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Consumption-based Emissions Accounting

National accounts for CO2 and GHG emissions are typically measured based on production – often referred to as territorial emissions and are an account of the total amount of emissions produced within a nation’s territorial boundaries. Nation-states typically use production-based emissions accounts to measure and quantify their domestic emissions and are used to track national emissions contributions over time and set national targets and policies for domestic emissions reductions.


The issue with production-based emissions accounting however is that domestic emissions from any given country do not exist in isolation - national economies are highly interconnected with other external economies within a multinational globalised economy. Global trade means that the consumption of goods and services do not always occur in the same country they were produced, and different economies specialise in the types of goods and services they produce and sell, leading to a disparity in the quantity and nature of goods and services a country imports and exports. Additionally, not all goods and services are made equal, different goods and services generate differing amounts of emissions that are most often produced during the production process.


How therefore does global trade relate to national production-based emissions accounts? Because different economies produce and trade different goods and services and certain goods and services have a greater emissions impact than others, production-based national emissions accounts hide the indirect emissions a country produces from the consumption of goods or services imported from elsewhere. Production-based emissions accounts often understate the total direct and indirect emissions of post-industrial import heavy and consumption heavy economies whilst exaggerating the emissions of developing economies where emissions-intensive goods are often produced but not necessarily consumed.


Consumption-based CO2 emissions accounting differs from production-based accounts by including the importation and exportation of goods and services that, either directly or indirectly, involve CO2 emissions. In basic terms, consumption-based accounts count emissions at the source of consumption rather than at the point of production, so regardless of where emissions are produced, the point where goods and services are consumed is where their emissions are accounted; shifting the responsibility for emissions to those who consume such goods and services. Within national emissions accounts, total direct and indirect emissions are calculated by adding emissions from the production of goods and services imported into a country's total domestic emissions and subtracting emissions from the production of goods and services exported.


Consumption-based emissions accounts generate a more accurate and comprehensive picture of the total emissions a nation generates, regardless of the nature of its economy and consumption habits. With production-based accounts, developed economies have often been depicted to have decreasing CO2 emissions in recent decades despite increases in overall consumption, whereas, within consumption-based accounts, such reductions are less pronounced or even non-existent due to the offshoring of emissions-intensive activities to developing countries and importation of emissions-intensive goods into developed countries.


Consumption-based emissions accounts can be more complex to produce due to the availability of emissions accounts for transboundary goods where accountancy standards and mandates vary between the point of production and consumption and the often complex supply chains in globalised markets where it can be difficult to trace the source of a product by the time it reaches the consumer. However, given the nature of CO2 and GHGs where regardless of the emission source, its distribution and impacts occur evenly, sharing responsibility for emissions among producers and consumers via a consumption-based approach could facilitate further international cooperation on global climate policy and generate greater accountability for present emissions between developed and developing economies that are currently hindered by concerns over regional and historical inequity of emissions.

 

Iwan Pritchard