The road to UNFCCC COP 18 and beyond - Energy and Climate Change Contents

9  Carbon taxes and embedded carbon

91. In our inquiry into Consumption Based Emissions Reporting, we concluded "There is a clear divergence between the UK's territorial emissions and its consumption-based emissions".[127] DECC's official greenhouse gases figures (which count territorial emissions from power stations and transport etc, within UK borders) showed an almost 20% reduction between 1990 and 2009.[128] But research commissioned by DEFRA revealed that greenhouse gas emissions were 20% higher in 2009 if emissions embedded in imports were included.[129]

92. These embedded emissions were left out of the Kyoto process—despite the successes of many EU countries in cutting territorial emissions, global emissions have not fallen because many of the territorial gains have been offset by importing goods manufactured elsewhere.[130]

93. There is a need to address these consumption based emissions but current policy instruments do not allow us to do so. Prof. Paavola said "In 20 or 30 years' time the majority of emissions are from consumption, not production, and the current policy instruments don't really give any leverage over that." [131] The pricing of embedded carbon could be achieved through a tax or through a cap-and trade system for carbon embedded in goods, so that the cost of carbon is also embedded as it crosses borders.[132]

94. We explored a border tax adjustment mechanism during the Consumption Based Emissions Reporting inquiry, specifically through border tax adjustments (BTAs) in which a tariff would be placed on the carbon embedded in a country's imports, bringing the price of the embedded carbon in line with that imposed on domestically produced carbon emissions.[133] Border tax adjustments can incentivise countries to introduce their own schemes to generate a carbon-pricing process so that they benefit from the tax too.[134] When this was put to DECC, they said "We are less than keen on starting an international trade war at a time of global recession."[135]

95. We welcome the Department's acknowledgement of our concerns as outlined in our Consumption Based Emissions Reporting inquiry and their plan to increase the prominence of consumption-based emissions alongside territorial emissions in their literature. However, this does not address the emissions due to embedded carbon, or go far enough towards tackling global emissions. As our report highlighted, we recognise the enormous difficulty of achieving a legally binding agreement on emissions reductions based on consumption rather than territorial emissions, not least because all international negotiations hitherto have been based on the latter. We are therefore not proposing that consumption based emissions should immediately be introduced into the international process. However we urge the Government to show leadership and acknowledge that consumption in the UK and some other developed countries is driving up territorial emissions elsewhere . This acknowledgement would encourage a more equitable approach to reducing emissions globally.

127   Energy and Climate Change Select Committee, Twelfth Report of Session 2010-12, Consumption Based Emissions Reporting, March 2012, HC 1646, para 15 Back

128   DECC Statistical Release, 31 March 2011, Back

129   Defra Statistical Release, 8 March 2012, Back

130   Q 117 Back

131   Q 127 [Prof. Jouni Paavola] Back

132   Q 112 Back

133   Energy and Climate Change Select Committee, Twelfth Report of Session 2010-12, Consumption Based Emissions Reporting, March 2012, HC 1646, p 34 Back

134   Q 118 Back

135   Q 224 Back

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Prepared 25 July 2012