Principles for embedded emissions accounting to support trade-related climate policy

Abstract

ABSTRACT Climate policy – though shaped by international regimes – has traditionally been heavily domestic in practice. Accordingly, public emissions accounting frameworks have been designed to support policies targeting emitting processes within the territory, and to facilitate the production of National Accounts. Now, a combination of emissions leakage, competitiveness, and both investor and consumer concerns are driving the rapid emergence of policies targeting emissions embodied in traded products. To support these product-targeted policies, governments are investing in the development of public embedded emissions accounting frameworks (EEFs). While EEFs as an information instrument have enormous potential to support the transition to a net-zero global economy, they equally have the potential to inhibit trade, slow the transition, and have a disproportionate impact on developing countries – both through their design, and through potential incompatibilities between accounting developed in different jurisdictions. This article contributes to addressing these challenges by describing the minimum viable set of principles for an emissions accounting information instrument to be compatible with both international trade law and climate change mitigation regimes. To identify these design principles, our method is a systematic review of carbon accounting and trade law literature. Noting the prominent place of principles in guidelines for carbon accounting practice, we additionally extract principles identified in leading emissions accounting guidelines. Theory-based identification and analysis of these systematically extracted principles is used to develop the synthesized set of key principles for the design of public embedded emissions accounting schemes for traded products. Public agencies developing approaches for product emissions accounting, such as to meet requirements for carbon border adjustment mechanisms, could use these principles to guide design and negotiation.