The problem with carbon budgets

It has been the best part of 30 years since the UN Framework Convention on Climate Change (an international treaty aiming to reduce atmospheric concentrations of greenhouse gases) was established. set up. One of the first tasks agreed on was for countries to start documenting their emissions and report annually to monitor decarbonisation. To ensure proper accounting, a precise definition for “domestic emissions” was established that dictated the emissions that countries should include on their ledgers. Many countries have since set themselves legal deadlines to achieve reductions of these emissions, such as the UK’s commitment to achieve ‘net zero’ carbon emissions by 2050.

This has brought about the concept of carbon budgeting; that there is a certain level of permissible net emissions in a given year which must be divided between all sectors of the economy. However, these budgets only covers the emissions that the UNFCCC regards as domestic emissions. This is not equivalent to the country’s total carbon footprint, which would be the emissions based on the behaviour of the population. The former is based on the emissions released on a country’s land, while the latter is based on the emissions resulting from the consumption of the population. The graph below shows the evolution of the UK’s emissions using these two different metrics between 1970 and 2015.

The domestic emissions and consumption based emissions in the UK. Data source: [1]

Economists often reference Goodhart’s law, which states that “when a measure becomes a target, it ceases to be a good measure”. In other words, when we aim to change a specific metric, the changes made focus on the definition of that metric, rather than addressing the problem it was measuring. Personally, I think this effect can be avoided with sensibly chosen metrics, however it does seem to apply in this case; over the past 30 years domestic emissions have been consistently falling, while consumption based emissions rose until 2008. The focus on reducing the emissions that “count” has led to those that don’t being neglected.

To understand the difference between the two metrics it is useful to breakdown the consumption emissions by source. The graph below shows a breakdown of the UK’s emissions in 2016.

A comparison of different estimates of UK emissions in 2016. Data source: [2]

International aviation and shipping are not included in the UNFCCC definition of domestic emissions. This is partly due to the difficultly distributing the emissions between the origin and destination countries. The consequence is that these emissions are not accounted for in any country’s budget. This is alarming because shipping and aviation will be some of the hardest sectors to decarbonise, and without incentivising countries to tackle it it’s hard to see how a solution will be found.

However, the largest discrepancy between the two metrics comes from so called ‘imported emissions’. These are the emissions associated with production and transport of goods imported from overseas, minus those associated with exported goods. Although these emissions will be captured in another countries budget, only Annex I countries annually report their emissions. In the UK’s case, there has been a significant increase over the past few years in imports from China and India – see the graph below, noting that the data cover a smaller time range than the previous graph.

UK imports from China and India between 1995 and 2019. Data source: [3]

Neither China nor India are Annex I countries, so they aren’t subject to the annual reporting. Additionally, both countries use coal (the most carbon intensive fuel) for the majority of their electricity generation. This means that, even without the transportation emissions, the production of goods will likely be more carbon intensive than if they were produced domestically. In other words, Annex I countries are being incentivised to shift their emissions overseas, despite the fact that this will increase global emissions.

The concept of carbon budgeting makes sense, but we should be considering the global budget required to mitigate climate change, rather than individual countries virtue signalling with their own commitments.

[1] ONS, The decoupling of economic growth from carbon emissions: UK evidence, 2019.
[2] ONS, Net zero and the different official measures of the UK’s greenhouse gas emissions, 2019.