Climate Finance: Regulatory and Funding Strategies for Climate Change and Global Development

Chapter 33 Carbon Footprint Labeling in Climate Finance: Governance and Trade Challenges of Calculating Products’ Carbon Content

Climate Finance 281 Chapter 33 Carbon Footprint Labeling in Climate Finance Governance and Trade Challenges of Calculating Products’ Carbon Content Sandra G. Mayson Scholar, Institute for International Law and Justice, NYU School of Law Key Points • Carbon footprint labeling (CFL) attempts to quantify the GHG emissions attributable to a product throughout its life cycle, from the harvesting of raw materials through product disposal. • CFL could impose an increased regulatory burden on small producers and a relatively greater abatement burden on developing countries . • A number of CFL standards have already emerged, backed by governments , NGOs, industry groups, and the ISO. Divergent choices in calculation methodologies (what emissions a CFL covers and how they are measured) have contributed to this multiplicity. • Governments seeking to ensure that mandatory national CFL programs are WTO-compliant should adopt a sound international CFL standard, created with wide national and stakeholder participation and sufficiently flexible to accommodate individualized producer data. 282 Sandra G. Mayson Yesterday, it was trans-fat; today, carbon footprint labels are proliferating on grocery store shelves. Carbon footprint labels purport to quantify the embodied carbon of a given product: the total quantity of carbon dioxide and (in some cases) other greenhouse gases (GHG) for which a single product—a pear, a cell phone, a t-shirt—is responsible over the course of its life cycle, from creation through use and disposal. Carbon footprint labeling (CFL) is a new phenomenon but has already staked a place in the climate regulatory landscape. Viewed most optimistically, CFL harnesses consumer demand for low-carbon products to encourage emissions reductions down supply chains. Critics, however, see CFL as a form of disguised protectionism, devised by industry or well-meaning nongovernmental organizations (NGOs) and promoted by governments in the developed North to counter the comparative advantage of producers in the global South subject to less stringent emissions controls. CFL may serve as a valuable informational tool to promote awareness about products’ emissions costs. Early evidence suggests that product footprint labeling helps firms to identify CO2 emissions hotspots along supply chains. CFL is also intended, however, to attach a cost to greenhouse gas emissions. If consumers respond to carbon labels in purchasing decisions, CFL should result in a loss of market share for high-emissions goods and services, and create market access (or advantage) for goods and services with low carbon content. By one view, this is a form of protectionism— at least if CFL is mandated by governments. The difficulty of quantifying carbon content compounds the risk that CFL might distort markets, or strain other climate law regimes by creating separate incentives for emissions reductions. Critics also fear that carbon labels will distract from other externalities of production and consumption. Given their regulatory and distributional implications, the development of CFL standards deserves close attention. Who decides how to calculate embodied carbon? NGOs and industry have taken the lead to date. Their labeling standards could, through market impact down supply chains, have significant effects on climate finance—yet they operate largely independently of international climate agreements and official state measures. This situation raises important questions about the governance and accountability of CFL standardization processes. It also makes the analysis of CFL’s legality under the World Trade Organization’s (WTO) trade regulatory disciplines complex, since it depends, in part, on whether labeling programs are mandated or promoted by governments or established solely by non-state actors. Carbon Footprint Labeling in Climate Finance 283 The Rise of Carbon Footprint Labeling Developing a carbon label is no simple task. Labels take different forms. Comparative labels simply present information about a product’s embodied emissions, like a food nutrition label. Endorsement labels signify that a product’s embodied emissions fall below a given threshold. Organizations that issue labels may require emissions reductions or third-party verification as a condition of the label’s use. Calculating the emissions for which a single product is responsible requires choices about what to measure (the “system boundary”) and how. Will the calculation include emissions from machinery used to harvest raw materials? From factories that produce the machinery? From land use change? Worker transport? What level of data specificity will be required? A Life Cycle Analysis approach requires individual source data, while environmental input-output (EIO) analysis uses sector-level national averages . Label designers must also decide how to account for the fact that the emissions might vary according to the user’s choices (e.g., to...