Energy and Climate ChangeMemorandum submitted by the Carbon Trust

Thank you for this opportunity to submit evidence to the Energy and Climate Change Committee’s inquiry into consumption-based emissions reporting. The Carbon Trust has an extensive history of domestic and international activities that are directly relevant to this issue, including:

PAS 2050: the Carbon Trust authored the world’s first product carbon footprinting standard, with accompanying accreditation programme.

Footprinting: the Carbon Trust has worked with a range of companies to provide product-level carbon footprinting and labelling services.

International Carbon Flows: our recently published study on global and sectoral flows of emissions embodied in trade.

Low Carbon Living: our programme of work on options for reducing the emissions intensity of every-day activities.

Enclosed with this letter is our recent analysis of international carbon flows embodied in international trade, and the importance of these flows at a national and sectoral level. This International Carbon Flows (ICF) analysis is referenced in our response to the Committee’s questions below.

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

The UK’s GHG emissions are significantly larger when viewed from a consumption, rather than production basis. Analysis by the Carbon Trust, drawing on models developed by the Stockholm Environment Institute, shows that in 2004 the UK’s consumption CO2 emissions were 34% greater than (the usually reported) production emissions (see Figure 1).

The majority of the net emissions imports into the UK were in the form of final goods for consumption. Our analysis shows that the importance of imported emissions in the UK has grown markedly between 1992 and 2004, and our modelling suggests that within 15 years more than half of the emissions arising from consumption in the UK will be occurring overseas. (Further details, and a full analysis of UK emissions from a consumption perspective, are available in the ICF chapter on Global emissions, pages 11 to 18.)

2. 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?

Not only is modelling consumption-based emissions possible, but it is being successfully carried out by a number of research institutes and government organisations. There are difficulties in determining the uncertainty associated with specific model results, and research has been conducted on this very point: however, in terms of informing policy development, any real or perceived uncertainty in the modelling approaches should not be used as a basis for inaction.

Figure 1


At a national level, approaches such as multi-regional input-output models (MRIO - the type of modelling behind our ICF publication) are suitable for country and sector-level estimates of consumption-based emissions (eg Figure 1). At a product level, life cycle assessment approaches such as those behind the PAS 2050 standard, and the recently published WRI/WBCSD Product GHG Protocol, provide a bottom up assessment of life cycle emissions. Both levels of analysis are important, and relevant at different scales: MRIO approaches inform overall targets and goals at a country level, while specific policies and consumer information programmes could leverage the product-level standards that are available.

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

It is not necessary to choose one approach to emissions assessment over another, as emissions assessments from both production and consumption perspectives are valuable. Consumption-based approaches offer additional insights and approaches to the current production-based view, and should not be viewed as a substitute.

The benefits of including a consumption-based view of GHG emissions are multi-fold: correct accounting for national responsibility for emissions; identification of the opportunities for new policies to support environmental action; and identification of new levers for business and consumers to drive lower carbon consumption. Specific examples of how a consumption-based view of emissions would be relevant include:

EU Emissions Trading System: the EU ETS operates on a production emissions basis, yet for some sectors the consumption view of emissions is dominated by embodied emissions imported in trade. For example, two-thirds of the emissions arising from aluminium consumption in Europe arise outside of the EU ETS (see the ICF chapter on Aluminium, page 11).

Performance standards: current EU approaches to vehicle emissions focus on use-phase efficiency, while a consumption perspective reveals that within a decade most emissions in the life cycle of vehicles could arise from manufacturing and disposal (see ICF Automotive: page 14).

Need for investment: with demand forecast to increase at the same time that emissions need to fall in sectors such as steel, there is a need for far greater innovation investment to unlock a step-change in emissions reductions through the commercialisation of new technologies (see the ICF chapter on Steel, page 19).

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

The Carbon Trust has previously published research on the impact of leakage arising from emissions pricing under the EU ETS. This research suggested that the scale of leakage from carbon pricing is expected to be small, and the risks tend to be focussed in specific sectors. This earlier finding is supported by more recent work by the Carbon Trust, which showed that:

(a)the projected growth in importance of “imported” emissions arises from greater consumption in Europe rather than from carbon leakage (see Figure 2), and

(b)the relative cost advantages enjoyed by other regions (compared to the EU) for the development of new production facilities in some sectors such as aluminium and steel exist irrespective of EU ETS emissions pricing (eg see ICF Aluminium: page 8).

Figure 2


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

We believe that this question should be viewed the other way around: how is it possible for the UK to genuinely demonstrate that its policies are achieving lower emissions unless it considers all emissions that arise to support our standard of living in the UK? This does not mean the immediate replacement of current policies; however, an informed debate about the costs and impacts of emissions mitigation policies cannot be had if a significant part of those emissions are not being accounted for.

The second stage in this process could be setting emissions reduction targets on a consumption basis. This would involve measuring emissions from a consumption basis, identifying opportunities to reduce the emissions intensity of consumption, the policies and actions that might enable these, and potentially setting targets on a consumption basis.

The practicality of supply chain emissions assessment has already been demonstrated at a product level (product carbon footprinting and labelling), and work is continuing to improve these processes and make them lower cost.

6. 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?

It is important to be clear on what “adopting” means in this context. In relation to question 5, the international implications of the UK adopting a consumption-based measurement and reporting approach are low, as it would essentially act as a parallel reporting mechanism alongside the conventional production-based accounts. However, were the UK to adopt consumption-based targets, and policies that limited consumption emissions, then there would be potential for wide-ranging international implications. Further work would be beneficial in understanding the impacts arising from different policy responses to consumption-based accounting.

7. Are there any other issues relating to consumption-based emissions reporting that you think the Committee should be aware of?

In our experience, most discussions around consumption-based approaches to emissions policies, and in particular consumption-based emissions pricing, quickly gravitate towards the advantages and disadvantages of border adjustment measures. While this is a potential policy route, it is important for the Committee to keep in mind that there are a wide variety of approaches that could be adopted to support consumption-based action on emissions mitigation. For example, generating value in the consumers’ mind over the desirability of lower emissions products could embed consumption and supply chain based thinking in a wide range of consumer products, from foods to clothing and electronics.

October 2011

Prepared 16th April 2012