Chapter 6. Who is responsible for emissions from international trade?
6.1 Causation of embodied emissions in
6.1. Causation of embodied emissions in international climate law The system is seen as unjust, including for some developed countries. Luxem-bourg, for example, is considered to have the highest per-capita emissions in Europe, but a large share of these emissions stem from the transport sector due to the country’s location on one of the primary motorways linking France and Ger-many. “A country which is crossed by trucks, for example, ’pays’ for GHG emissions associated with goods it has not produced and will not use.” (Bastianoniet al., 2004, p. 254). Under the EU’s “Effort Sharing Decision”, these motorway emissions are nevertheless counted as having been caused by Luxembourg, making the Effort Sharing Decision appear arbitrary, which is a major problem because it is the only EU climate law instrument that limits emissions across all sectors.
6.1.2 Worsening of the problem over time
6.1.2.1 Outsourcing responsibilities to fulfilling treaty obligations The emissions accounting problem already existed under the Kyoto Protocol, where only developed countries were under legal obligations to mitigate their emissions to certain country targets (UNFCCC, 1998). Under that regime, this account-ing practice meant that the developed countries could meet their allocated total quantity of carbon emissions at a lower cost to themselves.
6.1.2.2 Europe’s climate success: a statistical artefact?
Counting only emissions released from their territories, many developed coun-tries stabilised their greenhouse gas emissions, while“the global emissions asso-ciated with consumption in many developed countries have increased with a large share of the emissions originating in developing countries” (Peterset al., 2011, p.
8907). The total carbon emitted by developing countries increased accordingly, but that did not immediately increase their mitigation costs, as the Kyoto Pro-tocol did not impose legally binding obligations on developing countries to stay below a set level of emissions. Overall, the practice of attributing emissions for exported products exclusively to the exporting country reduced the proportion of global emissions covered by legally binding targets, so the common objective of climate change mitigation suffered. This problem affects about 23 % of global emissions (Daviset al., 2011) and 23-38 % of Chinese emissions (Daviset al., 2011;
Chapter 6. Who is responsible for emissions from international trade?
Liuet al., 2013). The entire question of whether developed country emissions al-together are currently in- or decreasing hinges upon this selection of accounting principles (Kanemotoet al., 2014) and their underlying views of causation. But despite the relevance for overall emissions, the issue never received enough pres-sure to change the accounting practice.
Over time, however, the problem has become more acute. The difference between the amount of carbon that developed countries import and the amount that they export is widening (Xu & Dietzenbacher, 2014). Developing countries increased their share of exports to countries covered under the Kyoto Protocol (Annex 1).
As products produced in developing countries are on average more emissions-intensive2than comparable products produced in developed countries, there was an increase in the proportion of global emissions for which there is controversy.
6.1.2.3 Carbon leakage increasing this trend
The severity of this problem is further augmented by carbon leakage. With cli-mate policy being phased in for jurisdictions under stricter carbon limits, some producers moved to developing countries where these limits were lacking un-der the Kyoto Protocol. This situation has improved unun-der the Paris Agreement given its near-global scope of binding caps, but since countries continue to vary dramatically in the stringency of these caps,3 the risk of merely redistributing emissions rather than abating them persists. Without a solution for account-ing for embodied emissions, this problem may even increase since “emissions in trade constitute a large and growing share of global emissions” (Sato, 2014, p. 831). The potential for "carbon leakage" for a unilateral carbon price is in the range of 5-30 % of the covered emissions (Böhringeret al., 2017), and the relocation risk is concentrated in a few emission-intensive sectors (Grubbet al., 2014b). When these sectors leave the policy-implementing country, they may re-export some of their intensive products. This re-exporting of particularly emissions-intensive products again poses again the guilt question: is it correct to attribute such emissions to developing countries? Is this treatment of causation justified in
2For example, the emissions-intensity of US imports of energy-intensive products is 100-300 % higher than the emissions intensity of the US production of such products (Fischer & Fox, 2011).
3On the variation of the Nationally Determined Contributions, see the databases in World Bank (2017b) and UNFCCC (2017).
6.1. Causation of embodied emissions in international climate law particular under a treaty which is based on the legal principle of mitigating cli-mate change in accordance with “Common But Differentiated Responsibility and Respective Capabilities” (UNFCCC Art. 3)?
6.1.2.4 Impacts on negotiations on legally binding emission targets Effect on developing countries
It is not only the rise of such emissions that brings back the question as to if it is right to attribute their causation entirely to exporting countries. The topic is becoming more pressing also as a result of changes in international climate ne-gotiations. After the Kyoto Protocol, climate negotiations have aimed to establish legally binding emissions targets for all countries. Achieving this extension of binding targets has met severe opposition from developing countries, even risking bringing down the whole international climate law-making process. One propos-ition that developing countries have voiced, is, again, to change the way in which the emissions for exported goods are classified, putting the entire burden on im-porting countries. If they achieved this aim, some hope that meeting a given carbon target would be easier for emerging markets in particular. Listening to this demand might help the negotiations themselves, because “Sharing responsib-ility for emissions among producers and consumers could facilitate an international agreement on global climate policy that is now hindered by concerns over the re-gional and historical inequity of emissions” (Davis & Caldeira, 2010, p. 5687). Ne-gotiations perceived as equitable have greater chance of succeeding (Boselloet al., 2003; Lange & Vogt, 2003; Langeet al., 2007) also since “Equity and justice concerns have been of paramount significance in international negotiations on climate change ever since the adoption of the 1992 United Nations Framework Convention on Climate Change” (Afioniset al., 2017, p. 1).
Since most of these papers were written, the world did adopt the Paris Agreement (UNFCCC, 2015), but as climate negotiations continue, the need for increasingly deep agreements between developed and developing countries on this matter per-sists.4
4Under the Paris Agreement, developing countries did accept legally binding Nationally Determined Contributions (UNFCCC, 2015). That does not mean, however, that the debate on accounting prin-ciples is over (Croft & Trimmer, 2017). The Agreement did not change the accounting principle, and the negotiations on quantities continue. We can expect this debate to also remain relevant in the
Chapter 6. Who is responsible for emissions from international trade?
Effect on developed countries
Besides potentially affecting the negotiation positions of developing countries, a change in carbon accounting might also change the negotiation positions of some major developed countries. Which country is emitting the most may have an im-pact on the expectations in negotiations for action from that country. During the George W. Bush Administration, and in particular in the first term, the American failure to act on climate change has been particularly criticised since the USA was the biggest emitter. The United States tried to shift the focus, pointing at China which became the biggest emitter in 2012. Since then, China has frequently been singled out in analyses as the “biggest emitter”, stepping up pressure on that coun-try to act, and diverting attention from American responsibilities over emissions in the US public discourse. Whether China really is the biggest gross emitter in the world depends on the carbon accounting: under the production-based account-ing, China does emit the most, but not under the consumption-based accountaccount-ing, where its emissions are up to 38 % lower (Liuet al., 2013), thereby returning the United States to the position of the biggest emitter.5 If negotiation parties do ex-pect whoever is the biggest emitter to play a special role in mitigation efforts, the accounting does matter, even though – from a physical perspective – it is just about shifting around emissions.
6.1.3 Economic causation of embodied emissions
From the perspective on causation that we laid out above, embodied emissions are jointly caused by the persons selling and buying the goods. The exporter plays a role similar to the producer in our previous analysis, and the importer behaves like the consumer.6The exporter then causes the proportion of emissions
upcoming negotiations of the Global Stocktake of Nationally Determined Contributions (UNFCCC, 2015, Art. 14). In this Stocktake, countries are going to review their progress on mitigation, and the size of this progress in each country will vary depending on whether causation for these emissions is accounted for under the production or the consumption principle.
5Equally, “with GHG accounting based on consumption, the EU’s emissions would be about a quarter higher” (Erbach, 2015, p. 7).
6Equating producers and exporters in this way appears to be the legally correct way of pursuing our analysis. In both domestic law and international law, causation and responsibility for the emissions are typically assigned to the agent engaged in the activity that factually caused the emissions; e.g. at the point of combustion of fuels. Where for domestic law this is the producer, in international law it is the exporter. So we can here use our results for producers from chapter 4 to analyse exporters.
6.1. Causation of embodied emissions in international climate law that corresponds to his price elasticity of supply relative to the price elasticity of demand of the importer. This way the causation is shared and quantifiable.
Suppose for a moment that international climate law established globally enforced carbon taxes (a “carbon price floor”).7 Those taxes would solve the problem of causal attribution between state actors. Each country would pay a tax incidence corresponding to its share in the causation of the emissions.
6.1.4 Fixing quantities or prices?
There is a growing movement of economists calling for a change in the target of climate law from an international set of emission quotas to an international carbon price (Weitzman, 2017; Cramtonet al., 2017; Faridet al., 2016; MacKayet al., 2015; Nordhaus, 2007, 2009). We have added one additional reason to make this conversion: the problem of attributing responsibility for international emissions to individual countries would go away if there was an international carbon tax.
This is an application of the debate about objectives of environmental law that we described in chapter 4.1.1, where we identified that classical environmental law and Ecological Economics tend to focus on targeting effectiveness in physical terms (measured, for example, in quantities of emissions per country), whereas neoclassical Environmental Economics tends to focus on efficiency in monetary or utility terms. Here we see the practical importance of this debate for climate law. Transitioning from a quantity focus to a price-based focus would enable a solution to the currently debilitating conflict on apportioning causation between countries.
7Politically, the implementation of international carbon taxes may currently be unlikely. To this con-cern, we have three responses. Firstly, such a tax could be made more likely if we also considered an integrated view of fiscal policy where expenditure policy can help solve problems that the tax alone causes. The tax revenue from a carbon tax can, for example, be used to compensate developing countries. This compensation could work through direct lump-sum payments to countries (e.g. using a quantification methodology such as in Keenet al., 2011) or indirectly by contributing tax revenues to the Green Climate Fund.
Another way to achieve an international carbon price that some authors consider politically more feasible is through linking emissions trading schemes. In principle, efficient sharing of causation and liability can also be achieved through emissions trading schemes if those are designed much like taxes (e.g. Parryet al., 2014; Parry, 2017). Several countries are in a process of linking their carbon markets, so that a uniform carbon price seems to become more likely in a subset of countries (World Bank & Ecofys, 2015).
Chapter 6. Who is responsible for emissions from international trade?
6.1.5 Causation principles support neither climate law’s current production-based accounting nor the consumption-based alternative
But our causation model is not only useful with carbon tax agreements; it can also inform the continued use of quantity-based climate law. As we saw in the literat-ure review, there are significant fights over which state causes what quantity of emissions. The current accounting practice was criticised for failing to account for the contribution of producers/exporters to causing the emissions. Our analysis confirms that critique but defies the call for a full swing to consumption-based carbon accounting. Instead, the quantity of emissions caused by individual coun-tries could be counted as the emissions from products produced and consumed domestically, plus a share of the emissions from exported and imported products.
The shares could be calculated according to the average elasticities of supply and demand in trade streams for carbon-intensive products. This perspective would present a balanced view on causation that falls in between the two extremes to associate causation of embodied emissions entirely with exporter or importers.
6.1.6 Role of the state as a causal entity
Now, one may argue against this perspective that, if we follow through interpret-ing the causation of embodied emissions as we did with the producer-consumer cases above, then we understand causation as an effect of supply and demand.
And if we then afterwards portray the causation of the individual agents on state bodies, then we are holding state bodies responsible for the elasticities of supply and demand of their citizens. Is this justified? Can we interpret causation this way if the actor is the state? We based our view on causation in the but-for model of causation used in tort law. And a but-for argument can be made about the de-mand and supply functions of citizens in states. A state can shape dede-mand and supply of its citizens. It is but for the lack of action of the state8that its consumers and producers do have these demands and supplies of polluting products. Hence it appears appropriate to regard the state as an agent causing the emissions and calculate the causation through its citizens’ demand and supply functions, as a
8Due to the lack of intervening fiscal policy.
6.2. Causation of emissions in international space