A better way to measure greenhouse gas emissions?

Business managers understand the direct connection between measurement and management: We manage well what we measure well. If, as a society, we are to address global climate change by managing global greenhouse gas (GHG) emissions, we need an effective way to measure these emissions. There are two approaches for measuring country-wide emissions: Production-based measurement (emissions produced within a country); and consumption-based measurement (emissions produced to manufacture and deliver the products and services a country demands or consumes). Much of the focus of international policy agreements has been on production-based measurement, but consumption-based measurement may be a more powerful and effective approach.

The Kyoto Protocol and current GHG emission trading schemes in Europe, Japan and Australia are production-based approaches. They target the production of carbon dioxide and other GHG emissions within a country's borders. These types of trading schemes put a price on the carbon produced within the country's borders, but not on the carbon imported through products and packaging manufactured elsewhere.

This can create extreme distortions of measurement, and therefore misguided management. For example, at the 2005 G8 Summit, the U.K. used production-based methods to conclude that it had achieved emissions reductions and was on its way to achieving its Kyoto Protocol goals. Thus, the U.K. was held up as a model for emissions reductions through early investment and targeted action. Most of the apparent reductions, however, were the result of de-industrialization and coal facility closures within the U.K.'s borders as production of goods moved overseas (“Too Good to be True? The U.K.'s Climate Record,” Helm, Smale and Phillips, 2007). The net emissions resulting from U.K. citizens' activities didn't really change that much, but emissions no longer occurred within the U.K.'s borders and were therefore no longer included in the U.K.'s measurement. These emissions occurred in less developed (and less regulated) countries. Because the production of one kilowatt hour of energy in less regulated countries generally produces more GHG emissions than the production of one kilowatt in the U.S. or the U.K., net emissions may actually have increased, not decreased, as manufacturing moved overseas.

So in a world of increasing consumption rates and international supply chains, a production-based approach runs the risk of hiding real increases in total GHG emissions. And when we're talking about global climate change, exporting the problem to another country does not actually help anyone.

Consumption-based modeling places responsibility where it belongs: at the source of original demand for goods or services. In consumption-based modeling, responsibility for all upstream extraction of resources and generation of emissions is attached to the final product at its point of sale or consumption. If that final product is sold or consumed in the U.K., responsibility for all associated emissions resides with the U.K. This changes the question from “How many GHG emissions are produced in our country?” to “What quantity of GHG emissions is our country responsible for through our consumption?”

So what does this mean in the U.S. context? The packaging industry has experienced significant off-shoring of manufacturing. If consumption-based models are to be used as the measurement framework for GHG emissions, then companies and countries that have invested in cleaner manufacturing and energy capacity will outperform those that have not. For the U.S., this means economic health domestically and environmental health globally.