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August 10, 2022

Consumption-based emissions: A rational pathway to net zero

By Sheetal Khullar

Allocating responsibility for emissions to consumers as well as producers is a balanced and fairer approach to achieving a green transition.

In April, Sweden announced plans to include consumption-based emissions into its climate targets – the first country in the world to make such a pledge as a means to reach net zero. 

Consumption-based emissions allocate emissions to consumption, rather than production, and take into account those embedded in international trade flows and imports. Research has shown that as much as nearly two thirds of CO₂ emissions related to products consumed in Sweden occurred outside of the country. Linking emissions to consumption would place responsibility on final destination markets too, in addition to that of businesses and countries along supply chains.

Consumption-based emissions bring the focus on, but also inform, consumers who have long been hoping for both the private and the public sectors to deliver on climate goals. These goals are challenging and, in several cases, also unrealistic as a result of ongoing overconsumption or waste

The adoption of consumption-based targets could change this. Until now, climate policy has focused primarily on production-based emissions – largely due to the sensitivity around shaping individual behaviour. However, consumption forms the basis of every transaction, so to address one measure of emissions without the other is an inefficient approach.  

The argument is not to shift responsibility but to share it. A robust transition to a net zero economy would require a combination of production and consumption policy instruments. A sector-specific framework inclusive of both would be determined by weighing value chain externalities along with the import intensity of a specific sector. 

Policy instruments that would include carbon emissions considerations into product pricing would be the first step towards making economies more transparent, responsible and, eventually, circular. 

A marketplace led by conscious consumerism would also have a significant impact on businesses. Consumption-based emissions disclosures would likely lead to a more localised economy, which could, in turn, translate into local investments in innovation and training and a lower unemployment rate. 

A greener landscape

For businesses that rely on international trade, this would mean importing sustainable produce and finding alternative sources of production, with the intermediaries that enable trade – such as the maritime and aviation sectors – playing a critical role in the net emissions.

This could not be accomplished without disclosing the ESG metrics needed to make carbon a trusted and accountable variable, and more work is needed in this area too.

As governments negotiate how to achieve economic growth while also responding to the climate crisis, it is imperative to look at and measure products and services through a new lens. And as consumers (and voters) become more sensitive to environmental and social considerations, the introduction of consumption-based emission targets might be just what we need if we are to achieve a fairer transition.

Sheetal Khullar is a business consultant and serves as global sustainability advocate for the Impact Consulting UK network where she works with start-ups and social enterprises that focus on the UN Sustainable Development Goals.

A service from the Financial Times