A Response to Daniel Abebe and Jonathan Masur by Michael P. Vandenbergh and Mark Cohen
[Michael P. Vandenbergh is Tarkington Professor of Law; Director, Climate Change Research Network; and Co-Director, Regulatory Program at Vanderbilt University Law School. Mark Cohen is Vice President for Research, Resources for the Future; Director, Vanderbilt Center for Environmental Management Studies; Professor of Management and Law, Owen Graduate School of Management at Vanderbilt University.]
Daniel Abebe and Jonathan Masur have made an important contribution to the international climate literature by emphasizing the importance of understanding China’s administrative and economic constraints. They argue that China does not have the incentive to enter into an agreement that requires substantial emissions reductions, and we hope that their paper is the first of many that will look inside the black box to better understand why it might not. A more complete understanding of the “Two Chinas” is all the more important given the lack of progress in Copenhagen. Of course, we note that the United States is not immune to administrative and economic constraints, and that a complete analysis of the prospects for an international climate change agreement must account for the incentives of all the major contributors.
In a forthcoming paper, Climate Change Governance: Boundaries and Leakage, 18 N.Y.U. Envtl. L.J. (forthcoming 2010) (available at http://papers.ssrn.com/abstract=1511797), we argue that global supply chains can be a source of additional incentives for China and other countries to join in and comply with an international agreement. Supply chain pressure also can generate emissions reductions in the absence of an international agreement. If corporate carbon footprints and product carbon labels include supply chain emissions, social license pressure on firms in the US and EU can lead to pressure for carbon emissions reductions by suppliers in developed and developing countries. This disclosure strategy is not a panacea, but it is one of the few viable ways to shift the incentives of both Chinas, creating economic incentives at the firm level in all areas of China and bypassing the political concerns that are the focus of the Abebe and Masur paper. Most of the public and private reporting schemes that have been proposed or adopted to date, however, do not include supply chain emissions within the corporate boundary (e.g., many include a 25,000 metric ton threshold). In fact, they risk making the problem worse by creating incentives for leakage via off-shoring to China and other developing countries.
Abebe and Masur also have highlighted the important fact that factories are heterogeneous with respect to carbon emissions. They argue that clear regional variations exist and that these variations cast doubt on existing emissions forecasts. These types of variations can be accounted for in corporate carbon footprinting and product labeling schemes through the use of default GHG ratings by location of factory. All Chinese steel products might not be the same—some may be dirtier than others. This heterogeneity highlights why bringing the analysis down to the factory level has value, even if it is an imperfect science.