Production-based emissions

What gets counted in a country's emissions?

The Paris Agreement, which 196 countries signed up to in 2015, aims to keep global average temperatures below 2° C of warming above pre-industrial levels. As part of this agreement, each country is asked to submit a plan for how they will lower their emissions, called a Nationally Determined Contribution (NDC).

NDCs are calculated on a production-basis. In other words, the UK's NDC just looks at the emissions that will be generated in the UK from the things we produce here.

This means there are lots of emissions that aren’t included in NDCs. Emissions from goods and services that we import from overseas to consume here aren’t included. Any burning of fossil fuels that are extracted in the UK but then sold overseas is also excluded. International aviation and shipping aren’t included in anyone’s NDCs, which obviously means lots of missing emissions globally. This is problematic becasue aviation has increased more than any other form of transport over the last decade, and that increase is set to continue.

If a third runway is built at Heathrow, only its construction would be included in the UK's NDC, not the emissions from the flights.

Rebound effects

The main problem with NDCs is how they interact globally. If you create a trajectory of global emissions without NDCs, you can then take the NDCs from all the countries, add them up, and subtract this total from the global emissions to create a new, lower trajectory that includes the NDCs. Sounds simple but this ignores the interaction between countries, and how one country's emissions are affected by another’s.

A country like the UK buys a lot of its goods and services from elsewhere. Just look at where your clothes, your tech devices and the food in your shopping basket come from. The emissions from these aren’t covered by the UK's NDC, because they’re consumption-based emissions – things we consume here in the UK but are produced somewhere else. So we can have an NDC that looks like it has a sufficient reduction target, but that increases the incentive for us to have those emissions created elsewhere.

The reality is that some countries having strong NDCs creates a tendency for the emissions to migrate to the countries that have much weaker NDCs, ones with weaker targets or an increased chance of missing their targets.

The activities of people’s daily lives in the UK – buying fast fashion from China, sending our unwanted clothes for ‘recycling’ which ends up being burned abroad, buying air-freighted asparagus from Peru, and a third runway at Heathrow – increasing or decreasing these activities will have no impact on our NDC.

This means that any UK policies to help us meet our NDC won't have an impact on these activities. And yet these are some of the most critical areas that we need to see huge changes in if our global emissions have any hope of budging at all.

The emissions from consumer spending arn't included in the UK's NDC if the goods are imported.

Shipping not included

Why are international shipping and aviation not counted? Basically, because it’s seen as too hard. The UN first asked its specialist agencies to look at how to measure and report on aviation and shipping emissions in 1995. 30 years later there’s still no agreement, and it's not mandatory to include these emissions in NDCs. Some countries are looking at how to do this, but this accounting problem needs solving globally.

What gets counted up, goes down

NDCs do work for the areas that they cover. For the UK, agriculture, forestry and land is a key one, so if we find places to plant more woodlands and move to more regenerative agriculture, that will show in our NDC. NDCs do a good job of incentivising the decarbonisation of our transport, built environment and domestic industries like steel production. The headline-grabbing area is the amount of renewable energy we produce, but this is only effective if we simultaneously decrease the amount of energy we generate from fossil fuels. Just adding renewables won’t decrease our energy emissions, the key is to burn less fossil fuel, and our NDC will show the effect of both.

Or doesn’t go down

NDC are just targets, what really matters is if we meet them or not. Does the country have policies to back up their NDC? And will those policies result in action?

Globally, its questionable whether NDCs have made any impact on emissions. The world has had NDCs since 2020 but the greenhouse gas emissions graph hasn't flattened yet, let alone decreased.

Could consumption-based work for a country?

When we do carbon accounting for a company here at Small World, we use consumption-based reporting, not production-based. That means we look at the emissions they produce and emissions from the electricity they use (these are included in Scope 1 and 2) as well as the emissions from their full supply chain, called Scope 3. For most companies, Scope 3 is the largest part of their emissions.

Back in 2012 the Energy and Climate Change Committee looked at consumption-based reporting and agreed that we should be using it for the UK. In 2013 the Climate Change Committee again made a clear recommendation that we should adopt consumption-based reporting both for setting our emission targets and for use in policy making.

The other part of this puzzle that would help is a Carbon Border Adjustment Mechanism (CBAM). Think of this as a tariff that would be placed on imported goods based on their carbon emissions. If the UK's NDC included emissions from the things it imported, we'd have an incentive to choose ones with lower emissions. A CBAM gives the country producing those goods an incentive to lower their emissions, which then lowers the tariff, so they can export more of those goods to other countries.

The UK is introducing these for a few select goods, namely aluminium, cement, ceramics, fertiliser, glass, hydrogen, iron and steel. But to see real impact, we need these implemented globally.

Here at Small World, we’re working with partners on a project to set up ways of sorting out product and company supply chain carbon accounting so it's compatible with the methodologies used in NDCs.

Our vision for carbon accounting

That's our vision for the future of carbon accounting: every product, every service, every supply chain and every country being measured and reported in a compatible way. No missing emissions and no outsourcing your climate impact. If everything were counted, could that finally start to bring the global emissions graph down?