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This paper compares the Kyoto Protocol’s production-based accounting method to calculate a country’s carbon emissions with a consumption-based accounting method that measures the carbon embodied in goods in the country where they are consumed. The choice between the two accounting principles implies an inherent judgment on whether the producer or the consumer is responsible for the CO2 emissions. The comparison raises questions on international environmental justice as well as political implications regarding the responsibility for carbon emissions and climate change. This paper argues that consumption-based accounts are a useful complement to production-based accounts because they provide a basis for sharing environmental responsibilities between producer and consumer countries. Using a multi-regional input output (MRIO) model we find that CO2 emissions embodied in internationally traded goods accounted for 27% of the total energy-related CO2 emissions in 2005, up from 22% in 1995. The G77 countries consume 23% less CO2 emissions than they produce while the countries Organisation for Economic Co-operation and Development (OECD) consume almost 30% more CO2 emissions than they produce. The G77 have a combined CO2 trade deficit of more than 3 billion tonnes and thus deliver almost all the net imports of the OECD countries. The largest net importers of embodied carbon emissions in 2005 were the US (1255 Mt), Japan (380 Mt) and the biggest European economies (France 275 Mt, Germany 257 Mt, and the UK 232 Mt). The largest net exporters were China with 990 Mt (an increase of 63% compared to 1995), the Russian Federation (330 Mt) and India (136 Mt). The highest carbon leakage occurred in the United States (1,250 Mt CO2 from consumption originated from non-Annex I countries). The European Union imported 1,450 Mt CO2 from non- Annex I countries. The paper also raises some pertinent policy implications. Consumption-based carbon accounting puts the credibility of the reduction achievements under Kyoto into a different perspective because it would not allow the reduction of national carbon budgets by substituting domestic production for imports. A consumption-based accounting system might be perceived as fairer than production-based accounting, especially by net-exporting countries. Measuring the CO2 emissions and other environmental outputs of world trade may be useful in revising and finding fair emission targets and may encourage technology transfers and mitigation activities. A consumption- based approach to carbon accounting combined with appropriate policy instruments such as quotas or taxes may help shift comparative advantage away from pure economic measures to a logic that also considers environmental aspects. Finally, the debate on global environmental responsibility should not only focus on CO2 emissions but also consider the effects of other greenhouse gases and the unsustainable use of other resources such as raw materials, land and water.

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