The Greenhouse Gas Index for Products in 39 Industrial Sectors

In recent work, we proposed the GHG index (GGI) as a central concept and administrative tool to determine border adjustments (BAs)—export rebates and import charges for covered products.Flannery 2021. Accounting for Emissions in Global Trade with a Greenhouse Gas Index. Washington, DC: Resources for the Future. With colleagues Jennifer Hillman and Mathew Porterfield (both at Georgetown University Law Center at the time), we initially developed the GGI in the context of a potential upstream US GHG tax. Our Framework report describes how GGIs could be used to determine border tax adjustments (BTAs) compatible with World Trade Organization (WTO) obligations. Flannery, Brian P., Jennifer A. Hillman, Jan W. Mares, and Matthew C. Porterfield, 2020. Framework Proposal for a US Upstream GHG Tax with WTO-Compliant Border Adjustments: 2020 Update. Washington, DC: Resources for the Future. Among other criteria for WTO compatibility, the GGI incorporates relevant aspects of recognized international standards to determine the GHG emissions from an industrial facility and its supply chain, and then allocates them to products it manufactures (see Section 3 of the Framework). Essentially, a product’s GGI, which is expressed as tonnes of CO2 equivalent (CO2e) per tonne of product, multiplied by the GHG tax rate (US$ per tonne of CO2) determines its BTA (US$ per tonne of product). Note that the GGI itself does not depend on the policy used to set a GHG price. Rather, it is a technical metric, based on physical quantities associated with products (i.e., the carbon content of produced fossil resources and GHG process emissions required to create covered products used and produced by manufacturers). For that reason, the GGI could be used in the context of climate policies for BAs other than a GHG tax—or, more generally, as the basis for an international metric that associates GHG emissions with GHG-intensive products for various analyses and policies.For BAs based on a range of policies (besides a tax) that are now under consideration (see footnote 1), the GGI could serve as a metric to assign GHG emissions to products as the basis to apply a price, if there were an objective way to determine the effective GHG price for covered products of these policies. Proposals include the Coons–Peters bill (the FAIR Transition and Competition Act of 2021) and other recent US legislative proposals based on a variety of price-based and regulatory policies, See, for example, the Whitehouse bill (The Clean Competition Act 2022); as well as the European Union’s (EU’s) Carbon Border Adjustment Mechanism (CBAM) based on the EU Emissions Trading System (EU ETS), which applies to facilities, not products. Both provide for BAs only for imports, not exports. The Coons–Peters bill requires procedures both to determine an effective price for US GHG emissions and to assign GHG emissions to imported products. CBAM, which calls for emissions permits for imports, requires procedures to assign emissions to covered products (not facilities). Both proposals also require procedures to determine the effective price of GHG policies in nations from which they import covered products. While designing procedures to determine effective GHG prices pose significant challenges (see discussion in the reference cited in footnote 1), here we focus on the potential application of the GGI to assign emissions as the basis to apply a price or charge to covered products.Our related Policy Guidance report Flannery, Brian P., Jennifer A. Hillman, Jan W. Mares, and Matthew C. Porterfield. 2020. Policy Guidance for US GHG Tax Legislation and Regulation: Border Tax Adjustments for Products of Energy-Intensive, Trade-Exposed and Other Industries. Washington, DC: Resources for the Future. discusses tasks for legislators and regulators In Section 3 of the policy guidance report (footnote 4), we proposed that the US Department of the Treasury should establish a new office as the lead agency to manage implementation of the Framework with assistance from the US Environmental Protection Agency and Department of Commerce. We referred to this set of agencies as the US “Regulator” that would be responsible, among other tasks, for administering BTAs under the Framework. In this introduction to the modules, we refer to US and other national officials responsible for administering BAs as “regulators” but use “Regulator” as defined above throughout the modules. to authorize and implement the Framework. Of note, these tasks include procedures to promote continuous improvement as national and international climate policies and practices inevitably evolve. In particular, they include an appeals process allowing affected parties to challenge information from exporters and importers that they suspect to be incorrect, incomplete, or fraudulent. This appeals process recognizes and relies on existing capabilities of US regulators to conduct investigations in foreign nations regarding relevant data for covered, imported products.In the 25 modules that follow, we provide procedures and information to estimate indicative values of the GGIs for representative, covered products. These modules cover 39 industrial sectors and over 100 individual products, as listed in the North American Industry Classification System (NAICS). As discussed in a related working paper, Flannery, Brian P., and Jan W. Mares. 2021. “Export Rebates and Import Charges for Border Tax Adjustments under an Upstream US GHG Tax: Estimates and Methods.” Working paper 21-32. Washington, DC: Resources for the Future. these procedures rely on information from publicly available sources, such as national average values of products and the resources required to produce them. Our work on this project is ongoing. We are preparing additional modules that cover other sectors. We note that other nations classify covered sectors and products in different ways, and that sectors with similar names in different nations may not include identical products.The modules demonstrate the feasibility of determining indicative estimates for GGI values. They also provide a basis to inform the development of official procedures for BTAs by the regulators in the United States, as well as to engage input from affected industries. We use a variety of publicly available sources of national and sectoral averages for key factors that contribute to GGIs (e.g., average GHG emissions for electricity generation, fuels for thermal energy, and GHG process emissions in key sectors). We refer to these estimates for the GGIs of products as “indicative” and “representative” because they are based on a variety of sources and, for the most part, use average factors rather than facility-specific information. Note that we do not aim to determine GGI values for all possible covered products; rather, we do so for a representative set to demonstrate the process. In many cases this involves only a single product. We used data from national agencies, international institutions, industry and academic sources, and, in a few cases, our own estimates. The GGI values are representative of national averages, rather than actual determinations of the GGI for products of specific facilities, which can differ significantly from national averages.These estimates and procedures to determine the GGI provide a starting point for regulators and manufacturers to determine initial values for export rebates and import charges of GHG-intensive products based on their GGIs. The approaches could be especially useful as a model or template for the US regulators to determine initial import charges based on average values of GGIs for products (or groups of products) exported to the United States from nations that do not currently require detailed reporting of GHG emissions from industrial facilities. In practice, under the Framework, the regulators would develop official estimates for initial import charges based on more up-to-date information using uniform procedures within a sector to allocate emissions from manufacturers to the products they create. During an initial two-year start-up period, import charges would be determined by the US regulators based on national average values of the GGIs for imports. After the start-up period, GGI values for products imported into the United States would be based on facility- and firm-wide averages (as required for US manufacturers seeking export rebates, see immediately below). The start-up period would allow time for capacity building by foreign governments and firms that export to the United States to implement available international procedures to determine GGI values (see Section 3.1 of the Framework). As well, even in the initial years, if the foreign exporter had firm-wide data demonstrating lower values for the GGIs of their products, they would be entitled to appeal for a reduced import charge.In a related working paper, Flannery, Brian P., and Jan W. Mares. 2021. “Determining the Greenhouse Gas Index for Covered Products of Specific Manufacturers.” Working paper 21-31. Washington, DC: Resources for the Future. we describe procedures that would be used to determine GGI values for covered products manufactured in specific facilities, and the use of domestic firm-wide averages as the basis to claim rebates for exports from the United States. In the United States, the information required to determine such GGI values exists and much of it is publicly reported annually. This information could be used by the US regulators to develop authorized procedures for facilities to determine and report their GGI values as the basis for firms to claim export rebates based on their entire domestic production of each covered product.