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Business News/ Opinion / Views/  The global climate action agenda could do with trade recalibration
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The global climate action agenda could do with trade recalibration

Emissions apportioned to countries by what they consume rather than produce could let us share the burden more equitably

Photo: iStockPremium
Photo: iStock

November began with CoP-26 of the United Nations Framework Convention on Climate Change (UNFCCC) at Glasgow, and ended with the 12th Ministerial conference in Geneva of the World Trade Organization (WTO).

A measurement issue links the two. Climate responsibility is carved up into national obligations and right there lies the problem of measuring nation-wise culpability. The UNFCCC measure, whereby India ranks third behind China and the United States of America (US), is based on total emissions from within the territorial boundaries of each country, even if some of the goods produced in the country are exported to other countries. That it is a production-based measure is well known and usually acknowledged upfront. But it is not accompanied by a parallel measure of emissions embodied in the final products going into domestic demand in each country (demand-based, more popularly called consumption-based, emissions). The most that is done is to report production-based emissions in per capita terms alongside, where India ranks low, with our faithfully large population denominator bailing us out.

It is not just a per capita matter. Consumption-based emissions should be the key metric upon which national culpability is measured, because it is the consumption and style of living within a country that determine its contribution to the global problem. When a car imported from China is operated by the spatially far-flung residents of the US, only the emissions from running that car are logged in the production-based US account. The manufacture of the car, complete with coal- fuelled electricity and other inputs, goes into the production-based account of China. A consumption-based measure would log that too in the US account, because the car meets US demand, not Chinese demand.

Quantifying consumption-based emissions is computationally complex, and therefore even the most updated estimates are lagged. Madanmohan Ghosh, a senior advisor with the Canadian government (formerly at the National Institute of Public Finance and Policy), pointed me to the source. The latest figures I could find are for 2015, when absolute emissions would have been different, but not so much the percentage shares. China emitted 24.72% of the world total that year by consumption and 28.75% by production. The US emitted 17.95% by consumption, but only 15.55% by production. The outsourcing of emission-intensive manufacturing by the developed world shows clearly in these figures. For India, less engaged in trade, the difference is smaller, 5.94% by consumption and 6.30% by production.

The apparent reason why countries like China do not press this point is the bogey of border taxes on emission-intensive imports (they go by the term Carbon Border Adjustment Mechanism, or CBAM for short). Such a tax is feared by exporting countries because emission-intensive imports of the US (and the rest of the developed world) are what China (and the rest of the emerging world) looks to for export-driven growth.

However, any border tax on imports will have to be calibrated to the technology used and emission intensity in the source country—which violates the most favoured nation (MFN) principle of world trade, and makes it an issue falling squarely within the jurisdiction of the WTO. A WTO condemnation of emission-based border taxes would go a long way towards situating climate talks on a more neutral platform.

That said, clearly there is a need to phase down, if not phase out, unabated coal-fuelled electricity in China and India, and to find least-cost technological alternatives. In India, there is the added egregious crop stubble burning in November in some northern states, a part of production-based but not consumption-based emissions, since it is not integral to the inputs going into food consumed. However, owing to an arcane reason, it does not appear even in the production-based measure as presently calculated. Too bad. Including that would at least have increased the pressure on public policy to stamp out the practice.

But the failure to look at consumption-based measures alongside means there is no pressure on developed countries in cold regions of the world to alter patterns of settlement and space heating, which were designed in an era of cheap energy.

In the US, a new non-partisan infrastructure bill for $1 trillion has just been passed, which is great for global recovery from covid, but without a component for moving towards denser patterns of city living, the package does nothing for mitigation. Are patterns of settlement in the US (and Canada) still relevant to the pollution issue in a post-covid world of work-from-home? Yes, because of the continued need to transport goods to far-flung populations.

Any proposal to re-order settlement patterns in temperate zones to reduce emissions is pushed off the table as something too ludicrous to even suggest. But it is happening by necessity in coastal regions all over the world as people “adapt" to the rise in sea levels. Populations move inland and press upon people settled in the interior, causing political turbulence. Whereas a country like the US can do it in an orderly way to a plan of its own making.

There will never be climate equity, because that is exactly how powerful nations want it.

Indira Rajaraman is an economist

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Published: 02 Dec 2021, 10:26 PM IST
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