Wednesday, May 23, 2012

Allocate emissions to those who emit them (except electricity)

I got sidetracked as I often do, reading the Climate Progress thread that Eli referenced, into looking at a discussion about whether GHG emissions embodied in the production of imported products should go into the sinner's file of the importing nation.

The question is a truly exciting one of cost accounting.  In theory it doesn't really matter who you allocate the carbon cost to, as long as you allocate it to someone, you don't double count or undercount, and you keep the method consistent.  That's Coase Theorem for you - whoever's responsible for fixing the problem will be forced to put up the money to fix it.  So maybe you could choose to say the nation where the end user is gets the full freight.

Except it has some problems, especially when it concerns trade between sovereign nations.  For one thing, definition of end product could be hard.  A factory built to manufacture widgets for export - is the factory an end product or added to the emission of widgets?  An American reads a newspaper and then tosses it into a bin, where it gets shipped off to China for recycling.  Who's responsible for which or all emissions? It's easier to avoid these games and just count emissions where they become airborne.  More importantly, it could be a lot harder to track emissions in someone else's country and use legal force to ensure that country undertakes the conservation techniques/renewable energy/carbon sequestration that you're paying them to do.

The exporting country is getting paid for the product they export - if they internalize the externalized carbon cost of production that's an appropriate charge to bear.  Most countries prefer to be exporters rather than importers, so let the exporters pay for their pollution costs.

None of this denies the reality that China's emissions are (partly) why developed countries aren't even worse.  And Americans should fight coal exports to China just because it's a really bad idea, not because of carbon accounting.

UPDATE:  I forgot to add why electricity is different - it's such a close connection between buyer and seller that I think it's fair and practicable to allocate emissions to the buyer as much as the seller, and give the buyer incentive to buy from somewhere else.  Electricity doesn't have to be an exception, but it could be an exception.

Also see comments below, they're good.