and ensure that targets for the rest of the economy are tightened accordingly. The UK must also redouble its efforts to secure an international agreement to address emissions from aviation and shipping, and also to raise finance from these sectors to support climate action in developing countries.10

Is there any evidence of industry relocating from the UK to other countries as a result of UK climate change policy?

21. WWF-UK is not aware of evidence that UK climate change policy has had a significant effect on industry relocating from the UK. It is clear that previous claims that business is being driven overseas by carbon regulation, including the EU Emissions Trading Scheme, have been shown to be greatly exaggerated or even groundless. In terms of future impact, the Carbon Trust estimates that “implementing the current EU ETS Phase III targets to 2020 without any free allocation of allowances or protection would drive less than 2% of emissions abroad.”11 In practice, there is significant free allocation to manufacturing industry, and the Carbon Trust concludes that the risks of carbon leakage are largely confined to certain sub-sectors.

22. However, some industry bodies are now expressing strong concern about the impact of future policies. Several industry bodies and companies in sectors such as steel manufacturing have lobbied strongly against policies that could increase electricity prices, notably the carbon floor price, and also the fourth carbon budget. WWF-UK notes that many of the same bodies are also lobbying strongly against any increase in the EU emissions target—in striking contrast to a growing body of more progressive business voices.12

23. Heavy industry faces two main issues: the carbon price under the ETS; and any increase in electricity prices as a result of climate change policies. On the former, it is worth noting that manufacturing sectors have received extremely generous allocations under the EU ETS, and may continue to do so going forward.13 Analysis by Sandbag shows that Tata Steel’s UK operations have so far received more than 71 million surplus allowances, representing a windfall of some Euros 335 million. On the issue of carbon and electricity prices, it is also worth noting that the carbon floor price does nothing new. The original EU climate package of 2008 foresaw a 2020 carbon price of Euros 30 per tonne. In 2010, this expectation dropped to 16 EUR/tonne by 2020. The carbon floor price essentially recalibrates climate action to be consistent with the level of ambition planned in 2008.

24. Potential impacts on manufacturing industry must be taken seriously, but numerous independent analyses suggest that the risks of “carbon leakage” have been significantly over-stated and that only a few sectors face genuine issues. It is also very important to ensure that any continuation of longstanding trends in the restructuring of manufacturing industry is not unfairly attributed to climate policy. WWF-UK looks forward to the Government’s forthcoming policy to address these issues, but thinks it essential that the overall ambition of climate change policies should not be diluted. We are not convinced that a wholesale move to consumption-based reporting or targets would be an appropriate response to address the specific concerns. If genuine risks are found to exist, then more tailored policies to correct any distortions in particular sectors would be more effective.

25. WWF-UK also believes that it is important to recognise that many countries—including in the developing world—have now pledged emission reduction goals for 2020. These include countries such as Brazil, China and Indonesia that are significant exporters of goods that are consumed in the UK. The collective ambition of pledges put forward by all parties falls far short of what is needed to put the world on a pathway to stay below 2°C warming14—quite simply, all major economies need to raise their ambition. This clearly includes the EU, which has so far failed to increase its emissions pledge for 2020 from a 20% reduction below 1990 levels which is now little more than business as usual. It also includes the UK, which has rejected the recommendations from the Committee on Climate Change to increase the ambition of the first three carbon budgets and remains pegged to low levels of EU ambition. While the fourth carbon budget is better aligned with what is necessary, it is subject to a review in 2014, and again has been linked to EU progress.

26. However, WWF-UK rejects the simplistic view which implies that manufacturing industry may leave the UK or EU because developing countries are not pulling their weight. A recent analysis by the Stockholm Environment Institute found that the developing countries have pledged to reduce emissions by considerably more than developed economies.15 Similarly, analysis of country pledges by Climate Action Tracker shows that most developed country pledges—including the EU’s 20% target for 2020—are “inadequate” when set against the 2°C objective.16 In general, most developing country pledges are seen as more ambitious, although Climate Action Tracker recently downgraded its assessment of China’s pledge. Of course, any comparison of developed and developing country action must also take full account of differences in development status, capacity to act, per capita emissions and historical responsibility, as enshrined in the principle of common but differentiated responsibilities and capabilities under the UN Framework Convention on Climate Change (UNFCCC).

Would it be (a) desirable and (b) practicable for the UK to adopt emissions reduction targets on a consumption rather than production basis?

27. WWF-UK would in principle support the adoption of a consumption emissions target in the UK, as well as the production based target. At the very least the Government should report on consumption emissions and commit to putting them on a downward trajectory. This should not be at the expense of the current strong focus to reduce production emissions, where WWF-UK sees a strong case to set more ambitious targets and to greatly improve the policy framework to ensure they are met. As a minimum, the Government should urgently adopt the “intended” first, second and third carbon budgets, as recommended by the Committee on Climate Change (CCC). Without this there is a strong risk that meeting the fourth carbon budget will require an implausible step change. WWF-UK also strongly endorses the CCC’s call for a near decarbonisation of the power sector by 2030, and its warnings that a “step change” in policy ambition and credibility is needed to deliver on our targets under the Climate Change Act.

What are the potential implications at the international level of the UK adopting a consumption—rather than production-based approach to greenhouse gas emissions accounting?

28. The current Kyoto framework is based on production emissions. It is extremely well-established, and based on good quality data sets and monitoring protocols. WWF-UK strongly recommends that the UK and all parties to the UNFCCC should continue to work clearly within this framework.

29. The UK should not promote a shift to an international policy framework based on consumption emissions. This proposal would have very little support internationally and would threaten the emergence of a new binding global deal. It would raise difficult issues of sovereignty over control of emissions within national borders. It could also soak up much negotiating time and effort, so distracting governments and negotiators from the urgent task of agreeing an early peak in global emissions and a legally binding framework to deliver this. The priority must be to secure more ambitious action, and to close loopholes, within the existing framework.

30. However, it is important that levels of effort agreed by nations are informed by clear equity-based principles to ensure that any global agreement is fair. Consideration of the dynamics of global trade, and the use of consumption emissions data, could usefully contribute to discussions on equity in the global framework. This criterion would be taken into account alongside established principles such as historical responsibility, per capita emissions and development status.

October 2011

References

1 Defra 2011, see: http://www.defra.gov.uk/statistics/environment/green-economy/scptb01-ems/

2 See: http://www.defra.gov.uk/statistics/environment/green-economy/scptb01-ems/

3 Minx, J C, Baiocchi, G, Wiedmann, T and Barrett, J, 2009, Understanding Changes in UK CO2 Emissions 1992–2004: A Structural Decomposition Analysis, Report to Defra by Stockholm Environment Institute.

4 Ibid, p 34.

5 Defra 2010, Measuring Progress, Sustainable Development Indicators.

6 Stockholm Environment Institute, 2009, Production of a Time Series of Scotland’s Ecological and Greenhouse Gas Footprints.

7 WWF-UK, SEI and Sustainable Scotland Network 2009, Carbon footprinting for Scottish local authorities:
http://www.sustainable-scotland.net/documents/WWF-UKScotlandFullReportARTForWeb.pdf

8 WWF-UK and SEI 2006, Counting Consumption:
http://www.WWF-UK.org.uk/filelibrary/pdf/countingconsumption.pdf

9 See Scottish Climate Change Act 2009 and Welsh Climate Change Strategy 2010.

10 See, for example, Out of the Bunker: Time for a Fair Deal on Shipping Emissions, a recent WWF-UK/Oxfam briefing paper on http://assets.WWF-UK.org.uk/downloads/bn_out_of_the_bunker.pdf

11 Carbon Trust 2010, Tackling Carbon Leakage.

12 http://www.theclimategroup.org/_assets/files/JointBusinessDeclaration-June-3.pdf

13 http://www.sandbag.org.uk/site_media/pdfs/press_releases/PR_EUETS_dataUKrelease_1April2011.pdf

14 See The Emissions Gap Report: Are the Copenhagen Accord Pledges Sufficient to Limit Global Warming to 2C or 1.5C?, UNEP November 2010, http://www.unep.org/publications/ebooks/emissionsgapreport/

15 Comparison of Annex 1 and non-Annex 1 pledges under the Cancun Agreements, Sivan Kartha and Peter Erickson, Stockholm Environment Institute, Working Paper WP-US-1107, on
http://sei-international.org/mediamanager/documents/Publications/Climate/sei-workingpaperus-1107.pdf

16 See data on http://www.climateactiontracker.org/country.php

Prepared 16th April 2012