Should greenhouse gases be calculated based on where they are consumed not produced?

David Haywood has a useful post at Public Address on climate change policy:

He looks at the greenhouse gases produced to make a TipTip Popsicle in NZ and a Streets Paddle-pop in China,. They are 0.5g and 1.7g so the Streets one has three times the impact.

So what happens when we ask the question (based on our data): “How can we reduce New Zealand’s contribution to global warming in terms of iceblock manufacture?” The answer is obvious. In fact, the answer deserves its own paragraph in bold:

Q: How can we reduce New Zealand’s carbon dioxide emissions?

A: Encourage importation of iceblocks from China and discourage manufacture of iceblocks in New Zealand.

While this answer seems completely stupid (because this strategy would actually raise global carbon dioxide emissions—since the Chinese Paddlepop emits more carbon dioxide than the New Zealand Popsicle) it is actually technically true. This strategy would lower New Zealand’s greenhouse gas emissions according to the accounting system that we currently use—and therefore be the desirable course of action to take.

This is a major issue. The same applies to dairy. If we shot all our dairy cows and imported milk from overseas, we would look far far better globally, but greenhouse gas emissions would actually increase.

The problem here is that greenhouse gas emissions from energy production are attributed to the country where the actual gases are emitted (which can be calculated easily and reliably using the guidelines of the UNFCCC). A more meaningful system would be to attribute the greenhouse gas emissions to the country where the energy is actually “consumed”, i.e. the country where the energy embodied in goods and services actually ends up. Unfortunately this would be impossible to accurately calculate at the moment (although it can certainly be estimated); and it would require a complicated global system of traceability to produce reliable numbers. So for now we’re stuck with the current system of attribution of greenhouse gases.

Perfect is the enemy of good, so it isn’t an argument not to have any price on carbon. But it is an argument to make sure any extra costs on industries that compete globally do not lead to us merely producing less in NZ, and importing more or exporting less. The only time this would be desirable is if we were using a bigger carbon footprint than our competitors. This is rare as we have such high levels of renewable energy.

To return to our iceblocks, if we levy a cost on the dirty energy component in manufacture of the popsicle then we will increase the total price for the exported product. A consumer in Australia, for example, would then receive a price signal encouraging purchase of the dirty energy Streets Paddle-pop from China rather than the clean energy TipTop Popsicle from New Zealand. This would also be true in terms of encouraging purchase of high-emissions milk solids from Britain rather than lower-emissions milk solids from New Zealand. Both would tend to cause a global increase in emissions of greenhouse gases.

Clearly, therefore, any disincentive that we apply to the production of dirty energy in New Zealand must satisfy three criteria:

  1. Any disincentive must be applied to the embodied dirty energy for goods and services imported into New Zealand.
  2. Any disincentive must also be applied to goods and services within New Zealand.
  3. Any disincentive must be removed from goods and services exported from New Zealand.

That makes sense but would be very difficult to implement.

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