The emissions responsibility accounting of multinational enterprises for an efficient climate policy

Abstract

The achievement of global warming limits below 2 °C and 1.5 °C requires deeper involvement of nonstate and subnational actors. In this paper, we focus on multinational enterprises (MNEs) and propose a new technology-adjusted investment-based emission accounting (TIBA) system that considers the technology gap between parent companies and their foreign affiliates. Specifically, TIBA rewards the home regions that transfer clean technology to host regions through MNEs to reduce global emissions and penalizes home regions that expand with high emission intensities through MNEs to increase global emissions. Under the TIBA system, the economies with high outward foreign direct investment stocks are assigned significantly higher responsibilities of emissions than under the production-based accounting (PBA), such as the United States, major European economies, Japan, and Canada. However, the increases in responsibilities differ sharply, depending on their investing regions and industries, as well as the technology transfers. Moreover, our measurements suggest that ideal technology transfers under TIBA would reduce emissions by up to 3,762 Mt, accounting for ∼16% of global Carbon Dioxide emissions from industrial processes involving fossil fuel combustion in 2016. This implies that there is room for improvement in low-carbon technology transfers through MNEs to combat global climate change. Thus, we argue that TIBA targets an efficient policy that highlights the role of MNEs.