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Trading Carbon : November 2011
40 CARBON LABELLING Carbon labelling is attracting growing government attention. As the first voluntary schemes develop into maturity, there is growing impetus for making labelling the carbon content of goods mandatory. This trend is seen most strongly in Europe, where the government of France is contemplating a shift towards mandatory labelling. Multiple factors are driving the growing government interest in carbon labelling. First, and most obviously, government action on carbon labelling is a response to voter pressure. Second, it is becoming clear that after governments adopt measures to limit the emissions within their territory they seek to tackle emissions outside their borders. And address concerns about so-called carbon leakage -- where companies move production to countries without or with a less stringent carbon constraint. Finally, it has been suggested that governments may be adopting labelling requirements to establish non-tariff barriers to imports. Carbon labelling is an attractive option for governments under political pressure to act on climate change. Labelling doesn't require an international agreement, and, while it remains to be seen whether carbon labelling can deliver meaningful emissions reductions, labelling can assist in addressing market failures by assisting consumers in identifying products that match their preference for low-impact goods. European consumers consistently report a preference for goods MovingTo Mandatory? SARAH O'BRIEN AND FLORE COGNAT DISCUSS THE MERITS OF LABELLING GOODS WITH THE GREENHOUSE GAS EMISSIONS CONTENTS IN THE FIGHT AGAINST CLIMATE CHANGE Flore Cognat Labelling is an attractive option for governments under political pressure to act on climate November 2011 www.pointcarbon.com that are climate friendly. In a 2009 Eurobarometer survey, 83 per cent of EU citizens said that the environmental impacts of a product play an important part in their purchasing decisions. Currently these consumers lack the information they need to make sure purchases reflect their preferences. A carbon labelling scheme can correct this information failure. Carbon labels may also, at least in part, address the externality of greenhouse gas (GHG) emissions. Due to the failure of markets to provide reliable, accurate information about the environmental impacts of products to consumers, the prices paid for emissions-intensive products do not reflect the full cost of producing the product. This results in a market bias towards more emissions-intensive products. Carbon labels can facilitate trade between low-emissions producers and consumers with a preference for low- emissions goods. In the absence of concerted international action on climate change, governments that have adopted GHG limits are looking for ways to influence emissions globally. Because of its global nature, climate change is a unique environmental problem -- when pollution can result in global harm, governments may feel more justified in taking action that has an impact on polluters in other countries. The issue of carbon leakage makes mandatory carbon labelling particularly attractive to governments in Europe, which are already seeking to reduce emissions under the EU Emissions Trading Scheme. These governments are likely to see carbon labelling as another means of levelling the playing field for domestic products -- which, unless otherwise compensated, face a carbon price -- and imports, which most likely don't face a carbon price in their country of origin. Finally, concerns about green protectionism have led to claims that government interest in mandatory carbon labelling is motivated by the potential to restrict the access of imports to domestic markets. If transport emissions factor heavily in carbon footprinting methodologies, then imported goods are likely to be disadvantaged. However, there is little evidence, so far, to indicate that countries like France are motivated by a trade agenda. The voluntary labelling sector is transitioning into maturity. Around 5,000 products now bear the UK's Carbon Reduction Label -- accounting for around £2 billion ($3.14 billion) in sales per year. This early growth since
December - January 2011