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Monitoring Global Carbon Intensity and Policy Implications

Climatecouncil.org defines emission intensity as “the volume of emissions per unit of GDP”. The purpose of this metric is to determine the financial implication of polluting so that the policymakers can come up with a budget to mitigate the damage.

It is also an alternative to identify the real ‘big emitters’ of the planet. When countries are ranked on the basis of per capita emission, the advantage goes to the more populous ones, as advocated by the developed nations of the world. In case of absolute emission, the developing nations cry foul and push hard for the ‘principle of equity’. Therefore, many groups are favoring carbon intensity as they try to promote efficient use of resources with economic development.

The IEA has launched a new Energy Sector Carbon Intensity Index (ESCII) in the third edition of its Tracking Clean Energy Progress report. The report states ‘ESCII stood at 2.39 tonnes of CO2 per tonne of oil equivalent (tCO2/toe) in 1990, and had barely moved by 2010, to 2.37 tCO2/toe’. The report also highlights some positives. It states ‘The cost of clean energy technologies fell more rapidly than anticipated. The hybrid vehicle sales passed the 1 million mark. From 2011 to 2012, solar photovoltaic and wind technologies grew by an impressive 42% and 19%, respectively, despite ongoing economic and policy turbulence in the sector”. Despite these technological advancements, the overall emission from energy production is not reducing. It shows there is a lack of consistency in policy implementation.

Consider nations hugely dependent on coal. There has been increased support for renewable energy in the form of investment and government policies. However,fossil fuel subsidies are still extended to ease inflation and produce cheap electricity. Even while President Obama launches his climate change policy to curb power plant emission, an IMF report showcases that the United States remains the single largest subsidizer of fossil fuel in the world with total subsidies amounting to $1.9 trillion per year.

The ESCII, an index consistent with the UNFCCC approach, measures the source of carbon emission. Based on the principle of Material Balance, this approach measures the emission at the point of production rather than at the point of consumption. This gives rise to the phenomenon of ‘Outsourcing Emission’ which means polluting companies are migrating to regions where the environmental regulations and labor laws are less stringent. Overall GHG emission for a country may tumble, down, but this does not truly reflect a its consumption if its citizens and industries are increasingly shopping abroad for manufacturing. New trade laws have been formulated to combat this phenomenon, further complicating an already volatile market.

Similar to the ESCII, the Low Carbon Economy Index of PwC is also based on the rate of change of Global Carbon Intensity. It tries to measure the global emission output against the world GDP growth. This approach discounts the drop in emission caused due to recession or decline in production. A company should use this approach to calculate their emission based on productivity instead of absolute emission to give a more accurate picture. It is not only a matter of environmental compliance but will lead to much better resource utilization and cost estimation of emission