The Problem with the Way We Measure Carbon Emissions
I have been struck by how important measurement is to improving the human condition. You can achieve incredible progress if you set a clear goal and find a measure that will drive progress toward that goal. — Bill Gates
In the global effort to tackle climate change, volume of greenhouse gas emissions is perhaps the most important measure. This metric helps inform the targets that nations agree to in international arenas, and serves as a barometer for ongoing assessment of the impact of policy initiatives. That’s why, it’s important to build a strong understanding of how this metric is measured, understand any inherent biases that its measurement may carry, and counteract any economic misincentives that these biases might create.
The global default approach to measuring the emissions of a country is to aggregate the volume of emissions produced by the country over a specified time period. At first glance, this definition looks innocuous, but let’s take a closer look at what this implies.
If country A were to manufacture an energy intensive product to meet the needs of consumer demand in country B, by the definition definition, all of the emissions generated in the process would accrue to the national quota of country A. As a result, all of the onus to control emissions is placed on the producer/supplier country, and none at all on the consumer country. This inability to factor the entire supply chain, especially the consumer, into the equation creates a fair few issues. Here’s a look at what these issues, and their consequences, are.
Wealthy countries can just choose to outsource their emissions and continue to stay compliant with their climate goals. They needn’t make any economic sacrifices, as long as there’s a poorer country willing to take on the burden of production. Seeing as it’s the wealthiest consumers who have the largest carbon footprints — the world’s richest 10% produce half of all carbon emissions — consumption and not just production of carbon is the key challenge¹. Our current approach to measuring emissions fails to capture this.
Deciding who gets to pollute how much is the central challenge of international climate cooperation. The argument goes that developed countries have already done their share of polluting and should make larger cuts to their emissions, and that developing countries should have a longer leash to pollute until they catch up. The Paris Agreement addresses this through the concept of Common But Differentiated Responsibilities (CBDR)² ³ .
Due to the biases of producer based accounting, the fairness scale is tipped further in favour of developed countries. Developing countries, a great many of whom pursue export led growth, are effectively asked to give up a portion of their emissions quotas for consumption by their importers. This transfer of the right to pollute from the poor to the rich is an implicit form of new-age carbon colonialism. In the long run, these dynamics will hinder the effort to bridge the disparity in per capita incomes between developed and developing countries, while protecting the environment.
Environment Kuznets Curve (EKC)
The EKC traces the impact of economic growth on the environment. The theory is that the economic growth of a country initially comes at the cost of rising environmental degradation; however, once a certain per capita income level is reached, the curve sees an inflection point after which environmental quality begins to improve. This progression gives the EKC a u-shaped curve.
If production based accounting of emissions is used as a measure of environmental impact, it makes intuitive sense that such a dynamic would be observed. In the left phase of the EKC, countries produce emissions within their own borders which is why environment quality drops. Near the inflection point, they begin to export their emissions embodied by their consumption to countries with lesser means; as a result, their own environmental quality begins to rise again.
While this explains the shape of the curve, it counteracts the underlying claim of EKC proponents that economic growth benefits the environment. This phenomenon has been statistically observed in studies that show that in the UK, for the period between 1993 and 2010, while production based emissions fell by 19%, measures of consumption based emissions increased by 16%⁴.
If wealthy consumers were held accountable for their embodied emissions (emissions associated with the products that they consume), they would demand greater transparency in the supply chain⁴. This would direct the spotlight towards environmentally unfriendly practices in producer countries, and promote more sustainability in supply chains. Consuming countries will also have more incentive to share technology and best practices with their producer counterparts. The incentives are lost when the consumer is left out of the picture.
Another consequence of the singular focus on production is that markets are prevented from seeking out alternative, more efficient means of production.
Consider this example — country A produces M units of a product with X units of emissions, and country B produces M units with 2X units of emissions. Let’s assume that the demand of the product is 2M units, and the emissions restriction on each country for this item is X. All else remaining equal, in this scenario, the production split will be M units from each country resulting in a total of 3X emissions. If the burden of emissions were allowed to trickle all the way to the consumer though, the ideal choice would be to procure all units from country A, resulting in a total of 2X emissions. With the right setup, the market would have minimized global emissions.
Given all of these challenges, why do we continue to use production based measurements in national measures?
The alternative to the production based accounting is consumption based accounting; this is calculated as national emissions, minus emissions associated with exports, plus emissions associated with imports. This challenge with this metric is that it’s difficult to accurately measure, since supply chains can be convoluted and difficult to trace. What’s more, production based measures have become the established norm, and any switch away is likely to be opposed by countries who are likely to see an upward revision in their emissions numbers⁵.
That said, there is a strong case to make use of consumption based emissions for calibrating and providing context to climate targets. Metrics, once established, have the tendency to become the sole lens through which the underlying problem that they represent is viewed. By staying cognizant of the caveats around our metrics, we can protect ourselves from being misled by biases, have more informed conversations, and ensure that more effective policies are implemented.
2] Karakaya, Etem and Yılmaz, Burcu and Alataş, Sedat — How Production Based and Consumption Based Emissions Accounting Systems Change Climate Policy Analysis: The Case of CO2 Convergence
3] United Nations 2015 — Paris Agreement
5] Alexandra Marques, Joao Rodrigues, Tiago Domingos — Income-based environmental responsibility