National greenhouse-gas accounting for effective climate policy on international trade

National greenhouse-gas accounting should reflect how countries' policies and behaviours affect global emissions. Actions that contribute to reduced global emissions should be credited, and actions that increase them should be penalized. This is essential if accounting is to serve as accurate guidance for climate policy. Yet this principle is not satisfied by the two most common accounting methods. Production-based accounting used under the Kyoto Protocol does not account for carbon leakage-the phenomenon of countries reducing their domestic emissions by shifting carbon-intensive production abroad(1). Consumption-based accounting(2,3) (also called carbon footprinting) does not credit countries for cleaning up their export industries, and it also punishes some types of trade that could contribute to more carbon efficient production worldwide. We propose an improvement to consumption-based carbon accounting that takes technology differences in export sectors into account and thereby tends to more correctly reflect how national policy changes affect total global emissions. We also present empirical results showing how this new measure redraws the global emissions map.