Rich Countries “Outsourcing” Carbon, Good News for Carbon Software Players

Blue collar jobs aren’t the only thing getting outsourced away from the U.S. and Europe. As much as a third of carbon dioxide emissions related to goods and services bought in rich countries are emitted outside their borders, effectively “outsourcing” these gasses to the developing countries that produce much of what is consumed, according to a new study by the Carnegie Institution for Science.

The study reinforces the need for climate policies, such as those like cap and trade that would limit countries’ total emissions, to take into account the climate-changing emissions embodied in traded goods and services, the report says. The study also points to a growing opportunity for those companies developing carbon management platforms, such as San Francisco-based Carbonetworks, Germany’s SAP (s SAP) or Redwood City, Calif-based Hara, to track these outsourced emissions.

The report’s authors looked at published trade data from 2004 to build a global model of the flow of products across 57 industry sectors and 113 countries or regions. They then allocated carbon emissions to particular products and sources and from that were able to calculate the net emissions “imported” or “exported” by countries. The study concluded that about 23 percent, or 6.2 gigatons, of all carbon dioxide from fossil-fuel burning globally is emitted during the production of goods that are ultimately consumed in a different country.
The fact that many rich countries are net importers of carbon emissions won’t be a surprise to many, as so much production of machinery, electronics, apparel and textiles in recent years has shifted to developing countries like China. But the report, which was published Monday in the Proceedings of the National Academy of Sciences, adds scientific weight – and some specific figures – behind what was arguably already an intuitive trend.  
The U.S., for example, leads the pack as a net importer of emissions with about 699 metric tons, or 2.5 tons per person, of carbon dioxide per year. Japan is second at 284 tons per year. China, however, is the largest exporter of emissions with 1147 tons per year, while Russia is second at 286 tons per year. See the graph for a nice visual representation of these carbon flows.
But all this trading of carbon points to a complicated question: Who is responsible for emissions and how should the burden of mitigation be shared? These questions need to be considered as countries around the world move to limit total emissions, the authors said. Currently, national inventories of carbon, such as those by the UN Framework on Climate Change, only account for those emissions produced within countries, the report says.  
These issues have led some to call for taxes on the import of carbon-intensive goods, which advocates say would protect domestic industries from foreign rivals using dirtier, cheaper power and would prevent so-called carbon leakage, when carbon-intensive production moves offshore. Carbon import tax has gained momentum after the recent Copenhagen talks, at least in Europe.
The cross-border flow of carbon also offers an opportunity for the growing number of companies developing software to help their clients track the carbon emissions related to their businesses. These software developers have so far focused largely on helping companies calculate emissions directly related to their operations, such as the fuel consumed by their fleets or the electricity used at their facilities.
But the “next step” in the evolution of their products, says Forrester analyst Chris Mines, will be tracking supply chain emissions, like those related to goods imported from abroad or trucked across town. Big companies like Wal-Mart (s WMT) and Hewlett-Packard (s HPQ) are now “pushing hard” to get their suppliers to provide data on the embodied energy of their products, Mines said, and software suppliers will “catch up.”
Michael Meehan, chief executive of startup Carbonetworks, told Earth2Tech his company’s carbon management platform is already being used by some clients – especially those looking to “protect their brand as an asset” – to track supply chain emissions. But he said doing it is “extremely difficult” partly because you need to protect against double counting. When a good is trucked across country, you need to decide who is apportioned those emissions, the transporter, the distributor or the company buying it, he said. But Meehan said this is the perfect kind of job for software from an outside vendor: “You can’t manage this stuff internally, there is just so much.”