Who is responsible for the carbon footprint of manufacturing factories producing exported goods?

A position paper released by the Chinese Government on May 20, 2009 states that “Countries that buy goods from China should be held responsible for the carbon dioxide emitted by the factories that make them”.

With this statement, China (officially) brings up for negotiation a well-known, but not extensively discussed, issue: Who is responsible for the carbon footprint of each product, the buyer (end user) or the producer?

In the last two decades, we have observed a huge migration of manufacturing facilities from OECD countries to China, India, Brazil and other developing countries; along with these facilities, have the OECDs exported their obligation for carbon reduction to developing countries, too?

This is one of the many issues which are being debated, as the international community will be attempting to design a “Post-Kyoto” framework to control greenhouse gas emissions (GHG) in Copenhagen in December (2009). At the heart of the argument, there are three questions which need to be addressed:

1. What country’s GHG inventory is burdened by the CO2 emission produced from exported products?
2. Assuming that carbon is priced into each product, where (in the production-selling cycle) is the carbon-related price adjustment made? and
3. Who collects the revenue derived from this price adjustment?

Answering these questions is not easy, as there are pros and cons on each side. My hope is that the international community reaches agreement on some basic principles related to this issue.

More specifically, it seems rational that:

• The price of every product should reflect its life-cycle carbon footprint at some reasonable carbon price, independently where the product was produced.

• The price adjustment for the carbon footprint should be made in the same country which assumes the burden of GHG emissions in its inventory. So, if the CO2 produced by a shoe factory in China burdens China’s GHG inventory, it is fair for China to make an adjustment to the price of the product to reflect its carbon footprint. This means that China will collect the revenue associated with this adjustment too. Then, China’s GHG inventory should be burdened with the GHG obligation associated this facility. If China refuses to do, it is reasonable for the importing country to accept the responsibility of the carbon footprint (and include it in its own GHG inventory), but be free to apply a price adjustment at the border to reflect this product’s carbon footprint. This should not be viewed as an unfair trade practice, provided that all the products in the importing country are subject to the same price adjustment (proportional to their carbon footprint).