Embodied Carbon in Traded Goods

by Jiang Kejun, Aaron Cosbey and Deborah Murphy

Background Paper

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Summary of key issues, challenges:

• The term “embodied carbon” refers to carbon dioxide emitted at all stages of a good’s manufacturing process, from the mining of raw materials through the distribution process, to the final product provided to the consumer. Depending on the calculation, the term can also be used to include other GHGs.

• Important questions in climate change and international trade discussions are linked to embodied carbon. Should emissions be allocated at the point of consumption (meaning a calculation like embodied carbon), or at the point of manufacture (meaning a calculation like those currently performed for the purposes of the Kyoto Protocol)? Should international trade be considered in a future climate change agreement to avoid “carbon leakage” to developing countries?

• These questions have particular implications for a country like China that has experienced phenomenal economic growth, matched by increases in energy use, aggregate GHG emissions and exports.While embodied carbon may be a negotiating issue for China and other rapidly growing developing nations that are under pressure to curb increases in energy use and GHG emissions, there is still a lack of good research results to fully support the discussion.

• Initial research indicates that, in general, Annex B countries are net importers of CO2 emissions, but there is considerable variation. And the various assessment techniques used to calculate embodied carbon—e.g., life-cycle assessment, ecological footprint, hybrid LCA—face several challenges, including methodology, definition of boundary, data availability and cost.

• The concept of embodied carbon also is important in the discussion of competiveness issues, whereby those countries implementing emissions reduction policies will have to compete with exports from countries without mandatory emission reductions, where costs of production may be lower as a result. The basis for trade measures (e.g., border carbon adjustment) to level the playing field could be embodied carbon in products.

• But, is the concept of embodied carbon compatible with the principles of the multilateral system of trade? Specifically, can discrimination based on embodied carbon be accommodated in existing trade law? Given the proliferating number of schemes, both private and governmental, this question is important.

Summary of ways forward:

• While there is some discussion of accounting for a nation’s emissions consumption in a new international climate agreement, more research is needed to assist the international community in properly assessing policy options.

• Embodied carbon calculations have only been undertaken for a limited number of products and a wider coverage of products is needed. Related to this is the need for a more systematic analysis of embodied carbon to ensure consistency across calculations.

• Regional analysis is also needed, especially in developing countries where the same products could have very different levels of embodied carbon. And international comparative analysis is essential to understand mitigation potential and links with trade issues.

• It is important to begin to examine known trade case law to attempt to determine if embodied carbon is compatible with the principles of the multilateral system of trade.