Global Policy Forum

By Jane Spencer

To understand the deadlock in the debate on global climate change, take a look at your iPod. The vast majority of the world's MP3 players are made in China, where the main power source is coal. Manufacturing a single MP3 player releases about 17 pounds of planet-warming carbon dioxide into the atmosphere. IPods, along with thousands of other goods churned out by Chinese factories, from toys to rolled steel, pose a question that is becoming an issue in the climate-change debate. If a gadget is made in China by an American company and exported and used by consumers from Stockholm to Sí£o Paulo, Brazil, should the Chinese government be held responsible for the carbon released in manufacturing it?

Next month, world leaders will gather in Bali to begin hammering out a successor to the Kyoto Protocol, the international treaty to combat global warming that expires in 2012. China and the U.S., the world's two largest carbon emitters, are facing mounting international pressure to participate in the new deal. But as the bill for unchecked emissions comes due, a battle is brewing over who should pay for it.

Past accords like Kyoto have looked at emissions on a country-by-country basis, requiring participating nations to reduce greenhouse gases released within their borders. In other words, the manufacturing nation pays for the pollution. But in a twist that could put more pressure on industrialized nations like the U.S., academics, environmentalists and some policy makers argue the next global climate treaty should take into account a nation's emissions "consumption." They argue the emissions are embedded in goods that move around the world through trade -- so if the U.S. imports iPods from China, Americans should share some responsibility for the pollution produced in making them.

"As China's emissions rise, everyone is pointing the finger of blame at China," says Andrew Simms, policy director of the New Economics Foundation, a think tank and environmental-advocacy organization based in London. "The real responsibility for rising emissions should lie with the final consumers in Europe, North America and the rest of the world." The argument appeals to leaders in China, which by some tallies has already passed the U.S. as the world's largest emitter of carbon dioxide. Earlier this year, Chinese Foreign Ministry spokesman Qin Gang reminded reporters from the Western media that "a lot of the things you wear, you use, you eat are produced in China." On the one hand, Western companies are manufacturing more in China, but "on the other hand, you criticize China on the emission-reduction issue," he added. Roughly 23% of China's emissions come from the production of goods that are shipped elsewhere, according to a recent report by the Tyndall Centre for Climate Change Research in Britain.

Some economists dismiss the argument and note that China happily benefits from the arrangement. "China loves being an exporter, so it's ironic they would blame the U.S. for their exports," says Robert Stavins, a professor of business and government at Harvard University. "It's called having your cake and eating it too."

At this point, the blame-the-buyer approach is more a negotiating tactic than a serious proposal for redrafting the global-emissions map. But as new studies and reams of data become available tallying embedded emissions, the research could influence the debate over what kind of emissions cuts various nations should be called on to make.

Advocates of the consumption-based approach argue it solves one of the key problems associated with the Kyoto Protocol, known as carbon leakage. This is the idea that countries can reduce their own emissions by sending dirty industries abroad. The same countries may still import the finished goods from the developing world, creating a situation in which global carbon emissions rise, even as individual nations meet their targets. "If you have emissions constraints, it's become very attractive to relocate dirty production to developing countries, or import products from developing countries," says Glen Peters, a researcher at the Norwegian University of Science and Technology. "You import the finished goods, and leave the pollution in China."

Technically, carbon emissions in the U.S. have declined in recent years, a fact noted by President Bush. U.S. carbon emissions fell 1.3% in 2006. But a recent study by researchers at Carnegie Mellon University suggests the U.S. may be cutting its emissions by outsourcing more manufacturing. As international trade has boomed over the past decade, the U.S. has begun importing dramatically more carbon-intensive products from its trading partners, according to the researchers. The study found that so-called embedded emissions in U.S. imports roughly doubled from 1997 to 2004. In 2004, the U.S. imported as much as 1.8 billion tons of CO2 embedded in products, the equivalent of 30% of the nation's carbon output that year. Many of those goods are coming from China.

U.S. officials concede that dirty industries shift around the world to the place of least resistance in response to environmental policy. That is one reason why developed nations like the U.S. and Australia have refused to participate in a climate deal that doesn't include developing nations like China and India. They argue that forcing developed nations to agree to cuts, when developing nations aren't subject to similar limits, could make their industries less competitive. They say this could undermine any treaty by driving dirty manufacturing overseas to less-regulated areas.

Several proposals on the concept of embedded carbon involve border taxes. Nations taking action on climate issues could punish nonparticipating countries by imposing extra fees on imports of energy-intensive products such as steel, aluminum or bulk glass. Earlier this year, France proposed the European Union impose taxes on U.S. imports unless Washington agreed to participate in a climate deal. In the U.S., several climate-change bills in Congress would place extra taxes on imports of carbon-intensive goods from developing nations.

Regardless of what approach the global community takes to putting a price on emissions, buyers of iPods and other consumer products will wind up paying the costs. "If the Chinese government was held responsible for its emissions, it would raise the cost of producing goods there," says Joseph Aldy, an economist at Resources for the Future, an environmental think tank based in Washington. "Typically, when one imposes a tax, the cost gets passed back to the consumer."