Greenhouse gas emissions: Consumption-based

Consumption-based emissions are the emissions embodied in the consumption and investment by domestic units, based on consistent classifications and concepts used in economic statistics. Tables are available with a breakdown by domestic final use category, trade (including gas breakdown), and a supplementary table on tourism consumption-based emissions. The methodology uses the production-based emissions from the greenhouse gas (GHG) emissions (industry and households), and economic data from National Accounts.

Consumption-based greenhouse gas emissions statistics associate emissions from production processes, foreign or domestic, throughout the entire supply chain, with the final consumer. Emissions are reported by the domestic final consumption groups of: households, government, non-profit institutions serving households, and investment in physical assets. Consumption-based emissions are often referred to as a nation’s carbon footprint.

Abstract

Consumption-based emissions are the emissions embodied in the consumption and investment by domestic units, based on consistent classifications and concepts used in economic statistics. Tables are available with a breakdown by domestic final use category, trade (including gas breakdown), and a supplementary table on tourism consumption-based emissions. The methodology uses the production-based emissions from the GHG emissions (industry and households), and economic data from National Accounts.

This greenhouse gas emissions (consumption-based) release extends the suite of annual emissions data to include the emissions embodied in final consumption, giving us:

• GHG Inventory (MfE)
• SEEA – Production-based emissions (Stats NZ)
• SEEA – Regional production-based emissions (Stats NZ)
• SEEA – Consumption-based emissions (Stats NZ)

This release is described as provisional, due to the assumptions required at this point in its development and the absence of internationally agreed standards and methods. Consumption-based emissions are currently considered an analytical extension of the United Nations System of Environmental-Economic Accounting (SEEA).

Sources and methods

Consumption-based emissions, also known as a carbon footprint, reflects the emissions associated with a nation’s consumption of final goods and services, such as household consumption, government expenditure, and investment in physical assets.

The consumption approach measures the emissions ‘embodied’ throughout an entire supply chain required to produce a good or service for final use. This approach considers the role of trade by accounting for emissions embodied in imports and exports. The consumption-based emissions estimates are part of Stats NZ’s environmental-economic accounting programme. The programme includes a suite of accounts of greenhouse gas (GHG) emissions on a production-basis; this series complements those by incorporating the role of demand into New Zealand’s emissions profile.

These consumption-based emissions are produced using a single region input-output approach starting with national production-based emissions and the estimating emissions embodied in trade.

Scope

The population scope of consumption-based emissions is New Zealand’s economic residents (businesses or households), which is consistent with the national accounts and the production-based emissions accounts. Emissions associated with the consumption of non-residents are excluded (and treated as exports). Emissions from residents who are overseas are included. By using the residency principle, macroeconomic data can be used in a coherent manner in the compilation of consumption-based emissions and for the joint presentation of economic and emissions data. Consumption-based emissions are therefore best compared to Stats NZ’s GHG emissions by industry and household series, which uses the same concepts and classifications with the same focus on economic units and their residency.

In contrast, New Zealand’s GHG inventory records emissions produced on the national territory, based on the process that produces the emissions. For more information on the relationship between the GHG inventory and consumption-based emissions see Approaches to measuring New Zealand’s greenhouse gas emissions.

Table 1 illustrates the relationship between the inventory, GHG emissions by industry and household accounts, and consumption-based emissions. The consumption-based estimates use the SEEA GHG emissions by industry and household accounts and integrate data on imports and exports, and input-output tables, which are on a residency basis and use economic classifications. This is important, as embodied emissions cannot be observed, and therefore require the use of macroeconomic statistical infrastructure (classifications, concepts, and data) to model the reallocation of production-based emissions to final users.¹

The reconciliation between the estimates based on the different frameworks can be found in Table 7 of the consumption-based emissions release.

Table 1

Allocation of emissions to final user

To reallocate these emissions to the final user, use is made of the conceptual framing of the national accounts, particularly input-output tables. Underpinning the input-output tables is the accounting identity of supply and use where sources of supply are:

• gross output by industry
• imports
  

and the uses of this supply are:

• intermediate consumption of goods used in production
• household consumption expenditure
• government final consumption expenditure
• non-profit institutions serving households consumption expenditure
• gross fixed capital formation
• exports
  

The supply and use framework recognises that within the economy, the amount of a product supplied must also be used within the economy, by either intermediate or final users. Therefore, total supply of products is identical to total use of products.

Intermediate uses consist of goods and services that are consumed (‘used-up’ or transformed) in a production process within the economy during the accounting period; final uses comprise all other uses of goods and services, such as by households, government, or investment in physical assets. All forms of use except intermediate consumption are considered final use categories.²

Exports are consumed by foreign economic units and are excluded from the estimate of New Zealand’s consumption-based emissions.³

As a result of the above, a simplified representation of consumption-based emissions is:
     Consumption = Production + imports – exports

where consumption-based emissions can be broken down by:

• Final Consumption Expenditure
       • Household consumption expenditure
       • Government final consumption expenditure
       • Non-profit institutions serving households consumption expenditure
• Gross capital formation
       • Gross fixed capital formation
       • Change in inventories
  

For definitions and further explanation of the final use categories measured in the consumption-based emissions statistics, see the consumption account variables list.

Data sources

Stats NZ’s production-based emissions (GHG emissions by industry and household), supply-use data, and input-output tables are used to compile consumption-based emissions.

Industries in the SEEA industry and household emissions account are based on the same classification system and to a similar level of detail as the input-output tables, enabling the integration of the two data sources. The GHG inventory is used indirectly, as it is a main source for the emissions by industry and household series.

The consumption-based emissions methodology utilises the technical coefficient matrix from the National Accounts input-output tables, supplemented with more up-to-date National Accounts supply and use data. Input-output tables describe the structure of New Zealand’s economy. They show the relationships between industries, the goods and services they produce and who uses them. See National accounts input-output tables: Year ended March 2013.

Production-based emissions are produced on a December-year basis. All economic data used in this account are produced on a March-year basis. As a result, quarter specific events may reduce the coherence of the input data.

Methodology

Consumption-based emissions include both direct and indirect emissions. Direct emissions are production-based emissions. These emissions are from sources that are controlled by the operator (i.e. person or entity controlling the vehicle, technology, or process). Indirect emissions result from activities across the supply chain. They occur at sources other than those of the operator.

Estimating consumption-based emissions first involves differentiating between domestic production-based emissions (SEEA air emissions account) and emissions embodied in imports. Domestic production-based emissions are purely direct emissions resulting from the production process as estimated for the SEEA industry and household emissions accounts, whereas the emissions associated with imports are those embodied in other countries’ exports (a final use category in their accounts). This means that imports will include the indirect emissions embodied in the goods and services throughout the supply chain to produce those exports. As a result, different methodologies are required for the two sources of supply.

While the domestic production-based emissions estimates can be readily obtained from the Stats NZ SEEA based air emissions accounts (described above), there is no observable value of the emission embodied in imports, and therefore this needs to be modelled, usually involving some significant assumptions (which are discussed below). The current methodology estimates emissions embodied in imports as:

    e_fm

where:

     e_f = e_d (I – A – M)^-1
     m = Imports (n x 1)

and

     e_d =Domestic emissions intensity (1 x n)
     I =Identity matrix (n x n)
     A =Technical coefficient matrix (n x n)
     M = Import use coefficient matrix (n x n)

with

     n = number of industries

Emissions intensity (e_d) is defined as:
     Emissions_i/Output_i

The M matrix is calculated as:
     Imports_i/Output_i

Where
     M = a (n x n) matrix of imports supply and use on an industry_foreign to industry_domestic basis

Adjusting the Leontief inverse (represented as (I-A)^-1 in the equation above) by the M term accounts for the role of imports throughout global supply chains: foreign production, that ends up as New Zealand imports will also use imports in its production, and these imports will also use imports, and so on.

The technical coefficient and import matrices are fixed over time and are based on the 2013 input-output tables.

Allocating emissions to final use categories

Domestic production-based emissions
New Zealand’s production-based emissions are reallocated through the supply chains using the domestic emissions intensity, the Leontief inverse from the input-output tables, and expenditure by final use category. This is calculated as:
     e_d (I – A)^-1 Y

where
     Y=final consumption (n x k)
     k = final use categories

Emissions embodied in imports
Imports can either be used as an input to domestic production processes or by final consumers. Imports used as intermediate consumption are treated in the same way as domestic emissions, with an M matrix denoting the use of imports in each industry’s production process. This gives us:
     e_f M (I – A)^-1 Y

where
     e_f = e_d(I - A - M)^-1

The direct use of imports by final use categories is calculated as:
     e_f m_FUC

where

     m_FUC = expenditure on the direct use of imports by final use categories

The sum of these two components equals the initial calculation of emissions embodied in imports:
     e_f m = e_f M (I – A)^-1 Y + e_f m_FUC

Gas breakdown

The scope of these estimates are all greenhouse gases as covered in the GHG Inventory and the SEEA production-based emissions estimates.

Greenhouse gases currently included are:

• carbon dioxide
  
• methane
  
• nitrous oxide
  
• fluorinated gases
       • sulphur hexafluoride (SF6)
       • perfluorocarbons (PFCs)
       • hydorfluorocarbons (HFCs).
  

This initial development of consumption-based emissions has focused on estimating total carbon dioxide equivalents (CO2-e), however a gas breakdown is available at the total economy level. All gases are converted into CO2-e using the global warming potentials from the Fourth Assessment Report (IPCC, 2007) based on a 100-year time frame.

Assumptions

Consumption-based emissions are estimated using a top-down approach, where economic activity data is used to estimate and reallocate emissions to final use categories. The assumptions discussed below affect both the calculation of total consumption-based emissions (particularly the calculation of emissions embodied in imports) and the reallocation to final use categories. They influence the methodology and data needs for calculating consumption-based emissions and have implications for the overall quality of the estimates.

As climate change mitigation policies will be explicitly aimed at changing technology and production processes, it will be important that the impact of these assumptions is reduced over time through the integration of additional data and the further development of methodology.

Constant economic structure assumption
The constant economic structure assumption arises from the use of a single set of technical coefficients for the calculation of the consumption-based emissions time series. This has implications for the quality of the resulting consumption-based emissions, as changes in the relationships between industries is not accounted for.

The use of the same technical coefficients for several years is usually justified on the basis that the domestic production structure remains relatively similar in the short to medium term. When these are not updated, changes in the mix of commodities used by industry in their production process may not be adequately captured over time.

Domestic technology assumption
The domestic technology assumption (DTA) refers to the assumption that New Zealand emission intensities are representative of those of the foreign production processes that produced the goods and services being imported.

The DTA does not require additional data, and results in a much-simplified methodology. This affects the total estimate of consumption-based emissions, as there are likely to be differences in emission intensities between industries operating in New Zealand versus those operating overseas. New Zealand also may not have the same types and levels of manufacturing that are used overseas to produce our imports. While the resulting estimates for emissions embodied in foreign output are unlikely to be perfectly representative, it is unclear what the impact on the consumption-based total will be until we start exploring the replacement of domestic emission intensities with country-specific emission intensities.

Domestic production process assumption
The domestic production process assumption (DPPA) is the assumption that the New Zealand economic structure, commodities used, and supply chains is representative of other economies.

The DPPA implicitly assumes foreign production has the same production function and use of imports, and the same energy profile for its economy. The proportion of imports used in production will vary greatly by country, so the DPPA may over- or under-state the estimation of imports used. For most industries the assumption of the same production function will be approximately representative (the industry classification is built around this idea), even if the proportion of imports used is different. However, where New Zealand doesn’t have a mature industry, it may not be representative of foreign production processes.

To reduce the assumptions described above, the data requirements for the account would increase, such as including the use of trade data by commodity and country, and emissions intensities by country.

Data quality

Relevance
The consumption-based estimates enable a more comprehensive and holistic understanding of New Zealand’s emissions profile, as they consider emissions from a demand perspective, and have been compiled in a way that makes them able to be used in conjunction with the production-based emissions estimates. Consumption-based emissions are also compiled on an economic residence basis to facilitate comparisons with economic statistics.

Accuracy
Consumption-based emissions estimates inherently carry any uncertainty that exists within the production-based emissions and the macroeconomic statistics utilised as input data. Additional uncertainty also arises due to the assumptions underpinning the modelling, as described in the assumptions section of this document.

These estimates are considered provisional due to the assumptions utilised at this stage in the accounts’ development. As the methodology is further developed, the need for some of the current assumptions will be reduced, and revisions will occur.

Timeliness
The timeliness of consumption-based emissions is dependent on the availability of its two main inputs: production-based emissions, and annual National Accounts data.

• Production-based Greenhouse Gas emissions have the GHG Inventory as a major input, which is published with a 15-month lag from the latest reference period. Production-based SEEA estimates are published approximately two months after the GHG inventory.
• Annual National Accounts data is published with an approximately 20-month lag. Consumption-based emissions are published the following month.

Coherence and consistency
There four aspects to coherence that are relevant to consumption-based emissions:

• Consistency of consumption-based tables
• Consistency over time
• Consistency with other outputs
• Consistency with other country’s methodologies

Regarding consistency of the tables, the consumption-based emissions model is internally consistent, resulting in estimates for different sources of demand that are consistent, mutually exclusive, and add to the national total.

As the main inputs into the consumption-based emissions model are consistent over time, the consumption-based emissions estimates are also consistent over time.

The concepts used in model are consistent with those of SEEA-based production-based emissions and macroeconomic statistics, which enables the joint presentation of data and derivation of coherent insights.

While international best practice is starting to emerge, and work is underway to increase coherence across countries, international standards do not yet exist and countries follow a range of approaches, in particular for the estimation of emissions embodied in imports. Agreement has also not been reached on the best metric for comparisons of consumption-based emissions. This inconsistency of approaches limits the coherence of metrics used in international comparisons.

Accessibility

Data is available via Excel.

Tourism-based consumption emissions

Expenditure by commodity and tourist type (i.e., international or domestic) data from the Tourism Satellite Account (TSA) is used with the consumption-based emissions model to determine emissions from tourism. The TSA is based on a March year.

The consumption approach also provides a breakdown by international and domestic tourist type, as another type of final user. The tourist type approach complements the production approach which focuses on industries. Both approaches are consistent in scope and concept with the TSA. See Linking the TSA and the SEEA: A Technical Note | System of Environmental Economic Accounting.

Consumption-based tourism emissions record the emissions resulting from production, both domestic and foreign (emissions embodied in imports), throughout the supply chain needed to provide tourism-based goods and services. In comparison, production-based tourism emissions only represent the emissions attributable directly to business engaging in tourism activity.

Footnotes

¹ To this end, consumption-based emissions are considered an analytical extension of the SEEA framework, rather than part of the central framework.

² Intermediate consumption, as a use by businesses in their production process, is associated with output which subsequently is used in another production process within a supply chain or consumed by final users. In calculating consumption-based emissions this intermediate use is represented by the technical coefficients matrix (A).

³ Exports may be used in foreign production processes as an intermediate use, but National Accounting conventions treat. them as a final use from the perspective of the domestic economy.