GHG inventories: production vs. consumption

Besides the production-based GHG inventory method as in the Kyoto Protocol, which uses production within a country's geographic definition, there exist two other methods:

1. economic production-based GHG inventories that use production within a country's "economic" definition (measuring the total gross values added produced by all institutional units resident in the economy); and 
2. consumption-based GHG inventories that use consumption within a country's economic definition.

Current issues
A GHG inventory on a country's consumption excludes the emissions embodied in exports and includes the emissions embodied in imports. There are two important implications that this method indicates. One is a carbon leakage issue in the Kyoto Protocol's GHG inventory method, which ignores increased domestic consumption produced in foreign regions as domestic production is replaced by foreign production. Another is decoupling of economic growth and carbon emissions (i.e. pollution) in environmental Kuznets curves (EKC). This inventory method explains a undisputed linking of economic activities and consumption-based emissions in most developed countries, which is mainly due to pollution-heaven and carbon leakage phenomena in the literature.

Implications for the Kyoto Protocol's GHG inventory
Implications of consumption-based GHG inventories for the Kyoto regime or future Post-Kyoto regime that will provide a binding emission reduction responsibility to Annex I nations are numerous. By using this method, developed countries take a greater share of current GHG emissions and consequently emission commitments for developing countries are not as important. It will also promote emission reduction in foreign regions in a framework of the CDM, as this method accounts for a country's emissions produced abroad for its consumption of imported goods.

Other issues to consider
theoretical concerns
Assumptions in the linear input-output analysis (IOA) that:

1. linear analyses based on aggregated industry sectors (typically 50 or more sectors): some detail is lost in complex production networks; and
2. different value added products are not considered: each product within a country has the same price.

Lenzen et al. (2007:34) suggested a modification of the traditional input-output identity with an alternative formula invariant with disaggregation and aggregation of the supply chain, which includes "value added" of industry sector (1-aij=1-bi=vi/xi-Tii (net output)).
policy issues
A premise of consumption-based GHG inventory in implementation is carbon and border tax. This may relate to a global linking of carbon emissions trading systems. It implies that carbon tax and carbon trading are not incompatible within a climate mitigation policy framework.



Source: Peters, G.P. & Hertwich, E.G. 2008. "Post-Kyoto Greenhouse Gas Inventories: Production versus Consumption," Climatic Change, 83: 51-66.
Lenzen, M. et al. 2007. "Shared Producer and Consumer Responsibility - Theory and Practice," Ecological Economics, 61:27-42.