No virtue in rich nations outsourcing their emissions

Employees at work in a lithium battery manufacturing company in Huaibei, eastern China's Anhui province, in 2020. Picture: AFP

One of the great mysteries of the global economy is how so many countries are boldly pledging to hit net-zero emissions by 2050, yet global emissions keep rising.

Despite a temporary dip last year because of the pandemic-induced slowdown, global greenhouse gas emissions are growing again and are expected to reach 55 billion tonnes by 2022-23. That’s up from 51 billion tonnes in 2019.

But if more than 100 nations have committed to net zero by 2050, why are emissions still going up? It’s an accounting trick. It’s called outsourcing.

It works like this. At least a quarter of global greenhouse gas emissions are generated in the production of goods traded across borders. This includes steel, aluminium, cement, cars, heavy machinery and farm exports such as beef and sheep meat. And this trade is changing the distribution of global emissions.

In recent decades the richest nations have lowered their emissions footprints by outsourcing the production of manufactured goods, mostly to China and other developing countries. And this shift is making some countries look green for no reason other than their companies have relocated their production to other countries.

According to UN data, China’s share of global manufacturing output climbed from 8.7 per cent in 2004 to 28.4 per cent in 2018.

Across the same period, the manufacturing contribution to Britain’s gross domestic product more than halved from 25 per cent to about 11 per cent. Manufacturing in the US also has hollowed out, while in the past decade the EU has become a net importer of emissions-intensive steel. Does this mean the British, US and EU economies have stopped using emissions-intensive goods? Not at all. They’re still using steel, aluminium and cement. They are still buying cars and appliances and consuming beef and other food. It’s just that they are importing more instead.

And under global climate rules the emissions generated producing those goods are counted against the nation that produces them, not the country that consumes them.

According to a recent Goldman Sachs report, at least 20 per cent of China’s greenhouse gas emissions are generated in the production of goods for export.

So while emissions from industrial processes in European industry fell by 40 per cent between 1990 and 2018, overall global emissions in this sector increased by 67 per cent. So from an emissions perspective Europe looks good and China and other industrial producers look bad.

The global rules also work against Australia, where as much as one-third of our emissions is generated in the production of goods for export. About 70 per cent of Australia’s agricultural produce is consumed abroad. But all of the 75 million tonnes of greenhouse gas emissions associated with farm production in Australia are counted against our inventory.

The cynical thing is that the countries that have benefited most from the outsourcing of global emissions are the ones pointing the finger at other countries for their emissions performance, including the ones that supply them with the emissions-intensive goods and services.

Take Britain. It’s the global boaster-in-chief about its emissions performance, pointing to a reduction of more than 30 per cent since 1990. That’s misleading. But don’t take my word for it.

Nearly a decade ago, in 2012, the British House of Commons Committee on Climate Change belled the cat on the outsourcing trick. It warned that Britain’s overall carbon footprint had increased by 12 per cent since 1990.

The committee said the “rate at which the UK’s consumption-based emissions have increased have far offset any emissions savings from a decrease in territorial emissions. This means that the UK is contributing to a net increase in global emissions.” This trend has continued.

As The New York Times noted in September 2018, “If you included all of the emissions produced in the course of making things like the imported steel used in London’s skyscrapers and cars, then Britain’s total carbon footprint has actually increased slightly over that time.”

In a similar vein, The Guardian warned in 2019: “Britain has contributed to the global climate emergency by outsourcing its carbon emissions to developing nations.”

Britain is not the only one. A 2018 report found the US is the largest importer of “embodied carbon”. In Europe, Germany, Britain, France, Italy and Spain are significant net importers.

Remember, this is the mob criticising Australia for not committing to net-zero emissions by 2050. Having shifted their emissions to the developing world, these countries are demanding those economies give themselves an economic uppercut by decarbonising their energy and production inputs. And they are threatening them with carbon tariffs if they don’t.

The simple fact is that the global economy is a division of labour. Some countries’ emissions are higher per capita because they provide essential goods to others that can’t produce those goods.

It’s sophistry for the US, Britain and the EU to parade as paragons of virtue when they are responsible for the demand for the goods whose production is increasing global emissions.

And global climate meetings, such as the one in November in Glasgow, will be exercises in deception and completely meaningless unless they address the outsourcing con trick.

Ron Boswell is a former Nationals leader in the Senate.