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Carbon CAP

Consumption-based carbon accounting to understand consumer behaviour as a basis for climate policies

 

Overview

Carbon CAP is an ambitious project funded under the EU Framework 7 Research Programme. It aims to provide the definitive accounting analysis of the embodied carbon flows across borders that define the difference between domestically produced CO2 emissions and the overall carbon footprint of consumption, and the policies that could act upon consumption choices so as to exert leverage over the entire carbon footprint of European embodied carbon consumption. It achieves the former by bringing together and comparing the three leading global datasets on the topic. 4CMR leads the latter work, leading the work package on consumption-oriented policy instruments.

Context

Climate change mitigation policies currently focus on production processes within national borders. However, all production serves consumption. Consumption ultimately drives increases in greenhouse gas (GHG) emissions, reducing the likelihood global average temperature increases are kept below 2 °C compared to pre-industrial levels. Globalisation further implies that consumption may induce GHG emissions abroad that are not monitored via national accounting systems. Mitigation policies that include a consumption- and trade perspective bear the promise of providing new, cost-effective and efficient solutions complementing existing production and territorial oriented policies. Our project hence aims:

  • To stimulate innovative European and international demand side oriented climate policies and services due to the improved shared knowledge base on consumption emissions.
  • To realize a more effective policy mix for achieving the objectives of the EU Climate and Energy package and the Roadmap for moving to a competitive low carbon economy in 2050

There are however significant problems that make it easy for stakeholders to question the reliability, impacts, feasibility, legality and added value of consumption based carbon accounting systems and demands side tools and policies. Carbon CAP will overcome these problems via the following responses (in brackets: main WP addressing the response)

Gap and Response 1 (WP4): Consumption based carbon accounts (CBCA) are not yet robust and accepted. This project will compare existing major CBCA databases like EXIOBASE, WIOD, GTAP, EORA, to identify the main factors contributing to uncertainty, and to deliver an approach that can be implemented by formal players in the climate community (UNFCCC, IEA, others)

Gap and Response 2 (WP5 and WP6): There is uncertainty about effectiveness, feasibility and added value of consumption based policies, including supply chain and trade related policies. We will provide an in-depth analysis of the feasibilities of consumption based and trade related policies. From this, we will identify the possible policies that are both effective and aligned with e.g. WTO rules. Specific case studies will zoom in on practical improvement options and implications for specific sectors (WP6), which informs WP5 on which implementation problems need to be tackled. WP5 and 6 combined provide input to WP7 about diffusion potentials of improvements.

Gap and Response 3 (WP7): Models handling impact assessments of consumption- and trade based policies are not yet accurate. Related to WP4 the project adjusts and improves some of the most ambitious models capturing the global economy: EXIOMOD, FIDELIO and E3MG/E3ME, so that they can capture side-effects and rebound effects, impacts on trade, investment, etc. Informed by WP5/6 we model impacts of demand side options and measures related to low carbon future scenarios.

Gap and Response 4 (WP8 and WP2): There is no shared view on the added value, implementation challenges and acceptability of demand side tools/policies and related accounts, and no “roadmap” of evolution from production towards consumption-based policies. This project will create an implementation roadmap for consumption based accounts and policies (WP8) endorsed by a critical mass of stakeholders via policy-science brokerage activities (WP2).

The overall aim is summarized in the following figure, and the Work Package structure is shown in the figure after that.  The project runs for three years, from October 2013 to September 2016.

 

Carbon CAP 1 

 

Figure 1: Progress from knowledge to action envisaged by the project

 

 

Carbon CAP 2 


Figure 2: Work package structure

 

Work Package 5: Demand-side Tools and Policies – Lead 4CMR

Work Package 5 is at the heart of the policy analysis, and is led by Michael Grubb at 4CMR  It will identify and evaluate demand-side policy interventions that could be implemented to mitigate climate change. More specifically the objectives of this WP are:

  • Identify potential demand-side tools and policies including final consumer-oriented policies, border-related and investment policies and corporate engagement policies;
  • Collaborate with WP4/6 to assess the potential scope of impact of these different measures;
  • Assess the political, legal and administrative feasibility of these measures;
  • Evaluate the likely effectiveness of the different measures (e.g. likely levels of consumer behaviour change, the risk of carbon leakage through offshoring in response to policies and uptake of voluntary initiatives by businesses);
  • Formulate a set of recommended demand-side policy packages that will be used to inform WP6 and scenario development within WP7.

This WP uses the outputs from WP4 to inform a structured and in-depth evaluation of demand-side tools and policies. By tracking emissions from production to consumption, consumption-based accounting methods (reviewed in WP4) offer three promising avenues of policy intervention: (1) targeting the downstream consumer through final consumer oriented policies; (2) targeting groups of primary and intermediary producers and products that meet demand for a particular group of consumers (e.g. producers that meet demand for EU consumption) through border-related and investment policies; and, (3) targeting major, influential companies within supply chains that have the most leverage over emissions through corporate engagement policies. The proposed programme of work, which elaborates on these potential policies, is laid out below. Where relevant we will do cross-checks of our findings with results of the DG CLIMA consumption based accounting service contract, executed by AEA Ricardo.

 

Task 5.1: Identify potential demand-side tools and policies and their scope

Lead 4CMR (3M), with TNO(2M), SERI (1M) and IPTS (1M)

Collate a ‘long list’ of potential policy interventions expanding on existing efforts to identify demand-side tools and policies (such as those identified by TNO, ‘Analysis of the future application of product policy instruments in the EU, 2012, but also in the DG CLIMA service contract project executed by AEA Ricardo). Structure this list according to the three different policy avenues identified above and according to which key sectors and key drivers (identified by WP4 and WP6) could be addressed by each policy. The aim obviously is that policy instruments are selected that help to implement the improvement options identified in in Task 6.1, which in turn address the hot spots identified in WP4. Evidence based descriptions of the mechanisms by which identified measures work will be provided along with examples of where they (or policies with similar mechanisms) have been applied. Examples of the types of policies that will be considered are given below:

  • Final consumer-oriented policies - e.g. public procurement policy, embodied carbon product labelling, awareness raising, product eco-design standards and awards (recognised as powerful tools for not only reducing environmental impacts of products but also for driving changes in consumption patterns by influencing consumer environmental awareness), regulation of misleading low-carbon marketing (similar to Regulation EC 1924/2006 on Nutrition and Health Claims in Food), personal carbon allowances, ‘downstream’ energy and resource taxes, innovative fiscal measures including carbon related consumption charges on intermediate- and final goods, policies inspired by the growing field of behavioural economics;
  • Border related and investment policies - e.g. border taxes and adjustments also in context of alternatives like free allowance allocation, provision of state aid to trade exposed sector (linked to operation/investment), local content requirements. In particular, insights will be drawn from the consortium’s collective expertise covering key intermediate products from the cement, oil and refining (inc. biofuels), chemicals and metals industries;
  • Corporate engagement policies - e.g. sectoral agreements in embodied emissions intensive sectors, initiatives that encourage the disclosure of supply chain emissions (such as the Carbon Disclosure Project), opportunities to use existing supply chain infrastructure as a conduit for mitigation funding. Here the focus will be on the policy levers that governments can use to support/incentivise/regulate corporate action on driving emissions reductions through supply chains (including indirect policy changes – for example on corporate accounting or reporting, that help other third parties (financial institutions, or NGOs) provide incentives for greater action).

Collaborating with WP4, estimate the potential GHG impact scope of each measure (e.g., EU border taxes on intermediary steel products have the potential to influence X Mt CO2). Use these findings to rank policy interventions according to their potential scope for carbon mitigation. From this, identify a first-screened list of potential policies for further analysis.

 

Task 5.2: Assess the political, legal and administrative feasibility of these measures

Lead: 4CMR (5M) with TNO (2M), IPTS (3M), DIW (1M) and ICTSD (3M)

Based on practical experience and theory, identify potential political, legal and administrative constraints to the ‘first-screened list’ of policies identified in 5.1, consider whether these constraints can be surmounted, and outline the situations under which these instruments will perform better or worse. Examples of the types of constraints that will be considered include:

  • Political acceptability for consumers-as-voters: simples ‘bans’ on many (but not all) high-consuming activities or products may for example be plainly unacceptable, (drawing also on interviews under Task 5.2);
  • Political acceptability for industry sectors who would be affected by policy change;
  • Budgetary constraints and the potential for revenue raising (including the use of past experience with comparable policy measures to estimate the scale of the implementation costs involved in their use);
  • The potential for mutual-recognition principles with other existing carbon pricing schemes;
  • Data requirements and verification about actual production and process methods, the legal precedents (such as the tuna-dolphin case), and the relevance (or not) of international inventory and accounting standards (this could include an assessment of how far down the value chain emissions-intensive content of a product would need to be included in border cost-levelling policies);
  • The implications of different approaches in the accounting for electricity-related emissions and the potential for more sophisticated approaches (e.g. EXIOBASE MRIO which breaks down electricity generation into 12 different generator types for the 43 countries) that do not simply attribute grid average carbon intensities thus enabling, for, for example, consumer choices over electricity provider;
  • Benchmarking requirements and the potential for the consumption based accounting models (reviewed in WP4) to deliver suitable benchmarking data of an appropriate resolution;
  • The likely performance of policies when applied with climate (and other) policies currently in place or being put in place from 2015 onwards;
  • More specific legal and policy concerns such as compatibility with WTO National Treatment and Most Favoured Nation principles, the inclusion of importers into the EU ETS (under Article 10b of the Emissions Trading Directive), and the distinction between products based on origins (which would only be feasible with GATT Article 20 exemptions or an overriding multilateral agreement);

This will lead to a ‘second-screened’ matrix of measures for quantified evaluation.

 

Task 5.3: Estimate response functions for consumers and businesses and WP5 final reporting

Lead DIW (6M) with 4CMR (8M), SERI (5M) and ICTSD (1M)

This task will estimate the consumer and business response to the screened set of demand-side tools. This requires estimating consumers’ willingness to adopt lower-carbon like-for-like products or substitutes and/or reduce consumption. Overlaps or complementarities between policies will be outlined. This task inevitably will interact strongly with Task 6.3, where from the perspective of concrete, promising improvement options barriers for diffusion are analysed. Ideally the policies developed in WP5 must overcome such barriers by enhancing the response functions for consumers and businesses.

The assessment will include literature review and a set of interviews with policy makers and consumers conducted by SERI to gauge: (a) factors determining feasibility and perceived impact of past and current policies; and (b) likely responses to new policy measures. DIW Berlin will draw in additional insights from behavioural economics, and knowledge of drivers of demand change, to contribute to the estimation of how to aggregate the influence of policies on demand for goods and services in a selection of value chains. A conceptual framework for this aggregation will be developed, with uncertainties clearly highlighted. Development and discussion will draw on ways in which uncertainty around combined impacts of policies are dealt with in other areas of decision making.

With regard to the impact on innovation, we will develop a framework to take into account the potential differential impact on demand on innovative and less-innovative companies within a sector, so as to provide a potential basis for assessment of structural change within and between sectors  and their implications for the politics that need to be considered for a successful implementation of a policy

4CMR with IPTS and DIW will make some initial estimates of price impacts of policies on on intermediate goods (focusing on steel, cement, petroleum and chemicals); additional information comes from the first modelling round in WP7. DIW with 4CMR will also assess corporate response to business engagement & supply chain policies and incentives for low-carbon innovation (in product and service design or production processes along the value chain). The impact of this combined (consumer+corporate) demand on low-carbon innovation will be estimated from the available data on drivers of innovation, taking into account sector, and industry specific factors (as innovation in chemicals is very different from innovation in fast-moving consumer electronics).

 

Partner organisations in the project:

Nederlandse Organisatie voor Toegepast Natuurwetenschappelijk Onderzoek (TNO, project lead)

Cambridge Centre for Climate Change Mitigation Research

Wirtschaftsuniversitat Wien

EC Joint Research Centre

Universiteit Leiden

Norges Teknisk-Naturvitenskapelige Universitet

Cambridge Econometrics

Climate Strategies

Deutsches Institut fur Wirtschaftforschung

International Centre for Trade and Sustainable Development

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