When it comes to international trade, administrative costs associated with complying with climate policies can hinder smaller producers and countries. And as trade-related climate policies, such as border adjustment mechanisms, are gaining traction, they also sometimes lead to increased transaction costs, creating barriers.
A recent working paper published by Resources for the Future (RFF), a think tank based in Washington, D.C., advocates for the concept of ‘interoperability’ when it comes to quantification of carbon intensities in traded goods, in order to help streamline processes, while reducing administrative costs and burdens.
Interoperability here refers to the ability of different countries to design and implement their climate policies related to international trade in a way that doesn’t create unnecessary administrative barriers or costs. This means making sure that the various systems and methods countries use to measure and report carbon emissions in traded goods can work together smoothly through a common language or framework for carbon accounting. Different countries should be able to use that framework, even when their specific policies remain distinct, to make international trade smoother and still meeting climate policy goals.
The paper argues that interoperability can help countries design policies that do not create costly trade barriers. It also suggests that international bodies such as the Organisation for Economic Co-operation and Development (OECD) and the International Energy Agency (IEA) could facilitate discussions on the issue.
The authors of the paper, Milan Elkerbout and Katarina Nehrkorn, write in the conclusion:
In the near future, the demand for carbon intensity measurement in a widening set of circumstances is bound to grow — and with it, the importance of interoperability. Regions that have adopted net-zero goals will have to address residual emissions, often from complex industrial or biological processes, while deploying technologies, such as carbon capture, that pose their own accounting challenges.
Regions without net-zero targets (and those whose targets are further in the future) might have to mitigate emissions from difficult-to-measure sources, leading to policy portfolios with complicated accounting demands. Given countries’ different levels of climate ambition, the effects on industrial competitiveness may drive demand for policies that protect industrial competitiveness, such as border adjustment mechanisms, but distort trade. For these policies, the gains from increased interoperability would be the greatest. As experience with border adjustment mechanisms grows, the scope of their application may grow as well. This may become a tremendous challenge for carbon accounting and interoperability, if carbon intensity measurement moves downstream to a virtually unlimited list of final consumer and commercial goods and services.
All the more reason to establish a good governance framework and guiding principles for the interoperability of carbon accounting in general.
“Trade-Friendly Climate Policies: The Promise of ‘Interoperability,'” by Milan Elkerbout & Katarina Nehrkorn. Working Paper 24-11, Resources for the Future, July 17, 2024.
Download the full working paper originally published by Resources for the Future on July 17, 2024.
