By Marla Orenstein
Published in The Hill Times

March 25, 2019

Canada’s greenhouse gas emission targets are wrong—not because they are too tough or not tough enough, but because they are based on the wrong measurement.

The measurement approach adopted by the global community through the Paris Agreement only counts GHG emissions that occur where products are produced, but not where they are consumed. This means countries can reduce their count by simply shifting the manufacturing of goods to other jurisdictions—a phenomenon known as “carbon leakage.” Instead of making goods domestically, a country can instead import them and add very little to its own carbon footprint.

This is a big problem for Canada, which has an economy based on manufacturing and export.

First, it gives us incentive to import goods rather than buying domestically. Building a wind energy project? Buy the steel from Canada, and all the GHGs involved in steel manufacturing count against our national targets. Import the steel from the United States, and the problem is no longer ours—but neither are the economic benefits of manufacturing the steel locally.

Second, it doesn’t provide any incentives for consumers in other countries to purchase Canadian goods. Canada is among least GHG-intensive producers of energy and building products in the world. But the current system of accounting doesn’t favour goods that are produced with a low emissions profile.

Third, it means that we make policy decisions that reduce domestic emissions, but not necessarily global ones—the measurement that truly matters. This is exactly the case with LNG Canada, a $40-billion project to export liquefied natural gas (LNG) from the coast of British Columbia.

The project, which will be the most efficient LNG facility in the world, has been called a “carbon hog,” incompatible with B.C.’s emissions reduction targets. This is true, but only because the emissions associated with producing the LNG are disconnected from their end-use—which will be to provide energy in China. What happens if Canada doesn’t supply this LNG? One possibility is that China would stay with coal, which emits about double the GHGs when burned. But more likely, China will simply buy LNG from a different source—and one that does not produce it nearly as efficiently.

To get over this problem, Canada—and all countries—need to move from a territorial-based accounting system, where emissions allocated to the jurisdiction in which they are created, to a consumption-based accounting system, where emissions created from producing and transporting goods are allocated to the jurisdiction where those goods are consumed. A consumption-based approach does not reward emission leakage. There is no incentive to shift production to less stringent jurisdictions—but there is every incentive to reduce the carbon intensity of domestic consumption regardless of where those goods and services originate.

A consumption-based accounting approach doesn’t mean that Canada is off the hook. We are high consumers of imported goods, and a shift means we will have to start looking very carefully at the emissions profile of the goods we import or use. However, what it does mean is that we wouldn’t penalize our own manufacturers for being within our borders; and that we would be able to reward manufacturers at home or abroad that produce items with less carbon intensity.

The flaws of territorial-based accounting are not ignored at the international level, and many researchers, academics and policy developers have advocated for an alternative approach. Yet, there is little evidence of any political will to get the global community to transition to a better metric—due in part, but not entirely, to more methodological complexity.

Our federal and provincial governments should take the lead in adopting a consumption-based accounting approach as an alternative—or secondary—way to measure greenhouse gas emissions. Canada should also encourage other nations to do the same, in an effort to truly reduce global emissions rather than just shifting among jurisdictions.

Ultimately, this approach would give greater meaning to Canada’s emissions targets. We will be able to take smarter steps to reduce emissions both domestically and globally—and also avoid unnecessary economic disruptions or loss of economic opportunities in Canada.

Marla Orenstein is the director of the Natural Resources Centre at the Canada West Foundation.