New Analysis: Nearly 1/4 of Global GHG Emissions Associated with Internationally Traded Goods

November 15, 2022

Report Finds “Carbon Loophole” Undermines Emission Reduction Targets

WASHINGTON, DC – Data analysis released Tuesday by the Climate Leadership Council and Global Efficiency Intelligence finds nearly one fourth of all global greenhouse gas emissions occur in the “carbon loophole,” which refers to emissions associated with producing goods in one country that are consumed in another. This loophole is significant and growing. Over the last 25 years, emissions associated with global trade have doubled to 8 billion tons of CO2 per year.

As climate-ambitious countries shift from manufacturing to service-based economies, their domestic emissions appear to drop. In actuality, the report finds, when manufacturing shifts to less carbon-efficient regions of the world the net climate impact is often higher global emissions. The Council proposes that to close the carbon loophole, climate ambitious countries must pursue innovative trade policy solutions, export low-carbon technologies, and encourage cooperation with developing economies.

“The carbon loophole represents a major shortcoming in traditional climate accounting and is the single clearest environmental case for including trade in climate policy discussions,” said Catrina Rorke, executive director of the Climate Leadership Council’s Center for Climate and Trade. “U.S. policymakers can help close the carbon loophole by establishing global market incentives for lowering emissions at home and abroad.”

The Council’s key findings for Embodied Carbon in Trade: Carbon Loophole note that:

  • The largest portion of the climate loophole is found in trade from the Global South to the Global North. China is the largest emissions exporter globally, exporting nearly 1.8 billion tons of CO2. The U.S. and the EU are the largest global importers of emissions at 1.3 billion and 1.0 billion tons of CO2 respectively.
  • Since 1995, G7 countries have cut production-based CO2 emissions by 4%. Accounting for consumption-based emissions shows collective CO2 emissions in G7 countries have actually increased over the same period.
  • If carbon intensity of U.S. imports matched its domestic carbon intensity, global emissions could fall by 600 million tons annually. If imports into all G7 countries matched their domestic carbon intensity, global emissions could fall 1.8 billion tons annually.

Per the Council’s analysis, mobilizing trade relationships to value lower-carbon goods and services would also be a boon for the U.S. economy. Previous Council research found that goods manufactured in the U.S. are 40% more carbon-efficient than the world average.

“Closing the carbon loophole would benefit carbon-efficient U.S manufacturers while establishing greater incentives for other countries to reduce their emissions,” said Council CEO Greg Bertelsen. “With the right climate and trade policies, we can leverage our carbon advantage to enhance domestic competitiveness, bring manufacturing jobs back to the U.S, and boost climate ambition around the world.”

Embodied Carbon in Trade: Carbon Loophole is an update to the Global Efficiency Intelligence’s 2018 report, The Carbon Loophole in Climate Policy.

The Climate Leadership Council works with a broad set of stakeholders to promote the most cost-effective, equitable, and politically-viable climate solutions.