The European Union (EU) preens itself on being the global leader in the fight against climate change. EU politicians scold the USA for ’failing’ to ratify Kyoto Protocol and enact cap-and-trade. Within the EU, the UK champions the most aggressive climate policies. So the UK’s carbon footprint must be shrinking, right?

Not according to a new report by the UK’s Department for Environment, Food, and Rural Affairs (Defra). The UK’s total net carbon dioxide (CO2) emissions rose 35% between 1990 (the Kyoto Protocol baseline year) and 2005. Emissions declined by 9% from 2008 to 2009 due to the worldwide recession. Nonetheless, the country’s carbon footprint was 20% bigger in 2009 than in 1990. How can this be?

Defra used a life cycle analysis (LCA) to estimate the UK economy’s net emissions. The agency examined not only the CO2 emitted by households and firms within the UK but also the emissions induced by the UK’s demand for imported goods. Carbon dioxide is emitted when goods are manufactured for export in, say, China, and then again when those goods are transported to the UK.

Emissions “embedded” in UK imports are increasing much faster than emissions from domestic production are declining. From 1990 to 2009, CO2 emitted by UK households and firms decreased by 14%. During the same period, emissions from imports directly used by UK consumers increased by 79% and emissions from imports used by UK businesses increased by 128%.

The Kyoto Protocol does not “cover” (regulate) import-induced emissions. So under Kyoto’s accounting rules, UK emissions are down. In reality, the UK has outsourced a sizeable chunk of its emissions along with its heavy industry. As one blogger commented, “The UK’s outsourced emissions almost double its carbon footprint.”

Source: Defra, UK’s Carbon Footprint 1990-2009

California Superior Court judge Ernest Goldsmith ruled on Friday that the state’s Air Resources Board (ARB) must halt “any futher rulemaking and implementation of cap-and-trade” until the agency examines alternatives policies to meet the greenhouse gas-reduction targets established by Assembly Bill 32, the Global Warming Solutions Act. ARB must also, pursuant to the California Environmental Quality Act (CEQA), complete a review of the environmental impacts of its preferred regulatory strategy before adopting it.

Note: The ruling does not challenge AB 32 itself, and petitioners in the case are greenies who think ARB’s plan to curb greenhouse gas (GHG) emissions doesn’t go far enough. Nonetheless, this is a setback to California politicians and cap-and-taxers throughout the land. ARB has 15 months to provide the requisite analyses. ARB says it will appeal the decision. Rots of ruck!

AB 32 requires ARB to establish a statewide GHG emissions tonnage limit for 2020 equivalent to the state’s emission levels in 1990, and to develop a regulatory path, known as a Scoping Plan, to achieve ”maximum technologically feasible and cost-effective reductions in greenhouse gas emissions from sources or categories of sources of greenhouse gases by 2020.” Judge Goldsmith ruled that ARB “committed a prejudicial abuse of discretion when it failed to proceed in a manner required by law by inadequately describing and analyzing Project alternatives [other ways of reducing GHG emissions] sufficient for informed decisionmaking and public participation.”

Judge Goldsmith more extensively discussed the issues in his Jan. 24, 2011 Tentative Statement of Decision. Petitioners, led by the Association of Irritated Residents (AIR), asserted that  ARB “failed to meet the mandatory statutory requirements of AB 32 and the California Environmental Quality Act (CEQA) by essentially treating the Scoping Plan as a post hoc rationalization for ARB’s already chosen policy approaches.” Specifically, petitioners argued that ARB violated AB 32 by:

(1) excluding whole sectors of the economy from GHG emission controls and including a cap-and-trade program without determining whether potential reduction measures achieved maximum technologically feasible and cost-effective reductions; (2) failing to adequately evaluate the total cost and benefits to the environment, the economy, and public health before adopting the Scoping Plan; and (3) failing to consider all relevant information regarding GHG emission reduction programs throughout the United States and the world, as required by AB 32, prior to recomending a cap-and-trade regulatory approach.

The significance for national politics? This is another nail in cap-and-trade’s coffin. AB 32 was a point of pride for both former Gov. Schwarzengger and California Democratic legislators. Indeed, one purpose of the statute was to place California “at the forefront of national and international efforts to reduce emissions of greenhouse gases.” AB 32 became the much-vaunted “California model” that Rep. Henry Waxman (D-Calif.) and Sen. Barbara Boxer (D-Calif.) invoked during their multi-year campaign to sell cap-and-trade on Capitol Hill.

Cap-and-trade has been on the skids since its day in the Sun back in June 2009, when the House narrowly passed the Waxman-Markey bill. After passage, the bill became politically radioactive and never came to a vote in the Senate. The December 2009 Copenhagen climate conference ended in failure, producing no agreement on a successor treaty to the Kyoto Protocol.

In February 2010, Arizona Gov. Jan Brewer issued an executive order stating that Arizona would not implement the Western Climate Initiative (WCI) cap-and-trade plan, scheduled to begin on January 1, 2012. Aside from California, none of the other WCI states (Arizona, New Mexico, Oregon, Washington, Montana, and Utah) is close to implementing cap-and-trade. Yet in August 2010, ARB Chair Mary Nichols said that California would not go it alone: ”We won’t launch this program without partners to trade with. It doesn’t make sense for an economy even as big as California, to try to do this all by ourselves.”

In November 2010 the Chicago Climate Exchange emissions trading pilot program announced it would shut down “for lack of legislative interest.”

And now, thanks to the Irritated and Judge Goldsmith, ARB may not be able to implement cap-and-trade even if Ms. Nichols wants to fly solo.

Political movements fizzle without momentum. Judge Goldsmith just put the Golden State’s cap-and-trade plan on ice.

Has the EU met its emission reduction targets under the Kyoto Protocol? Not if emissions associated with goods Europe imports from Asia are taken into account. So finds a study published this week in Proceedings of the National Academy of Sciences (PNAS).

The study, Growth in emission transfers via international trade from 1990 to 2008, calculates the net increase in global carbon dioxide (CO2) emissions resulting from developed countries’ imports of goods produced in developing countries. The study provides additional evidence of Kyoto’s futility, although the authors, a team of Norwegian, German, and U.S. researchers, don’t draw this conclusion and would likely deny it.

Some key findings:

• Global CO2 from the production of traded goods increased from 4.3 gigatons (Gt) in 1990 (20% of global emissions) to 7.8 Gt in 2008 (26%).
• Emissions from production of exports increased 4.3% annually, faster than the growth in global population (1.4% per year), CO2 emissions (2.0% per year), and GDP (3.6% per year), although not as fast as the dollar value of international trade (12% per year).
• Global emissions increased 39% from 1990 to 2008. At the regional level, emissions from developed countries (classified as “Annex B” countries in the Kyoto Protocol, with quantified emission limitations) largely stabilized, but emissions from developing countries (non-Annex B) doubled.
• However, territorial emission inventories don’t take into account “consumption-based emissions” — CO2 emitted in developing countries to produce goods consumed in developed countries.
• The “net emission transfers” via international trade from developing to developed countries increased from 0.4 Gt CO2 in 1990 to 1.6 Gt CO2 in 2008 — 17% per year average growth. 
• Developed countries ”imported” more emissions than they reduced domestically via efforts to comply with the Kyoto Protocol.
  • “For comparison, if the average emission reduction target for Annex B countries in the Kyoto Protocol (~5% reduction of 1990 emissions) is applied to CO2 emissions only, representing ~0.7 Gt CO2 per year, then the net emission transfers from non-Annex B to Annex B countries is 18% higher on average (1990-2008) and 130% higher in 2008.”
  • “Because estimated Annex B emission reductions from 1990 to 2008 are only ~ 2%, representing only 0.3 Gt CO2, the net emission transfers from the group of non-Annex B countries is 520% higher in 2008.”
  • “Collectively, the net CO2 emissions reduction of ~2% (0.3 Gt CO2) in Annex B countries from 1990 to 2008 is much smaller than the additional net emission transfer of 1.2 Gt CO2 from non-Annex B countries . . .”
• China’s emissions accounted for 55% of the growth in global CO2 emissions from 1990 to 2008. Chinese exports accounted for 18% of the growth in global emissions and for 47% of the growth in Annex B consumption-based emissions.
• Curiously, “International trade in non-energy-intensive manufactured products dominates the net emission transfers (accounting for 41% of the growth), despite the policy focus on energy-intensive manufacturing.”

In the discussion section of their paper, the authors observe that the increase in consumption-based emissions “may benefit economic growth in developing countries, but the increased emissions could also make future mitigation more costly in developing countries.” Right, but that has two obvious implications the authors do not mention: (1) Developing countries are unlikely to accept mandatory emission limits in the foreseeable future; and (2) Kyoto-like controls on developing country emissions could be harshly disruptive to global trade and investment.

The authors argue that the rapid growth in “imported” emissions is not a case of “carbon leakage” — the flight of capital, jobs, and emissions from countries with CO2 controls to countries lacking such controls. They find, for example, that “both the United States and European Union have had a large increase in net emission transfers, but only the European Union has a broad-based climate policy.”  

Undoubtedly multiple factors contribute to the rapid growth of China’s export sector. However, one factor boosting investment in China is low energy cost. A closely related factor is the regulatory certainty that Beijing will not slap a price on carbon in the policy-relevant future or erect political roadblocks to the development of energy resources and infrastructure. How very different is the political climate in the USA! 

America may not have a “broad-based climate policy,” but we have an EPA bent on ‘legislating‘ climate policy via the Clean Air Act, an EPA implementing a panoply of non-climate regulations with the same (or even greater) potential to suppress electric generation from coal, regional greenhouse gas policies, state-level renewable energy mandates, an environmental movement hostile to fossil fuels and natural resource development, politicians in Congress and the White House imbued with the same mentality, and countless NIMBY activists determined to block construction of all energy-related infrastructure.

The researchers, methinks, take too narrow a view of the policy-related risks that can cause or contribute to carbon leakage.