Looking Beyond National Borders: Integrating Consumption-based Accounting Approach Into Climate Mitigation Policy

Emissions accounting under the current international climate change regime relies on the production-based (PBA) approach. Therefore, figuring out how much each country contributes to global emissions, setting and tracking national mitigation targets and designing climate policies are currently discussed from the production-based perspective. Yet, the consumption-based accounting (CBA) is not less important. The difference between two approaches comes from emissions embedded in international trade. As they account for the increasing portion of global emissions and this gap between production- and consumption-based emissions (PBE and CBE) in many countries is expanding, solely using the PBA might be misleading and prevent us from capturing the whole picture. For instance, a narrow production perspective puts the major responsibility for emissions reduction on emerging economies though advanced economies tend to import carbon- intensive goods from there. It also provokes carbon leakage due to the asymmetry in climate policies. Furthermore, it reduces the scope of emissions under regulation and narrows the range of decarbonization tools available for governments. In this policy brief, we discuss why the use of CBA along with PBA is essential for achieving global mitigation targets. We also present some policy recommendations with an emphasis on the critical role of the G20 countries, which represent more than 80% of global emissions and world trade. In this regard, we show that G20 collaboration for regular calculation and official disclosure of CBE and their gradual integration into emissions-reduction target setting would provide a better understanding of where carbon emissions come from, strengthen coordination between exporters and importers of carbon-intensive goods, and incentivize countries to use the wider range of environmental policy tools aimed at fostering just and inclusive green transition.