Elsevier

Ecological Economics

Volume 65, Issue 1, 15 March 2008, Pages 13-23
Ecological Economics

Methodological and Ideological Options
From production-based to consumption-based national emission inventories

https://doi.org/10.1016/j.ecolecon.2007.10.014Get rights and content

Abstract

Under the United National Framework Convention of Climate Change (UNFCCC) countries are required to submit National Emission Inventories (NEI) to benchmark reductions in greenhouse gas (GHG) emissions. Depending on the definition and system boundary of the NEI, the mitigation options and priorities may vary. The territorial system boundary used by the UNFCCC has been critiqued for not including international transportation and potentially causing carbon leakage. To address these issues, past literature has argued in favour of using consumption-based NEI in climate policy. This article discusses several issues in moving from the standard production-based NEI to consumption-based NEI. First, two distinct accounting approaches for constructing consumption-based NEI are presented. The approaches differ in the allocation of intermediate consumption of imported products. Second, a consistent method of weighting production-based and consumption-based NEI is discussed. This is an extension of the previous literature on shared responsibility to NEI. Third, due to increased uncertainty and a wide system boundary it may be difficult to implement consumption-based NEI directly into climate policy. Several alternative options for incorporating consumption-based inventories into climate policy are discussed.

Introduction

The United Nations Framework Convention on Climate Change (UNFCCC) requires parties to submit annual National Emission Inventories (NEI) to benchmark progress towards the goals of the UNFCCC.1 The UNFCCC system boundary “include[s] all greenhouse gas emissions and removals taking place within national (including administered) territories and offshore areas over which the country has jurisdiction” (IPCC, 1996, pp.5). The optimal mitigation activities taken by an individual country may depend on the definition of the NEI and consequently, the system boundary and definitions used in the NEI are critical.

The two main critiques of the UNFCCC territorial system boundary are that international transportation is not allocated to countries and there is potential for carbon leakage (Peters and Hertwich, 2008). International transport is difficult to allocate due to problems with assigning responsibility and poor data (Olivier and Peters, 1999). Currently, the UNFCCC has not decided on how bunker fuels for international transport should be allocated to individual countries, but several proposals have been suggested and analysed (den Elzen et al., 2007). Harmonizing the economic and environmental system boundary as for Gross Domestic Product (GDP) is an established and consistent method of allocation that is followed in this article (Gravgård Pedersen and de Haan, 2006, Peters and Hertwich, 2008). Despite its importance, the allocation of international transportation is not the primary focus of this article.

The other main critique of the territorial boundary used by the UNFCCC is that carbon leakage through imports from non-Annex I to Annex I countries can become problematic.2 In fact, the Kyoto Protocol to the UNFCCC explicitly states that “Parties… shall strive to implement policies and measures… in such a way as to minimize adverse effects… on international trade”. Additionally, the “[i]nventories are to be reported without adjustments relating, for example, to climate variations or trade patterns of electricity” (UNFCCC, 2004). Denmark has attempted to have its NEI adjusted due to seasonal variations in electricity trade with the decision still pending3 (Munksgaard et al., 2005). Recent research has shown that around 5 Gt of CO2 is embodied in the international trade of goods and services most of which flows from non-Annex I to Annex I countries (Peters and Hertwich, 2007, Peters and Hertwich, in press). This indicates that there is merit in considering trade-adjusted NEI in more detail.

The current UNFCCC NEI are production-based—in effect domestic production including exports—and many critiques suggest the use of consumption-based inventories which subtract exports but include imports (Kondo et al., 1998, Munksgaard and Pedersen, 2001, Lenzen et al., 2004, Munksgaard et al., 2005, Munksgaard et al., 2007, Wilting and Vringer, 2007, Peters and Hertwich, 2006a, Peters and Hertwich, in press). Consumption-based NEI have several advantages in addition to accounting for international trade—such as, covering more of global emissions with limited participation, increasing mitigation options, naturally encouraging cleaner production, and making policies such as the Clean Development Mechanism (CDM) a natural part of the NEI (Peters and Hertwich, 2008). However, consumption-based NEI suffer three key disadvantages of interest in this article. First, they require more complex calculations and hence assumptions and increased uncertainty. Second, they shift from one extreme—production—to another—consumption—which may be alleviated by using shared responsibility (c.f. Lenzen et al., 2007). Third, they require political decision making to extend outside of the standard geo-political region (generally a country). These three disadvantages are expanded on here and then elaborated on in detail in the main article.

Consumption-based emission inventories are initially constructed by converting technology-based inventories—generally the source of the UNFCCC inventories—to production-based inventories consistent with the System of National Accounts (SNA; United Nations, 1993). This first step is an extension of the SNA and is often referred to as the National Accounting Matrix including Environmental Accounts (NAMEA; SEEA, 2003, Gravgård Pedersen and de Haan, 2006). In the second step, the production-based inventories are reallocated to a consumption-based inventory generally using input–output analysis (IOA). It is this later step which is of most interest in this article. Recent developments in methodology and improved data have allowed the use of multi-regional input–output analysis (MRIOA; Wiedmann et al., 2007a, provides a review) to construct consumption-based inventories4 (Ahmad and Wyckoff, 2003, Lenzen et al., 2004, Peters and Hertwich, 2007, Peters and Hertwich, in press, Wilting and Vringer, 2007). However, there are two key accounting approaches for consumption-based NEI that differ in the way they allocate imports for intermediate consumption (Peters, 2007). The first section of this article compares these methods.

Some authors have argued that production-based NEI and consumption-based NEI represent two extremes and it is beneficial to share responsibility between the producer and consumer (Kondo et al., 1998, Ferng, 2003, Bastianoni et al., 2004, Gallego and Lenzen, 2005, Rodrigues et al., 2006, Lenzen et al., 2007). Initial attempts at sharing responsibility in NEI led to problems of double counting, which has now been resolved with further theoretical developments (Gallego and Lenzen, 2005). However, much of the discussion of shared responsibility has focused on sharing between the producer and a consumer for a fixed final consumption at the subnational level. Production-based and consumption-based NEI require sharing responsibility between different final consumptions—one that includes exports and one that includes imports (Munksgaard and Pedersen, 2001). The second section of this article extends the shared-responsibility concept specifically to production-based and consumption-based NEI.

A consequence of using consumption-based NEI is that a portion of the emissions occur outside of the political administered region where the consumption occurred (Peters and Hertwich, 2006b). While this opens new options for mitigation (Peters and Hertwich, 2008), it also changes the political economy of climate mitigation. It is difficult to understand how purely consumption-based NEI may lead to deeper emission reductions than production-based inventories. Despite possible advantages of using consumption-based NEI, the political dimension may hinder them as the sole NEI. The third section of this article expands on the various implementation issues of consumption-based NEI and how they may be used in practice.

Section snippets

Accounting for imports in consumption-based inventories

Recent approaches to construct consumption-based emissions NEI have used MRIOA (Ahmad and Wyckoff, 2003, Lenzen et al., 2004, Wilting and Vringer, 2007, Peters and Hertwich, 2007, Peters and Hertwich, in press). However, two key approaches to accounting for imports to intermediate consumers have been posed with implications for the construction of NEI (Peters, 2007). In this section the two approaches are introduced and discussed in relation to NEI. For this, it is necessary to develop some

Sharing responsibility between production-based and consumption-based inventories

There have been several articles that discuss sharing responsibility between the “producer” and the “consumer” (Bastianoni et al., 2004, Rodrigues et al., 2006, Lenzen et al., 2007), however these articles do not share responsibility between different NEI (as in Ferng, 2003). It is worth elaborating on this to avoid confusion.

Given a final consumption vector, emissions can be allocated to either the “consumer”fconsumer=F(IA)1diag(y)or the “producer”fproducer=Fdiag(x);x=(IA)1y.

In both

Implementing consumption-based emission inventories

Several authors have discussed the advantages in using consumption-based NEI (Kondo et al., 1998, Munksgaard and Pedersen, 2001, Lenzen et al., 2004, Munksgaard et al., 2005, Munksgaard et al., 2007, Peters and Hertwich, 2008, Peters and Hertwich, in press). Key advantages of consumption-based NEI include eliminating carbon leakage through imports, covering more global emissions with limited participation, consistency between consumption and environmental impacts, increasing mitigation options,

Conclusion

There are several different system boundaries that can be used when constructing NEI. Depending on the system boundary, the assigned emissions and hence mitigation possibilities are different. Arguably there is no “optimal” method of allocation, as the different system boundaries often provide different information. The production-based NEI used by the UNFCCC has been critiqued by many authors for not including the emissions embodied in imports. Changing the system boundary to consider imports,

Acknowledgements

I would like to acknowledge Christopher Weber and Thomas Wiedmann for their invaluable comments.

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