Towards a more effective climate policy on international trade

Erik Dietzenbacher, Ignacio Cazcarro and Iñaki Arto. (2020). Towards a more effective climate policy on international trade. Nature Communications (forthcoming).

In the literature on the attribution of responsibilities for greenhouse gas emissions, two accounting methods have been widely discussed: production-based accounting (PBA) and consumption-based accounting (CBA). It has been argued that an accounting framework for attributing responsibilities should credit actions contributing to reduce global emissions and should penalize actions increasing them. Neither PBA nor CBA satisfy this principle. Adapting classical Ricardian trade theory, we consider ex post measurement and propose a scheme for assigning credits and penalties. Their size is determined by how much CO2 emissions are saved globally due to trade. This leads to the Emission Responsibility Allotment (ERA) for assigning responsibilities. We illustrate the differences between ERA and PBA and CBA by comparing their results for 41 countries and regions between 1995-2009. The Paris Agreement (COP21) proposed new market mechanisms; we argue that ERA is well suited to measure and evaluate their overall mitigation impact.

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