Key Pillar 4: Hybrid Carbon Accounting

Appendix 9 – A hybrid carbon accounting framework is required, and that must be able to be holistic and honour scientific and global developments.

Intro

Coming up a few levels, it is clear that a dynamic and appropriate carbon accounting system is required that can last for many decades to come.

The CCC…

Recommends “[Using a] production-based approach from the national Greenhouse Gas Inventory as the basis for accounting for emissions budgets and the 2050 target.”[1]
Says “[the] proposed advice is that production-based estimates are more suitable for accounting for emissions budgets and the 2050 target [partly because that’s how the world works and partly because consumption-based estimates are fledgling].”[2]

Discussion

Production based accounting is easy and meets current international frameworks for global reporting,[3] so it has merit. Nevertheless, production-based accounting has a major flaw because it excludes trade, meaning countries that are net exporters (like NZ) could have high emissions per capita.[4]
Consumption-based accounting is fledgling so does not represent a viable approach today.[5]
However, science suggests that either a hybrid production-consumption, or a wholly fleshed out consumption based approach will be used in the future. The reasons for this include:
- Both producers and consumers[6] cause emissions, and it is not possible to allocate causation to one actor.[7]
- “Equity, justice, increased emissions coverage and encouragement of cleaner production practices.”[8]
- A production based-carbon accounting approach excludes the anthropogenic loophole of shipping and aviation, which make up 5% of global CO₂emissions.[9]
- It is more closely aligned with Te Ao Māori principles including connectedness.[10]
- Cities and organisations are using Scope 3 GHG Protocol for life-cycle accounting,[11] and the more that happens, the more it will need to reconcile with country accounting.
Sticking with production accounting risks global emissions not being achieved, especially during the critical NDC period. E.g. China has committed to peak carbon by 2030.[12] That could increase global emissions if developed countries offshore manufacturing to China before then and peak carbon is reached but at a higher level than anticipated.
Even Joe Biden wants “border adjustment mechanisms that, for the first time, tax carbon-intensive imports and exports”[13] and this will require a move away from a strict production-based carbon accounting approach, towards at least a hybrid approach.
The Act allows various accounting approaches, which the CCC notes.[14]
The Act actually requires a consumption-based carbon accounting approach, or at least a production-based one that is wholly reconcilable with a consumption-based one. I.e.:
- The 2050 target say “emissions reductions … requires that net accounting emissions of greenhouse gases … are zero.”[15]
- ‘net accounting emissions’ includes “gross emissions less … net emissions … (as reported in the New Zealand Greenhouse Gas Inventory) and [less] offshore mitigation.”[16]
- ‘offshore mitigation’ means “emissions reductions and removals … that originate from outside New Zealand [amongst other things]”.[17] This means that:
  - It refers to the typical units from overseas.
  - It also includes (and therefore requires) exports to be netted down because the context of the 2050 target is about New Zealand as a territory[18] and export orders that cause emissions reductions to New Zealand’s account from a consumption perspective originate from outside New Zealand.
  - It therefore also includes (and requires) imports to be negatively netted down, or added, because you cannot have exports counted and imports not.
- ‘offshore mitigation’ also requires “[emissions reductions and removals] that are robustly accounted for to ensure that, among other things, double counting is avoided.”[19] The only ways to avoid double counting for things is:
  - If the world works out how to share emissions responsibility amongst producers and consumers; and
  - If consumption, trade, aviation, shipping etc. are included so all the anthropogenic emissions from these sources is not double-counted as zero (i.e. excluded) by countries.
- A purposive reading of the Act supports this: to meet the 2050 target and limit temperatures as an outcome to 1.5⁰C[20] means there cannot be any loopholes or carbon leakage to countries with less favourable targets (as happens with a production approach).
The Whanganui River was granted legal personhood, the first river in the world to achieve that.[21]

Conclusions

There are flaws with both production and consumption-based carbon accounting frameworks.
The CCC and Statistics New Zealand should be commended for having a go at consumption-based accounting. It is interesting to note that under this fledgling analysis, New Zealand would have lower emissions.[22] However, that could easily flip in time with imported EVs.
The Act requires a consumption or a hybrid-based carbon accounting framework for the 2050 target.
The Act suggests positively owning and progressing development in the consumption-based or hybrid accounting space, rather than shying away from the uncertainty.
Notwithstanding the Paris Agreement at present, science and global politics supports a hybrid or consumption-based carbon accounting framework and suggests that that is inevitable. This can be proved by hypothesising that all production in the world shifts to China and in 2100 China is the only country that has net emissions – why would China agree to be accountable for that when the vast majority of its production is only done because the rest of the world ordered it?
The CCC and the world must not lose sight of the intent of climate change which is to manage the climate. Therefore it shouldn’t matter whether humans emitted or nature emitted, but the world will need carbon ins and outs to be tracked and managed. In time, and more in line with Te Ao Māori, it is possible to see a future where White Island, for example, is made a legal person and its (particularly nasty) emissions are added to New Zealand’s gross emissions. This extrapolated extreme example isn’t where we should be now – but if Aotearoa and the world is to do the climate movement justice, then this point illustrates the creative development required in future carbon accounting processes to achieve the outcome from the perspective of the climate.
Wouldn’t it be tragic if methane release from Arctic tundra was not accounted for, despite its massive likely impact?[23] There should be no carbon accounting tricks that exclude any emissions from being measured (regardless of whether there are ETS costs tagged to it).
Do not lock the country into the wrong framework for the future. Keep the options open.
In theory, production and consumption-based accounting frameworks should be wholly reconcilable with balancing items relating to aviation and trade etc. at a high level, even if the detail will be tricky.

Recommendations

Recommend that production-based carbon accounting is used for the emissions budgets and the 2050 target, but make it clear that that is only because the science has not progressed consumption-based frameworks sufficiently to provide certainty to those processes, and qualify the recommendation that it is only for the time being.
Recommend development of a consumption-based accounting framework, and a hybrid one, such that those and the production-based accounting framework are wholly reconcilable over time.
Adopt a vision that by 2030 the accounting framework for the 2050 target should be a hybrid approach, or a production and a consumption approach.
Model a production and consumption approach in each report, notwithstanding what makes up the basis of the emissions budgets, and adjust both historically due to accounting and scientific developments in the intervening period.
Recommend that the government is open to one day including nature’s emissions in its carbon accounting system, above and beyond forests.

[1] Page 144 of the draft report.

[2] Page 136 of the draft report.

[3] Page 11 of https://ccc-production-media.s3.ap-southeast-2.amazonaws.com/public/evidence/advice-report-DRAFT-1ST-FEB/Evidence-CH-03-how-to-measure-progress-20-Jan-2021.pdf

[4] https://theconversation.com/climate-explained-why-countries-dont-count-emissions-from-goods-they-import-138604

[5] Pages 11-12 of https://ccc-production-media.s3.ap-southeast-2.amazonaws.com/public/evidence/advice-report-DRAFT-1ST-FEB/Evidence-CH-03-how-to-measure-progress-20-Jan-2021.pdf

[6] www.sciencedaily.com/releases/2016/02/160224132923.htm

[7] www.tandfonline.com/doi/full/10.1080/14693062.2020.1728208

[8] https://onlinelibrary.wiley.com/doi/full/10.1002/wcc.438

[9] https://qz.com/1719707/shipping-is-overtaking-aviation-in-emission-reductions/

[10] Page 80 of the draft report.

[11] https://ghgprotocol.org/scope-3-technical-calculation-guidance

[12] https://chinadialogue.net/en/climate/are-chinas-new-2030-climate-targets-ambitious-enough/