Carbon imports - why it pays to track their footprints
Iain Watt, 24th February 2009, Climate change
What responsibility should Britain accept for the carbon footprint of the goods it imports? That was the question raised in the Guardian this week, as the paper reported research findings “that about a third of all Chinese carbon emissions are the result of producing goods for export.”
It’s a good question. And a timely one, bringing the debate about national emissions in line with a similar – and ongoing – debate about corporate emissions.
Forum for the Future has long argued that companies should be able to demonstrate “a clear understanding of their entire climate footprint (including impacts in their supply chain, and associated with the use of their products).” It’s a key part of our Climate Challenge, which outlines five essential actions for any business that is serious about tackling climate change.
And forward-looking companies are starting to do just that. Walkers now informs us of the carbon footprint of a bag of cheese and onion crisps, and Timberland has estimated that 79% of the life cycle emissions associated with its footwear can be traced back to the cows used to supply them with leather.
Gathering this sort of information is a prerequisite for any serious strategic thinking about climate change – because it’s in the broader corporate value-chain that we find much of the climate risk that companies are exposed to.
However, while a number of companies have started measuring their life-cycle emissions, only a select few have really starting thinking about the full implications of embedded carbon. Will your supply chains be reliable and secure in a world that starts to feel the impacts of climate change? Will those same impacts affect the corporate and public infrastructure that you rely on? Will regional differences in regulation or energy infrastructure make you more or less carbon-competitive? Will your products out-compete on carbon terms, or be made obsolete by innovative new ways of meeting customers’ needs?
The purpose of asking these questions, and of understanding a company’s broader life cycle carbon impacts, is not to embrace or assign legal responsibility for these impacts. The real value is to understand whether businesses are fit-for-purpose in a world that takes climate change seriously – and which starts to feel the impacts of climate change.
And this brings us back to the question posed at the top of this page, and the research reported in the Guardian (which is due to be published in Geophysical Research Letters). While it is essential to assign responsibility for emissions, especially in the context of a global emissions trading agreement, smart nations (and regions and cities) should also be using such research to understand their exposure to climate risk.
The data on embedded carbon in Chinese products should therefore not only inform debate in the UK about what we buy, but also flag up important questions for the Chinese government. If the countries it exports to – or the business or individual customers it relies on – start taking embedded carbon emissions seriously, what might the implications be for its manufacturing sector? Might investment in renewable energy infrastructure be a means to ensure the long-term health of Chinese manufacturing?
Similar questions should be asked by all countries, regions and cities. Unfortunately, the focus of national or regional efforts to tackle climate change remains very much centred on reducing direct emissions. While reducing these emissions remains critical, regions also need to start asking whether their economy is fit-for-purpose in a carbon-constrained world – and then doing all that they can to ensure that it is.
A continued focus on direct emissions might result in a particular region investing in the most efficient Humvee factory in the world – not much use if the market decides that there is no place for Humvees in a low-carbon future…
It’s a good question. And a timely one, bringing the debate about national emissions in line with a similar – and ongoing – debate about corporate emissions.
Forum for the Future has long argued that companies should be able to demonstrate “a clear understanding of their entire climate footprint (including impacts in their supply chain, and associated with the use of their products).” It’s a key part of our Climate Challenge, which outlines five essential actions for any business that is serious about tackling climate change.
And forward-looking companies are starting to do just that. Walkers now informs us of the carbon footprint of a bag of cheese and onion crisps, and Timberland has estimated that 79% of the life cycle emissions associated with its footwear can be traced back to the cows used to supply them with leather.
Gathering this sort of information is a prerequisite for any serious strategic thinking about climate change – because it’s in the broader corporate value-chain that we find much of the climate risk that companies are exposed to.
However, while a number of companies have started measuring their life-cycle emissions, only a select few have really starting thinking about the full implications of embedded carbon. Will your supply chains be reliable and secure in a world that starts to feel the impacts of climate change? Will those same impacts affect the corporate and public infrastructure that you rely on? Will regional differences in regulation or energy infrastructure make you more or less carbon-competitive? Will your products out-compete on carbon terms, or be made obsolete by innovative new ways of meeting customers’ needs?
The purpose of asking these questions, and of understanding a company’s broader life cycle carbon impacts, is not to embrace or assign legal responsibility for these impacts. The real value is to understand whether businesses are fit-for-purpose in a world that takes climate change seriously – and which starts to feel the impacts of climate change.
And this brings us back to the question posed at the top of this page, and the research reported in the Guardian (which is due to be published in Geophysical Research Letters). While it is essential to assign responsibility for emissions, especially in the context of a global emissions trading agreement, smart nations (and regions and cities) should also be using such research to understand their exposure to climate risk.
The data on embedded carbon in Chinese products should therefore not only inform debate in the UK about what we buy, but also flag up important questions for the Chinese government. If the countries it exports to – or the business or individual customers it relies on – start taking embedded carbon emissions seriously, what might the implications be for its manufacturing sector? Might investment in renewable energy infrastructure be a means to ensure the long-term health of Chinese manufacturing?
Similar questions should be asked by all countries, regions and cities. Unfortunately, the focus of national or regional efforts to tackle climate change remains very much centred on reducing direct emissions. While reducing these emissions remains critical, regions also need to start asking whether their economy is fit-for-purpose in a carbon-constrained world – and then doing all that they can to ensure that it is.
A continued focus on direct emissions might result in a particular region investing in the most efficient Humvee factory in the world – not much use if the market decides that there is no place for Humvees in a low-carbon future…
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International Carbon Duty
Most of the parties that will meet at COP15 already recognize that the manufacture of any product, as well as the provision of any service, carries an inherent green house emission load (carbon footprint) for our earth’s atmosphere, in whose health the destiny of humankind depends on. We all agree also, that the final buyer of a good or service is the ultimate responsible for that product’s carbon footprint.
Based on the above facts, all countries could recognize and agree on a logical step forward; to allow the importing country to add a “Carbon Duty” to the price of the goods and services that their producers currently sell for profits to clients abroad. This "Carbon Duty" would be proportional to the emission of GHG per unit of Gross Domestic Product registered at the producer’s economy, and would allow the buying country to collect monies to de-carbonize its own economy.
The beauty of this approach lies in the fact that it will creates both; a need, and the monetary provisions on all countries, to take the right steps to de-carbonize their economies. This would happen simply because the smaller the CO2 equivalent emission per unit of GDP to be registered on a country’s economy, the smaller will be the “Carbon Duty " that will have to be paid overseas by the foreign buyer of any product or service originated in the country. In turn, if a country gets better treatment for its exports, more foreign investment will arrive to its economy, creating the virtuoso cycle that feeds economic growth.
In other words, manufactured products and services originated at small carbon footprint economies will enjoy a price advantage for final consumers. How to calculate the carbon footprint of a given delivered product or service? I propose the following simple arithmetic procedure.
The precise figure of the total tons of CO2 Equivalent of GHG emitted by each nation on earth is already calculated, verified and made public by the United Nations every year. In a similar way, the precise figure for the Gross Domestic Product of each nation is currently calculated, verified, and made public by the UN every year, so it is indeed possible to establish the proportion of CO2 Equivalent emission of any part of GDP of a given economy, given that any single priced and sold product is, by definition, a constituent part of the total GDP figure a given economy.
We just have to divide the CIF (Cost, Insurance and Freight) price of any good, by the newest and official Producer Country Embedded Carbon per Dollar of GDP figure, multiply it by an International Carbon ton Price, which would be specially agreed for this sole purpose, and we would obtain the amount of Carbon Duty that will have to be paid by the foreign purchaser of that good or service anywhere in the world.
The monetary resources generated by this Carbon Duty application on each country would have to be held apart from all other government taxes, and used, also under scrutiny of the UN, solely to subsidy technology and economic activity aimed to de-carbonize the country’s economy.
The price of the carbon ton, used to calculate the Carbon Duty, will have to be agreed internationally in advance, and probably would have to start low and be increased yearly until the temperature is stabilized at or below the critical 2º C limit.
This Climate Change fighting tool should have a good chance to be accepted by all parties, since its is based on the simple and universally valid legal principle that no private economic benefit can be fairly earned on international commerce if carbon footprint damage to the atmosphere (a damage to a common asset), is not priced and deducted from the said benefit in order to repair the damage.
It may be smarter at COP15 to try first to obtain agreement from all parties to charge a Carbon Duty on their purchase of foreign goods and services, than to go directly after the required global emission reduction commitments, since the rates of reductions needed are so large that agreements will be hardly reached, and they will be even harder to become a reality. As it is naturally expected, if USA does not get in return a firm compromise from developing nations to make concrete efforts as well, it will be difficult to reach a satisfactory agreement at COP15.
Carbon Duty could be seen as a step to reach the global emission reductions required, since Carbon Duty payment will create the urgency on developing countries to reduce their emissions also, in order to obtain more foreign investment and better trade terms for their exports.
Cap and Trade of carbon allowances has proved to work on developed nations, but carbon markets at transition economies, and specially at under developed nations, shall be allowed to be born out of a necessity not out of an obligation, since developed nations indeed have an immense carbon print debt to pay in the form of de-carbonization costs, before developing nations can be persuaded to accept emission reductions targets.
All parties should be certain that emission reduction agreements will take a toll on the growth rate of their economies, since this is a truth that can not be hidden, but the sooner this cost is assumed the smaller it will be. The substantial difference between both de-carbonization tools is that while the carbon allowances set a load to the growth from the inside of each country's economy, the Carbon Duty puts a load from the outside, as the World Trade Organization (WTO) shall endorse this higher standard to be complied by all producers and service providers in the world, and made it legally binding to all free commerce treaties currently working in the planet.
Carbon Allowances and Carbon Duty are both tools that should work together to achieve the temperature stabilization goal. They can work independent of each other, but they do complement each other. One performs its magic at the production activity, while the other does it at the commercial activity of humans on earth.