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Estimating Greenhouse Gas Emissions

Does Production-based Methodology Reflect the Global Economic Reality?

Himangana Gupta (himangana@gmail.com) is programme officer, National Communication Cell, Ministry of Environment, Forest and Climate Change, New Delhi. Rajani Ranjan Rashmi (rr.rashmi@nic.in) is special secretary, Ministry of Environment, Forest and Climate Change, New Delhi. J R Bhatt (jrbhatt@nic.in) is adviser, Ministry of Environment, Forest and Climate Change, New Delhi.

There is a growing realisation among the scientific community that the current production-based greenhouse gas accounting framework does not capture the true essence of responsibilities towards global emissions. While production emissions of developed countries have decreased, consumption has gone up. We argue that this is due to the shifting of energy-intensive industries to developing countries. The increasing gap between consumption and production emissions not only distorts responsibility, but also affects developing countries’ ability to fulfil their nationally determined contributions. We discuss the implications and possibilities of a consumption-based methodology for GHG estimating and argue that such accounting is necessary to increase the system’s transparency.

The quantum and distribution of greenhouse gas (GHG) emissions produced by various sources across different countries is a matter of scientific and politico-economic enquiry. The issue has huge implications for sustainable development and has prompted intense debate on the nature and growth of emissions around the world in the context of climate change. As the Paris Agreement commits all countries to cut emissions within their national territories, the issue of net transfers of emissions from Non-annex I to Annex I countries has become more important than ever before. A proper analysis of the methodologies employed to estimate emissions is key to understanding the sources and impact of such emissions on human society and populations in a globalised world.

The current methodology used by governments for estimating emissions as part of the international agreement on climate change—the United Nations Framework Convention on Climate Change (UNFCCC)—is devised by the Intergovernmental Panel on Climate Change (IPCC). The IPCC is a scientific intergovernmental body set up by the World Meteorological Organization (WMO) and the United Nations Environment Programme (UNEP). The IPCC is tasked with assessing the research on climate change and related scientific issues, including GHG emissions, and making projections regarding climate change scenarios.

The current methodology for calculating emissions from countries is based on IPCC 1996 and 2006 guidelines. The methodology prescribed for preparing national inventory reports to be presented by governments, as members of the UNFCCC, is based on the production-based GHG accounting framework. Production emissions include those from within the territorial boundary of a country, while consumption emissions are calculated based on the actual use of products with embedded emissions, which may be produced elsewhere but are consumed within the country. As per IPCC 2006 guidelines, national inventories include GHG emissions and removals through carbon sinks within national territories and offshore areas over which the country has jurisdiction. This calls for estimating (i) production emissions of GHGs in the case of industrial processes and product use (IPPU); and (ii) consumption emissions of GHGs in the energy sector (coal and petroleum consumed).

This methodology, however, does not account for emissions generated in making products that are exported and consumed outside the country’s boundaries. This loophole has generally benefited countries that are net importers of consumption products; they reduce their emissions by outsourcing production-linked emissions. Several developed countries, thus, are “importing” or outsourcing about a third of their carbon
dioxide (CO2) emissions (Davis and Caldeira 2010). The current methodology, therefore, does not reflect the true global divide in terms of economic growth and output. Although voices are beginning to emerge—especially from the academic field—and are calling for proper accounting of outsourced emissions, it has been difficult to develop a strong and scientifically robust methodology for estimating emissions so that it is based on the consumption of goods and services, and at the same time, attributes emissions to nations as per the established principles of accounting.

The principle negotiated under the UNFCCC and the Kyoto Protocol (1997) for determining nations’ responsibilities towards climate change—that is, the apportionment of the accumulated stock of global GHG emissions—gives us an indication of how and why the production-based methodology of estimating emissions became the recognised basis for responsibility attribution. Although the UNFCCC, negotiated in 1991, does not directly speak of historical emissions as the basis for determining the responsibilities of governments, it is clear from the classification of the countries into Annex I and Non-annex I (that is, industrialised and non-industrialised, respectively) that the negotiators had agreed that production was the most scientifically and politically acceptable proxy for emissions. This was sanctified under the common but differentiated responsibilities (CBDR) principle under the UNFCCC. This scheme of division was further clarified in the Kyoto Protocol, which refers specifically to historical emissions.

The principle of CBDR, however, appears to have lulled Non-annex I countries into complacency and the belief that they will not be required to manage or moderate their emissions in the foreseeable future. In the years following the signing of the UNFCCC, the inexorable economic developments caused by multinational corporations relocating traditional brick-and-mortar industries from the developed to the developing world were either lost on environmental negotiators or failed to find space in their approach to negotiations. While the negotiators sought to restore the balance in terms of environmental
actions to favour emerging and developing economies, they did not account for the environmental and economic impact of Annex I countries shifting their energy-intensive production facilities to Non-annex I countries. As much as a third of China’s increase in emissions during the last decade can be ascribed to emission-intensive manufacturing units that were shifted there from Annex I countries in the name of foreign investment and comparative advantage (Weber et al 2008).

The transfer of energy-based production emissions through industrial relocation, in addition to the independent economic growth of developing countries, is responsible in a large measure for the increase in their emissions. Significantly, despite a decrease in production emissions in Annex I countries, their per capita emissions continue to be high, primarily because emissions in developing countries caused by the production of goods to be consumed in developed countries are not attributed to the consuming nations according to the inventory accounting framework, which is based on production. Therefore, there is debate and analysis surrounding whether consumption-based accounting of emissions can be used to measure the real responsibility of nations either in a historical or contemporary sense.

Consumption-based emissions can be measured, but the science and methodology behind it is still young. For instance, the United Kingdom (UK) uses three different approaches to measure GHGs: (i) Territorial basis: these are production emissions from within the country. (ii) Production or residents basis: these are production emissions created by UK residents or companies, whether within the country or overseas. (iii) Consumption basis: these data measure the goods and services consumed and account for goods and services imported or exported.

Stock versus Flow Emissions

The question of whether to allocate responsibilities based on a country’s historical stock of emissions versus the flow of emissions has been perennial and constantly debated over the years, from environmental and economic perspectives. The debate subsided soon after the adoption of the UNFCCC, as the convention recognised the differing contributions of groups of countries to the damage caused to the environment; such countries were broadly categorised according to their status as industrialised and non-industrialised countries (Annex I and Non-annex I). As noted earlier, this was one of the reasons why the international community (including the United States [US]) accepted the principle of CBDR—a widely acclaimed notion in the parlance of environmental protection and management—and its direct elaboration in the form of the historical responsibility principle, which was enshrined in the Kyoto Protocol (UN 1998).

Historical responsibility for cumulative emissions is the political expression of the environmental or scientific notion of carbon space, which determines the nature and extent of climate change. The need to preserve equity in carbon space was eloquently argued in the preamble of the UNFCCC, which noted that

the largest share of historical and current global emissions of greenhouse gases has originated in developed countries, that per capita emissions in developing countries are still relatively low and that the share of global emissions originating in developing countries will grow to meet their social and development needs. (UN 1992: 1)

The debate on the stock versus flow of emissions resurfaced in 2008, when the implementation of the first commitment period of the Kyoto Protocol (2008–12) commenced. Complex algorithms have since been developed to assign absolute carbon spaces to different countries and regions. Countries that were the source of the largest stock of historical emissions and had the primary responsibility of achieving the quantified targets of the Kyoto Protocol were vocal in raising the issue; they pointed towards the postcolonial dynamics of growth in developing countries and the economic changes in the post-industrial phase of growth in the developed world. Developed countries wanted the world to turn a new leaf and start reframing goals and targets on the basis of current emissions and the flow of emissions. They also cut the period of industrialisation into two parts—pre- and post-UNFCCC—because in the post-1990s period, both the stock and flow of emissions from developing countries had caught up with those of developed countries.

Pre- and Post-UNFCCC Emissions Scenarios

Developing countries were late movers in terms of industrialisation, and they also needed time to overcome the damage caused by the exploitation of their natural resources, either as a result of colonial domination or a lack of access to environment-friendly modern technologies. Emissions from developing countries, therefore, remained low until the pre-UNFCCC period. Table 1 presents the cumulative emissions of developed and developing countries between 1850–2010 and 1990–2010.

Going by cumulative estimates, developed countries accounted for more than 70% of total emissions from 1850 to 2010, whereas the developing world accounted for less than 29% in the same period. In the post-UNFCCC period (1990–2010), the US still ranked highest in cumulative emissions (18%), but the Non-annex I countries had caught up with the Annex I countries, accounting for nearly equal emissions by the end of 2010.

The flow emissions from Annex I countries comprised ~67% of world emissions in 1990. They reduced to ~52% in 2005, and Non-annex I emissions overtook those of industrialised countries and reached ~59% by 2012. However, this is no indication of the economic potential of emissions. Table 3 shows the gross domestic product (GDP) estimates of these countries against rising emissions, revealing the divergence between emissions, output, and incomes. Note the low correlation of emissions with per capita incomes.

Reductions in the developed countries’ share of world emissions from 67% to 41% and the corresponding increase in emissions from developing countries (Table 2) in 22 years are hardly an indicator of restored equity in the environmental balance or in economic output, considering the fact that the population of Annex I countries is less than 18%1 of the world’s population. Moreover, a major contribution to this decline was made by the Russian Federation, whose emissions dropped from 11% of the world’s emissions to just 5%. Table 4 (p 41) shows the countries in Annex I that contributed to the reduction in emissions.

Between 1990 and 2000, emissions from economies in transition (EIT), that is, 14 Annex I countries that emerged from the break-up of the Soviet Union and its allies, dropped by 41.7%, from 6.38 to 3.72 gigatonnes of CO2 equivalent (GtCO2eq) per year; meanwhile, non-EIT emissions increased by 8.8%, from 13.38 to 14.57 GtCO2eq per year in the same period (Table 3). The emissions of EIT countries increased slowly to 3.96 GtCO2eq in 2014 and registered a drop of 38% from the 1990 level, while the emissions of non-EIT countries increased by 1.36% above the base year. Total Annex I emissions dropped by 11.35% by 2014 due to major contributions by EIT countries, whose manufacturing industries and economies collapsed following the dissolution of the Soviet Union (Gupta 2014).

In the global CO2 increase of 11.22 gigatonnes (Gt) between 1990 and 2012, China accounted for more than half, at 6.79 Gt, constituting an increase of 276% (Table 2). In the same period, India’s emissions increased by 230%, from 0.69 to 2.28 Gt. The US, which had committed to a Kyoto Protocol target of 7% reduction from the 1990 level, instead increased its emissions by 5.39%.2 The relatively high rate of growth of emissions in Asian countries during this period can be attributed as much to a growing consumer culture and the rise in disposable incomes in these countries as to the rising levels of production associated with the growth of export-led or independent foreign direct investments (FDIs). Table 5 shows the emissions, GDP, and FDI in the top 10 emitting Non-annex I countries.

Since the 1990s, emissions, GDP, and FDI flows have shown increasing trends in Non-annex I countries. In 1990, the correlation coefficient (r) of emissions with GDP was positive but weak (0.45) and became strong in 2005 (0.9) and 2012 (0.97). The correlation of FDI with emissions was similarly weak (0.53) in 1990, and strong in 2005 (0.95) and 2012 (0.93). This shows that the GDP of Non-annex I countries at the beginning of the UNFCCC process was not as energy-intensive as it later became. Between 1990 and 2005, the average FDI of the top 10 Non-annex I emitters increased by 16 times and doubled in 2012 from the 2005 level. Stronger correlations with emissions in 2005 and 2012 point to the possibility that most of this FDI could be energy-intensive.

There has increasingly been a trend of shifting polluting industries to eastern destinations, including China, India, Taiwan, and other South East Asian countries. This was especially beneficial for the manufacturing sector from the North, since environmental costs in developing countries that were exempt from Kyoto Protocol commitments were low.

It has been estimated that a third of China’s increase in emissions was due to the shifting of emission-intensive manufacturing units away from Annex I countries, in the name of foreign investment and comparative advantage (Weber et al 2008). A study by Davis and Caldeira (2010), using a global trade database to track goods and services, and assigning emissions to the countries where they were used, found that developed countries were “importing” or outsourcing about a third of their CO2 emissions. Nearly a quarter of China’s emissions were from goods exported to the West.

While China and other Non-annex I countries have benefited from economic development and growth in exports, the fact that developed countries also benefit by passing on a reduction in emissions and higher economic gain to consumers in the form of the reduced prices, is often glossed over. It may be argued that developed countries should be held at least partly responsible for emissions that occur because of their demand for low-priced goods. Table 6 shows the changes in emissions from industrial processes in the Annex I countries between 1990 and 2010. An overall decrease in emissions was achieved in different types of industrial processes, except for production under the head “other production” and “other,” in which emissions increased. These are likely to be technologically sensitive and defence sectors, the production of which have not shifted abroad for strategic reasons. The table shows a huge gap between the production and consumption of halocarbons and SF6, whereas production emissions decreased by 86% and consumption emissions increased by 484%. It is important to notice that the global warming potential of SF6 is 22,800 (in kilotonnes of CO2 equivalent). Such high-emitting industries are now primarily located in the developing world.

Trends in Consumption and Production Emissions

A comparison of production and consumption emissions trends for the 10 top emitters shows that China, India, and the Russian Federation were net emission exporters, while all others were net importers (Table 7, p 42). The emissions increase from non-EIT Annex I countries was more than compensated for by the collapse of EIT countries that were part of the Soviet bloc at the beginning of the 1990s, and the resultant drop in emissions due to the drastic fall in the industrial production of the newly independent countries in the EIT category. While industries in the developed world became more energy efficient, the major cause for the decrease in their emissions, as pointed out earlier, was the shifting of highly energy-intensive industries to developing countries. This is particularly evident in the emission trends in the EU. Another reason for the reduction in the EU’s emissions is that it contains 11 EIT countries, whose production and economies collapsed in 1991 and have not yet completely recovered.

Looking at the most recent and comprehensive global figures (Table 7), it is evident that the reduction in carbon emissions in developed countries has been cancelled out many times over by increases in imported goods from developing countries such as China. Around one-seventh of China’s total territorial emissions in 2012 were transferred; the total transfers in 2010 were even higher than in 2012. The decrease in emission transfers in 2012 contrary to the rising trend is likely due to the global economic slowdown. The consumption emissions of Non-annex I countries grew by a compound annual growth rate (CAGR) of 4.25%, while those of Annex I countries grew merely by 0.08%. Here, again, if we omit the consumption emissions of 14 EIT countries, the CAGR of non-EIT Annex I countries turns out to be 0.52%, and that of EIT is 1.62%. The consumption emissions of Non-annex I countries overtook those of Annex I between 2008 and 2009 (Figure 1). Although consumption emissions have been increasing in developing countries as a result of an improvement in standards of living, Non-annex I countries have also sustained the growth in consumption emissions in Annex I countries through emission transfers, without having the corresponding environmental benefits.

In 1990, the emissions of 43 Annex I countries were double the emissions of the rest of the world. As consumption emissions from both Annex I and Non-annex I countries are constantly rising, whether or not a delinking of economic growth and per capita production-based GHG emissions is also occurring in terms of consumption-based GHG emissions must be examined. If not, the notion of “carbon decoupling” also must be rethought, in terms of a delinking between growth and consumption-based GHG emissions. It is no environment-friendly achievement for domestic per capita carbon emissions to be reduced by outsourcing carbon-intensive activities to other countries and by becoming a net importer of GHGs, while
simultaneously increasing consumption and living standards (Mir and Storm 2016).

Most developed countries have increased their consumption-based emissions faster than their territorial emissions, and non-energy-intensive manufacturing has played a key role in emission transfers. Based on the latest available data, 1,285 million tonnes (mt) of CO2 emissions were transferred from Non-annex I countries to Annex I countries in 2012. China alone transferred more emissions than the negative transfers of the entirety of Annex I, despite the Russian Federation being the major exporter in the group. Annex I countries increased their consumption emissions by 0.33% from 1990, while their territorial CO2 emissions decreased by 7.57%. Amongst the Organisation for Economic Co-operation and Development (OECD) countries, consumption emissions in the US rose by 14.5%, while the production emissions within its borders (territorial emissions) increased by 5.38%. The rise in consumption emissions in Japan was as high as 15.69%, while its production emissions rose by 11.8%. The consumption emissions of the European Union (EU 28) rose by 88 mt between 1990 and 2005; however, by 2012, it dropped significantly by 621 mt from 2005. Still, the net transfers were negative in every year under study. This could be because the EU expanded in 2004 and 2007 to include 11 EIT states. As such, the consumption emissions of EIT countries in general dropped by 30.19%, while those of EIT countries within the EU dropped by 23.62% (Table 8). If EIT countries are excluded from Annex I, the true change in consumption emissions would be a 9.92% increase.

Transfer of Emissions via Consumption

Despite the emergence of regional climate policies, the growth in global CO2 emissions has remained strong. From 1990 to 2012, CO2 emissions in Annex I countries stabilised or declined, but emissions in developing countries increased by 164.5%. Studies have suggested that the stabilisation of emissions in developed countries was partially because of the growth in the import of consumption goods from developing countries (Peters et al 2011).

Net emission transfers via international trade from developing to developed countries increased from 109.47 Mt in 1990 to 1,247 Mt in 2012, thus bypassing the Kyoto Protocol emission reduction obligations of Annex I countries. Trade plays a major role in defining these emissions. For example, during the past half century, there has been an unprecedented expansion in trade, including between developing and developed countries, which has also resulted in the shifting of emissions from the developed to the developing world. While the production sector in the developing world has grown, the tertiary or service sector has been growing faster in the developed world. However, there has been only a limited amount of research aimed at analysing the welfare and policy consequences of trade when production (or consumption) in one sector of the economy is the source of pollution in other countries, or how trade affects GHG emissions (WTO and UNEP 2009). Developing countries’ share in world merchandise trade (exports plus
imports) reached a new record level of 34% in 2007 (WTO Secretariat 2008). Consumption emissions keep changing, but their estimation is important in judging the actual flow of emissions and the resultant carbon leakage, if any. It will also represent the true global divide in emissions and changing patterns in consumption among these countries.

In most major developing countries (including India and China), production emissions have been higher than consumption emissions. In India, consumption emissions have been lower than production emissions since 1990, even though net emission transfers in 2012 were as high as 198 MtCO2. This is also important considering that India is a net energy importer. Almost 83% of India’s crude oil is imported. While India’s dependence on imported fuel sources is likely to continue in the foreseeable future, the national strategy is increasingly to encourage the development of renewable sources of energy through the use of incentives from the central and state governments. The strategy also includes using nuclear energy and promoting wind farms and solar energy (MoSPI 2016).

Future renewable energy initiatives and targets under the Nationally Determined Contributions submitted by India under the Paris Agreement (2015) include a pledge to achieve about 40% cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030 (MoEFCC 2015). This will significantly help in reducing energy-based emissions in India. The national missions, especially the National Solar Mission, are geared towards achieving this target. Additionally, improvements in energy efficiency measures through the Bureau of Energy Efficiency will further adjust the energy demand. Although production emissions will continue to rise with fresh investments in goods or infrastructure, consumption emissions are likely to stabilise through these measures, unless they are counterbalanced by a large growth in disposable incomes, which appears unlikely because of distributive constraints. However, in the future, the gap between India’s production and consumption emissions is likely to increase with further economic growth; the gap increased from 7 Mt to 198 Mt between 1990 and 2012.

Consumption-based GHG Inventories

Current IPCC guidelines for estimating emissions describe a methodology of accounting that is a mix of production-based and consumption-based emission estimations. In this methodology, the energy sector (coal and petroleum) emissions of countries are counted on the basis of consumption, while IPPU emissions are counted on the basis of production. On the other hand, a methodology relying exclusively on consumption-based emissions would need to take into account the emissions embedded within manufactured goods and services that the country imports and exports (DEFRA, DECC and BIS 2012).

Given that most emerging economies have begun to assume larger environmental obligations in a post-UNFCCC globalised world, it stands to reason that issues relating to the methodologies employed for estimating emissions and attributing global responsibilities should be revisited. In the post-Cancun (2010) regime of environmental obligations for stabilising the climate, developing countries have to submit themselves to a process of international consultation and analysis (ICA), and show that they have taken demonstrable mitigation actions to moderate their emissions as per their internationally committed goals. From 2020 onwards, under the Paris Agreement (2015), this arrangement will evolve into a more comprehensive transparency framework where all developing countries, and particularly the major and emerging developing economies, will be obligated to submit their actions for international verification under an agreed-upon process. The aim of the framework is to achieve a common accounting standard for measuring emissions in both developed and developing countries. This is not the case at present, under the existing IPCC methodology, which is largely aimed at measuring emissions through sources or production. In this evolving scenario, it may be incumbent on environmental negotiators, experts, and scientists to look at alternative ways of measuring all emissions that are consumed within the domestic boundaries of countries and attributing responsibility for global environmental action on this basis.

Despite the assurance contained in the Decisions of the Conference of Parties to the UNFCCC and Paris Agreement that the transparency obligations are not intended to be intrusive or punitive in their application to developing countries, there is a fair degree of likelihood that developing countries will face increased international pressure to bear the burden of the deficit in global environmental action. They may even have to bear additional financial costs in the form of extra duties or border measures in case international policymakers fail to prevent the linkage of trade with environmental issues. The portents in this regard are clearly emerging in the case of emissions in the international civil aviation and maritime sectors. Indications of such border measures appeared in the US immediately after the commencement of the Kyoto Protocol (without US participation), but eventually subsided when the Bali Action Plan (2008) for enhancing actions by all parties under the convention was launched. Variants of such border adjustment measures may appear again if the transparency measures under the Paris Rule Book, currently being drafted by parties negotiating under the Paris Agreement, are considered inadequate by the economically stronger Western economies.

In a globalised world where international trade and investment play a significant part in the process of economic growth and the emergence of environmental issues in developing countries, emission leakage could potentially undermine the effectiveness of climate policies in these countries. Emission transfer from developing to developed countries through merchandise trade is an example of such leakage (Jakob et al 2014). Indeed, the shifting of industries in favour of developing countries has led to the displacement of polluting activities towards developing countries without a corresponding reduction in the consumption of manufactured goods in developed countries (Boitier 2012). Consumption-based inventories, if properly employed, could cover emissions leakages. For Non-annex 1 countries, an accounting framework based on consumption would be advantageous and could help in international negotiations. A lack of agreement over the use and applicability of an alternative method of estimating emissions, however, makes the task difficult. The UK’s Department for Environment, Food and Rural Affairs (DEFRA), Department of Energy and Climate Change (DECC), and Department for Business, Energy and Industrial Strategy (DBEIS), in a memorandum submitted to their Parliament in 2012, took the stand that

Consumption-based emissions reporting cannot replace the territorial approach to reporting which is fundamental to global governance of climate change, but provides a complementary viewpoint. (DEFRA, DECC and DBEIS 2012)

Changing consumption patterns in a globalised world will have a significant impact on emissions, depending on the kinds of products being imported. Available data suggest that emissions are just being redistributed amongst countries rather than being reduced on a global level. Production-based estimation accounting has helped several Annex I countries show a decline in their emissions, even though their actual emissions, counting embedded emissions, have been rising. There has been a significant shift in emissions from the developed to the developing world and this trend is likely to continue. For most major developing countries, the gap between production-based and consumption-based emissions is increasing, and it is becoming increasingly relevant to account for consumption emissions, so as to reflect the true global situation. Also, to fulfil the targets under the Paris Agreement, developed countries are implementing a cap and trade mechanism, and other kinds of taxes to limit production. The required products are imported to maintain their living standards. Such caps may prompt industries to shift their production volume to other countries that have different targets. However, this would lead to carbon leakage, which is especially possible in today’s globalised world, where most companies are multinational and it is possible to shift production volumes based on requirement.

Per capita consumption-based emissions grow more prominently and possess a more obviously positive correlation with their own per capita GDP, which confirms the argument that accounting for consumption-based emissions is potentially attractive in the process of estimating national emissions (Fan et al 2016). Additionally, moving from a production-based approach on climate policy to a consumption-based allocation approach would help increase the efficiency of emission reductions and would force countries to rethink their trading activities in order to decrease the environmental load of production activities (Mózner 2013). Consumption-based accounting would emphasise the true responsibility of a country to reduce emissions, considering the fact that developing countries, in spite of increasing emissions, have not been able to improve their per capita GDPs. This shows, in particular, that in terms of climate action, the world remains the same as at the time of the Kyoto Protocol; only the geographic regions of emissions have shifted.

Despite attempts to decarbonise energy supply in some countries, the consumption of internationally traded goods tends to equalise the carbon intensity of energy consumed worldwide (Davis and Caldeira 2010). As a consequence of adopting consumption-based accounting, developing countries may have to implement energy efficiency improvement strategies and reduce the carbon footprint of their export production so as to safeguard their access to foreign markets (Afionis et al 2017).

Continued use of the production-based estimation methodology also has other implications for carbon pricing. Most countries follow some form of production-based policy, which in practical terms means that the carbon price (that is, a tax or the cost of emission permits) is imposed on those firms that discharge GHGs. Consumption-based policies are currently not followed by any country on a large scale (Lininger 2015). Carbon taxes impact production industries which produce goods for export. Carbon pricing in the context of consumption is more relevant to balance out this situation.

Conclusions

This article presents an overview of three ways of looking at Annex I and Non-annex I emissions. Stock emissions present a historical outlook, while flow emissions present the trend and explain the reasons for the apparent deceleration of emissions in the developed world, resulting in a reduction of nearly 11%. The third way of presenting these emissions—the consumption methodology—represents the true global divide in emissions and demonstrates clearly that a mere 18% of the world’s population in Annex I countries emitted nearly 41% of global emissions in 2012. Against the backdrop of continued outsourcing of emissions by developed Western economies, production-based estimations and target-setting might not be helpful in the long term to achieve the goals of the UNFCCC and the Paris Agreement. In the absence of a consumption-based responsibility-attribution framework consistent with the principle of sustainable production and consumption, developed countries will seek to achieve their actual GHG reduction targets through outsourcing and emissions transfer. This would result in ever-rising global emissions on a territorial basis and would make the task of achieving the global goal of climate stabilisation difficult. In such an emerging scenario, major developing countries need to press for new rules of accounting, which are based on consumption emissions.

Notes

1 Calculated from the World Bank (2017) population data, http://data.worldbank.org/indicator/SP.POP.TOTL.

2 Calculated from figures presented in Table 7.

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WTO and UNEP (2009): “Trade and Climate Change: A Report by the United Nations Environment Programme and the World Trade Organization,” World Trade Organization/United Nations Environment Programme, Geneva/Nairobi.

Updated On : 29th Oct, 2018

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