Filed under: Climate change Development

Should national contributions to climate change be measured as greenhouse gases emitted by the countries in which they are produced? Or should they be “charged against” the countries in which the goods and services that generate these emissions are consumed?

This issue was highlighted by a new study (See: Growth in emission transfers via international trade from 1990 to 2008) that measures the “consumption” of greenhouse gas emissions by examining “virtual carbon trade” flows (i.e., greenhouse gas emissions associated with the export and import of goods and services), and then subtracting this “carbon trade balance” from countries’ reported emissions.

The study gives new impetus to questions like: If a share of Country A’s greenhouse gas emissions can be accounted for by exports that are destined for consumption in Country B, shouldn’t these emissions be ascribed to Country B?

On a similar note, The Guardian’s Duncan Clark argues that, when the emissions data are recalculated in terms of national carbon consumption rather than production, they show “a massive transfer of carbon from the poor world to the rich world.” According to this argument, “the rich world has been ‘offshoring’ or ‘outsourcing’ its emissions” to developing countries—exploiting a loophole in the Kyoto Protocol to reduce reported emissions by exporting them to poorer countries.

Do such arguments stand up? Is the rich world “gaming” the Kyoto system and frustrating global efforts to reduce greenhouse gas emissions?

The virtual carbon trade data from the developing and transition economies of Europe and Central Asia suggest a different story.

Carbon exporters and importers in Europe and Central Asia – consumption vs. production

While China appears as the world’s largest net carbon exporter, carbon trade data indicate that the transition and development economies of Europe and Central Asia accounted for about half of the world’s non-Chinese net carbon exports from 2000 to 2008.

Aggregate measures of carbon emissions, consumption, and trade are influenced by the overall size of the economy. Russia, having the region’s largest GDP, remains the region’s leader in terms of carbon production, consumption, and trade—irrespective of how these are measured. Likewise, the small open economies of the Caucasus or Balkans will never appear as large carbon producers, consumers, or traders, in absolute terms.

Chart 1: The world’s largest net carbon exporters (annual averages, 2000-2008)

graph - The world’s largest net carbon exporters (annual averages, 2000-2008)

In million tons of CO2 equivalent. Source: Peters et al.

To really understand the carbon trade flows in the region, it is important to look at how carbon production, consumption, exports or imports compare to the relative size of the economies.

Chart 2: The region’s largest net carbon exporters, in relative terms

The region’s largest net carbon exporters, in relative terms

Source: UNDP calculations, based on data in Peters et al.

Chart 2 shows that, in relative terms, Ukraine is almost as large a net carbon exporter as Russia. Kazakhstan, Poland and the Czech Republic move above the 10 percent threshold. Should emission measurements reflect carbon consumption, these countries would presumably benefit, in the form of lower carbon reduction targets. A smaller share of the climate change mitigation burden would fall on them than might otherwise be the case.

By contrast, carbon imports from 2000 to 2008 were much larger, in relative terms, for many of the region’s small open economies. Armenia, Georgia, and Kyrgyzstan—which, like the small new EU member states and the Western Balkan economies, are also net energy importers—registered very high ratios of carbon imports to emissions. Should future metrics place a greater emphasis on carbon consumption, these countries could potentially face higher carbon reduction targets, and would therefore have to shoulder a greater share of the global mitigation burden.

Who’s gaming who?

The “outsourcing” argument implies that net carbon exporting countries are doing the dirty work for carbon importers. This argument may work in the case of China. However, Russia’s, Ukraine’s, and Kazakhstan’s relatively large carbon exports are clearly driven by a different logic—that of the export of carbon-intensive energy (oil and gas), metallurgical, chemical, and other energy-intensive primary products. These exports largely reflect these countries’ natural resource endowments, rather than a “leakage” of carbon-intensive manufacturing away from developed economies.

In general, the net carbon- and energy-importing countries have had to come to terms with higher domestic energy prices to cover the costs of energy imports, production, and supply. By contrast, the net carbon- and energy-exporting countries are more likely to permit domestic energy prices to remain below world energy prices, in order to subsidize domestic energy consumption. Lower levels of energy efficiency result.

Chart 3: The region’s largest net carbon importers, in relative terms

The region’s largest net carbon importers, in relative terms

Source: UNDP calculations, based on data in Peters et al.

These net carbon exporters tend to have carbon consumption levels per dollar of GDP that are 50 to 100 percent above those of carbon-importing countries in the region—which, as a rule, are net importers of energy and many primary products. The adoption of climate change metrics that place a greater emphasis on carbon consumption (as opposed to emission) would make it easier for energy-inefficient carbon exporters to meet relevant emission reduction targets.

 Chart 4: Net carbon importers have smaller carbon footprints, net carbon exporters have larger carbon footprints.

Net carbon importers have smaller carbon footprints, net carbon exporters have larger carbon footprints

Source: UNDP calculations, based on the carbon data in Peters et al., and on the GDP data (calculated at market exchange rates) presented in the IMF’s April 2011 World Economic Outlook.

In terms of encouraging global reductions in greenhouse gas emissions at the lowest cost, the adoption of carbon consumption-based climate change metrics could be counter-productive. Reliance on consumption-based carbon metrics could reward countries for inefficient energy use and reduce incentives to adopt climate change mitigating technologies.

Rather than accusing those developed countries (in Europe) that have significantly reduced their greenhouse emissions (per dollar of GDP) of fobbing their carbon off on the developing world, emphasis should instead be placed on helping developing economies achieve similar reductions—without imperiling their longer-term development prospects.

>> Learn more about the virtual carbon trade in Europe and Central Asia