POVERTY POVERTY THE WORLD BANK REDUCTION REDUCTION AND ECONOMIC MANAGEMENT MANAGEMENT NETWORK (PREM) NETWORK (PREM) Economic Premise AUGUST 2010 · Number 27 JUNE 2010 · Number 18 Can Carbon Labeling Be Development Friendly? 56232 Recommendations on How to Improve Emerging Schemes Trade and the Competitiveness Agenda Paul Brenton, Gareth Edwards-Jones, and Michael F. Jensen José Guilherme Reis and Thomas Farole The global economic labeling for products are new instruments the respective management that may and developing the Carbon accounting andcrisis has forced a major rethinking of of supply chain roles of governments affect markets incountry processes of trade Most instruments in industrial policy seems to management tools, although the underlying science is. export opportunities.and growth. Indeed,use today are private businessbe back in fashion--or, at least, talking about it and methodologies may spread to issues subject to public regulation. This note seeks to inform stakeholders involved in the design of carbon But a renewed "activism" by government in the trade and growth agenda need not mean a return to old-style labeling schemes and in the making of carbon emission measurement methodologies about an overlooked issue: How can carbon labeling be made to be both development friendly"picking winners." Instead, it may mean of stronger focus on competitiveness by policies of import substitution and and scientifically correct in its representation a developing-country agricultural sectors? unlocking the constraints to private sector­led growth. This note discusses the renewed role of government in trade and growth policy from the competitiveness angle, and it suggests some priorities for the new competitiveness agenda. Carbon accounting and labeling instruments analyze and pres- informs consumers about the carbon footprint of that ent information on carbon emissions of products in an attempt product, thereby enabling consumers to make informed to identify major sources of emissions in supply chains. Once choices between products. Export-Led Growth, the Crisis, and the End the emissions from different parts of a supply chain have been of the crisis on the policy environment regarding trade pacts Atleast16differentmethodologiesforcalculatingthecar- of an Era hoped that actions will be taken to reduce emis- identified, it is bon footprint of products more apparent. Indeed, in addi- and growth were becoming have been developed since 2007. sions in a timely and cost-effective manner. Within the food tion to raising concerns over the global commitment to trade Some of these methodologies are publicly available and provide The dramatic expansion in global action that recent decades sector there are typically four forms oftrade over can be taken: liberalization, the crisis has also led to some serious rethink- users with detailed advice on how to conduct a carbon foot- has contributed significantly to diversification, growth, · Voluntaryresponsesbycompaniestothechallengeof and ing of some of the conventional wisdom regarding the printingexercise(forexample,theBritishstandard,PAS2050), climate change, in many developing commercial advan- poverty reduction which may also bring countries. This period growth agenda--the most important result of which is the while others are confidential. tages export growth marketing and public two critical of rapidthrough enhancedhas been enabled byrelations. The designers of these schemes are a much more activist likelihood that governments will playcaught in a dilemma: on UK retailer Tesco's labeling of products vertical and spatial structural changes in global trade: (1) thewith estimates the one hand they years. respond to three principal reasons role in the coming have to There are policy and corporate agen- of greenhouse gas emissions is an into highly integrated fragmentation of manufacturingexample of a voluntary das to create new ways of responding to climate involved in why governments are likely to be more actively change chal- "global production networks," and (2) the rise of services response. lenges; and on the other hand, designers rely industrialwhiletrade policy in the coming years.on very rudi- trade and the growth of "offshoring." Both of these, · Actionbygovernmentstoencouragecompaniesto in turn, First, the crisis has undone faith in markets and discred- mentary knowledge about actual emission patterns related to reduce their emissions; this technological revolutions; were made possible by majorcould also help governments and the varied production systems that simply on trade globe. ited laissez-faire approaches that relyoccur around the policy meet their international obligations for reductions reforms they were supported by multilateral trade policyin This is because the governments and local markets have liberalization. Instead, underlying scientific understanding of greenhouse gases (GHGs). domestic trade French and broad liberalizations in For example, the and investment greenhouse gas (GHG) this sense, the demand is activist been "rediscovered." In emissions from agricultureforonly par- environments worldwide. government is funding work to introduce carbon labels government is likely to go well beyond financial markets and tially developed. Knowledge of the GHG emissions for produc- The global economic crisis came crashing into the middle in France. tion and and it will affect the particularly low in developing regulation, processing activities ispolicy environment in which of Actionbyretailerstostockonlyproductsthatachievea · this long-running export-led growth party during 2008 trade and industrial strategies are designed. countries. certain Between the last quarter of 2007 and the and 2009. standard in terms of their carbon footprint. second Second, the crisis has highlighted the critical importance Asaresultofthepressuresplacedondesignersandusersof quarter of 2009, global trade contracted by 36 percent. But · Actionbyretailerstoplacealabelonproductsthat carbon accounting sectors, products, and there is a risk that of diversification (ofand labeling instruments,trading partners) as the recovery started to strengthen in 2010 (at least until in reducing the risks of growth volatility. The recent era of the clouds began to form over Europe), the longer-term im- globalization contributed to substantial specialization of 1 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise 1 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise carbon accounting and labeling instruments will not properly methodology requires that emissions from all LUC that oc- represent the complexity of production systems in developing curredafter1990beincludedinthecarbonfootprintofa countries. product. For example, if sugar is grown on land that was con- vertedfromforesttograsslandin1991,thentheemissions The Situation in Developing Countries from this conversion must be considered. If however, a Developing countries tend to have characteristics that make it neighboringfarmhadconvertedtheirlandtosugarin1989 particularly difficult to introduce carbon accounting and/or then there would be no need to consider emissions from food labeling relative to more developed countries. These char- LUC. Typically the emissions from LUC are among the larg- acteristics are: est sources of emissions in the carbon footprint of crops pro- 1. They tend to be distant from their markets and therefore duced in developing countries. Because of this it is impor- have a high dependence on long distance transport to deliv- tant that these emissions are calculated correctly. This can er their goods to market. Many products are transported by be difficult in developing countries where relevant data re- ships, which tend to emit few GHGs per ton per kilometer lating to the distribution of current and historical land uses (ton/km).1 However, some high-value, fresh products are are scarce or absent. Not only are there technical issues sur- transported by air, which emits large amounts of GHGs per rounding the calculation of emissions from LUC, but in ad- ton/km. dition there is a fairness issue, because most developed 2. Some crops in developing countries suffer from low and countries do not need to include this source of emission be- variable yields. This variation may be related to annual cause they cleared their forests decades or centuries ago. changes in weather, presence of pests, absence of key inputs, 4. Many tropical developing countries export goods derived and/or insufficient technical knowledge. Regardless of the from tree crops, such as coffee, cocoa, tea, fruit, and nuts. cause, low yields contribute to high carbon footprints of While trees themselves sequester carbon, the forest soils food items, which are expressed per unit weight. tend to sequester far more carbon than the above ground 3. One of the responses to increased demand for agricultural biomass. Currently, few carbon footprinting methodologies exports in developing countries has been the clearing of recognize the positive contribution made by carbon stored natural land for conversion to crop land and pasture. The in trees used to produce food, or that sequestered in the soil. availability of underused or unused land in developing Thus many developing countries have to declare emissions countries has made this possible. This is in contrast to most from LUC, but cannot claim benefit from the management ofthenationsinEuropeandNorthAmerica,whichcreated of tree crops. their agricultural land many decades or centuries ago. The 5. Theretendstobeadeficiencyindataandinformationfor conversion of forest to grassland and cropland results in the developing countries when compared to more developed loss of carbon from the forest trees, and also from the soil. countries.Asaresult,carbonaccountingandfootprinting Similarly, the conversion of grassland to cropland results in a analysts are required to use very imprecise and uncertain da- loss of carbon from the soil. The amount of carbon lost dur- tasets that relate to very large geographic scales. These may ing any land use change (LUC) depends upon the exact na- mask important differences between different countries or ture of the forest or grassland that is being converted. The regions within a country. science behind LUC is that typically tropical forests store a 6. Some of the commodities produced by developing coun- lot of carbon in their trees and soils, and thus these forest tries, such as sugar, can be delivered to the final market place types release the most carbon when they are converted. Oth- in a blend of product derived from more than one country. er forest types, like some of the patchy forest typical of the This absence of clear country of origin labels on commodi- semi-arid areas of Africa, release less carbon than tropical ties can be a problem when calculating carbon footprints forests when they are converted to agriculture. There is a because the calculations require that certain country-specif- similar variation in the amount of carbon released by differ- ic data are utilized in the calculation. If the country of origin ent types of grassland when they are converted to cropland. is not known, then some accounting methodologies require The International Panel of Climate Change (IPCC) has de- that data relating to the worst case scenario be utilized. rived methods of estimating the amount of carbon released These worst case scenario data can be quite different from from the conversion of different forests and grasslands, but the real data from the country of origin. For some variables, these methods require good knowledge of the relevant eco- such as LUC, the worst case scenario relates to the conver- systems and carbon accounting techniques. Some carbon sion of tropical forest in Malaysia. It is debatable how rele- accounting methodologies do not consider the emissions vant these figures are to crops produced in Africa, South from LUC, but many do. The carbon accounting methodol- America,orCentralAsia. ogydevelopedbyBritishStandards,PAS2050,isthemost 7. Developing countries tend to engage in minimal processing comprehensivemethodologyavailabletoday.ThePAS2050 of the food they produce. This means that not only do they 2 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise lose the potential of creating added economic value, but happen if the levels of precision and certainty are increased they also lose the potential "carbon advantages" related to in the databases that provide emissions data and the histori- the use of renewable energy, low capital inputs, and a shift cal and current distribution of land cover and land use. from air to ship as means of transport (for example, fresh 3. Develop regional worst case databases. To prevent countries fruit and preserved fruit). from having to use data from the global worst case, which 8. Relativelyfewfarmsandprocessingplantssituatedindevel- may be irrelevant, it would be useful if data for regional oping countries will be visited by the analysts who calculate worst case situations could be identified and made publicly the carbon footprint of the food items they produce. Rather available. the farmers will be required to complete a questionnaire on 4. Consider including benefits derived from tree and bush crops in their agricultural practices and the consultants will use footprints. Tree crops can sequester carbon, and the soil un- these alongside standard databases to calculate the carbon der tree crops and agroforestry systems typically contain footprint. This approach brings two problems: first, the ana- more carbon than other forms of cropland. It would be use- lyst may have an incomplete understanding of the system of ful to find a way of providing some credit for the carbon se- analysis; and second, the databases may contain poor data questered by these agroforestry systems, and thereby reward on many developing countries. their owners and promote the future development of such systems. The agroforestry system should find a way to re- Recomendations for Development-Friendly duce deforestation by letting the market or other parties pay Carbon Footprinting a rental to the land owner in return for the avoidance of car- Given the situation observed in developing countries, several bon releases into the atmosphere. recommendations can be made that may improve the utility of Information and data carbon footprints of food products from developing countries. 1. Develop emissions databases for agri-ecological zones. There is These are grouped into four categories, outlined in the follow- an urgent requirement for databases of emission factors and ing sections. LUC to be developed for tropical and subtropical areas. Land use change These databases would normally be developed at the coun- 1. Work toward an equitable solution for the inclusion of emissions try level, however given the size and biophysical variability of from LUC in carbon footprints. Science shows that the conver- some developing countries, one set of data may not be suit- sion of forest and natural grassland to agriculture does cause able to represent the whole country, so there is a need to de- an increase in the emission of GHGs. Science also shows velop data for several regions in a country. Such an exercise that the amount of emissions vary with location. However, wíll be resource intensive, however, as many countries share there are ethical issues surrounding the date at which such similar biophysical characteristics, there could be merit in conversions should be included in carbon footprints. While developing databases for particular agri-ecological zones. inmanyways1990isasensiblebaselineyearbecauseitties 2. Make relevant data more accessible.Allinformationneeded in with other international agreements, it also disadvantages for carbon footprinting of agricultural products should be those developing countries that have converted land since located in one easily accessible and user-friendly database. 1990.Becausemanydevelopingcountrieshadrelativelylit- AlthoughthereareseveralWebsitesthatprovidesomeof tle land that was not forest or natural grassland until recent the relevant data, none of the current sites are complete, and times, the requirement to include LUC in carbon footprints they are not easily located by inexperienced Internet users. may seem inequitable to them. One option may be to re- 3. Provide training and support in recordkeeping. If small-scale quire all footprints to declare what the emissions from land producers, producer cooperatives, and traders do not main- LUC would have been if the conversion occurred today. tain accurate records of inputs and yields, then there may be Thiswouldremovesomeofthearbitrarinessofusing1990 a need to make more assumptions when calculating foot- as the baseline year. These emissions would not necessarily prints. It may be necessary to train such farmers in record- be included in any final product label, but they could be ac- keeping to ensure that they are not disadvantaged in com- counted for and communicated via Web sites and other ma- parison with large-scale producers/traders, who may have terials. Thus products from Europe and North America better recordkeeping and access to experts to help with foot- would have to declare the GHG emissions that converting printing. native forest to agriculture would emit if it happened today. Calculation and communication 2. Develop better databases of land use and emission factors for 1. All calculations of carbon footprints should be published in a developing countries. If emissions from LUC are to be includ- public database. It should not be permissible for retailers or ed in product footprints, then these emissions need to be others to declare carbon footprints on consumer facing la- calculated correctly for each parcel of land. This can only bels or Web sites unless the details of the calculation are 3 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise publicly disclosed. These sites should also clearly state all the In-country and general development assumptions made when calculating the carbon footprint. 1. Enhance yields. If crop yields could be increased and yield Such publication would allow governments, NGOs, jour- variability decreased, then the overall carbon footprint of nalists, producers, and the public to scrutinize the data and that crop would be reduced. the methodology to judge the accuracy of the results. 2. Encourage processing in developing countries. If the shelf life of 2. Declare the intensity of data collection. When publishing in- a product can be extended through processing, then it may formation on carbon footprints, it should be stated whether be possible to transport that product to the final market by or not the consultants actually visited the countries and ship, thereby reducing emissions. Thus well designed carbon farms analyzed. This is important because carbon footprints accounting schemes could encourage the processing of goods based on primary data are likely to be more accurate than in developing countries in cases where the processing sector those based on secondary data. has the potential to be competitive in international markets. 3. Recognize the subjectivity and uncertainty in carbon footprints. 3. Locate carbon footprints in the wider sustainability debate. Car- Footprinting methodologies need to reduce the level of in- bon footprints can be good indicators of the amount of herent subjectivity. Hardly any footprints present informa- GHGs emitted during the production of a product. They tion on the uncertainty that surrounds their calculations. are not good indicators of overall sustainable development. There is also a need for footprinting analysts to recognize Amoreroundedpictureofdevelopmentcouldbeobtained and communicate the level of subjectivity that is inherent in by utilizing carbon footprints as part of indicators of wider calculating any carbon footprint. Carbon footprints are in- sustainable development, such as carbon emitted per per- tended to be used as tools to inform business, governments, son employed in the production phase or carbon emitted and consumers so that they can take relevant action to re- per dollar generated in households with incomes under a duce climate change. Unfortunately, there is currently a ten- certain threshold. dency to utilize carbon footprints simply as a means to gain commercial advantage and/or market access. Note 4. Provide more disaggregated consumer information. Some car- 1. GHG emissions from transport are expressed as kilogram bon footprints require that emissions from the use phase of (kg) of carbon dioxide equivalent (CO2e) per ton km. This is the product be included in the overall calculation. For food thetotalamountofGHGsemittedwhen1tonofproductis items, the main emissions relating to use are from cooking transported1km.AllGHGsareexpressedasCO2e. and refrigeration. In products like coffee, the use phase is so large that it may mask carbon efficiencies in production. In About the Authors this case, the footprint should be broken down to demon- Paul Brenton is the lead economist in the Africa Department strate the proportion of the overall emissions derived from (AFTPM) in the World Bank. Gareth Edwards-Jones is a professor the different phases of the life cycle (for example, on the in agriculture and land use studies at the School of Environment farm, LUC, processing, transport, and use). This may enable and Natural Resources, Bangor University in Wales. Michael F. consumers to realize that even though the footprint of a par- Jensen is a senior project researcher in the Danish Institute for Inter- ticular product is relatively high, it was not the farmers in national Studies. This note is based on a larger study (Brenton et al. developing countries who were responsible for the majority 2009). The authors would like to acknowledge the generous finan- of emissions. cial support received from the governments of Finland, Norway, 5. Encourage innovation in the food chain. Few footprinting Sweden, and the United Kingdom through the Multi-Donor Trust methods actually provide a direct incentive to the individ- Fund for Trade and Development that has made this publication ual business people in the supply chain to reduce their possible. Responsibility for all errors, omissions, and opinions rests component of the overall carbon footprint. If footprints solely with the authors. All findings, interpretations, and conclu- are presented at an aggregate level, such as when multina- sions expressed in this paper are entirely those of the authors and do tional companies report the footprints for their final prod- ucts from a region as if it were one uniform good (for ex- not necessarily represent the views of the World Bank, its Executive ample, sugar from Zambia, beans from Kenya, grapes from Directors, or the countries they represent. Chile), then there is little incentive for the individual busi- Further Reading nesses who contribute to the production of these products Brenton,P.,G.Edwards-Jones,andM.F.Jensen.2009."CarbonLabelling to reduce their own emissions. If individual businesses andLowIncomeCountryExports:AReviewoftheDevelopmentIs- could be provided with direct incentives for reducing their sues." Development Policy Review27:243­65. emissions, then innovation in the food chain would be en- Brenton,P.,G.Edwards-Jones,M.F.Jensen,K.Plassman,A.Norton,andN. Attarzadeh.2009."CarbonFootprintsandFoodSystems:DoCurrent couraged. 4 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise Accounting Methodologies Disadvantage Developing Countries?" Draft EgglestonH.S.,L.Buendia,K.Miwa,T.Ngara,andK.Tanabe,eds.2006. World Bank report. 2006 IPCC Guidelines for National Greenhouse Gas Inventories. Prepared BSI.2008.PAS2050:2008.SpecificationfortheAssessmentoftheLife by the National Greenhouse Gas Inventories Programme for IPCC. Hayama, Japan: IGES. Cycle Greenhouse Gas Emissions of Goods and Services. London, UK: Jensen,M.F.2009."LevelingorMiningthePlayingField?Implementation British Standards. ProblemsofCarbon-MotivatedBorderAdjustmentTaxes."PREMnotes Edwards-Jones, G., K. Plassmann, E. H. York, B. Hounsome, D. L. Jones, and Trade#146,December,WorldBank. L.MilàiCanals.Forthcoming."VulnerabilityofExportingNationsto Mareckova,Katarina,andTinusPulles.2002."IPCCProjectonEstablish- the Development of a Carbon Label in the United Kingdom." Environ- ment of a Database on GHG Emission Factors." IPCC New Delhi COP8, mental Science and Policy. October. http://www.ipcc-nggip.iges.or.jp/EFDB/documents.php The Economic Premise note series is intended to summarize good practices and key policy findings on topics related to economic policy. They are produced by the Poverty Reduction and Economic Management (PREM) Network Vice-Presidency of the World Bank. The views expressed here are those of the authors and do not necessarily reflect those of the World Bank. The notes are available at: www.worldbank.org/economicpremise. 5 POVERTY REDUCTION AND ECONOMIC MANAGEMENT (PREM) NETWORK www.worldbank.org/economicpremise