"Embedded carbon"

Past climate agreements have held countries responsible for pollution produced within their borders. But forcing developed nations to agree to emission cuts when developing nations aren’t limited by similar caps could have two unintended consequences:

• make developed nation industries less competitive by driving up the price of their goods
  
• undermine any treaty by driving dirty manufacturing overseas to less-regulated areas.
  

Already, roughly 23% of China’s emissions come from the production of goods that are exported, according to a recent report by the Tyndall Center for Climate Change Research in Britain.

At the same time, carbon emissions in the U.S. have fallen in recent years, e.g. by 1.6% in 2006. But a recent study by Carnegie Mellon University suggests the U.S. may be cutting its emissions by outsourcing more manufacturing. In 2004, the U.S. imported 1.8 billion tons of CO2 embedded in products, the equivalent of 30% of the nation’s carbon output that year.

Including developing nations in a climate agreement or levying border taxes based on “embedded carbon” could help resolve this issue. Regardless of the approach the global community takes to putting a price on emissions, buyers will wind up paying the costs.

Source: WSJ, 12/11/07