(Originally published at the Wall Street Journal)

Kate Gordon (@katenrg) is a Fellow at the Center for Global Energy Policy at Columbia University. Matthew Lewis is a strategic communications adviser focused on climate and energy issues.

 

The U.S. may have pulled out of the Paris climate agreement, but the global climate compact remains in place. Across the world, countries are working to meet their climate commitments in a way that also promotes local economic growth—a set of complementary goals made all the more possible by the rapid cost reductions of clean technologies.

But most countries’ climate plans include a major flaw that, until very recently, has been largely ignored: the fact that nations are able to export high-carbon products without accounting for them in national climate commitments.

Nearly 25% of the world’s greenhouse gas emissions pass through this carbon loophole. Products like steel and glass are often produced in countries with relatively weaker environmental requirements, and then consumed in another. This allows the “cleaner” countries to claim reduced emissions, even as their consumption increases emissions elsewhere.

How bad is this problem? Recent research suggests that, if the European Union conducted a fulsome accounting of the carbon emissions embedded in its imported products, its emissions would be 11% higher than 1990—not the 17% reduction claimed by Brussels.

Ironically, those nations that are truly operating on a low-carbon basis, from energy generation through to manufacture and export, suffer the most from the carbon loophole. Nations such as Germany and France boast some of the cleanest grids and most efficient industries in the world, so “exporting” the emissions problem results in more pollution than if they’d made the same products at home. That’s true also for American states like Washington, Oregon, and Vermont, which have exceptionally clean power grids because of their dependence on hydropower, and for forward-looking states like California that have passed aggressive standards to increase renewable energy production in-state. Were there an accounting system for the carbon content of exports, these states would have a major competitive advantage over states using far dirtier energy to drive manufacturing.

The good news for these clean countries and states is that the accounting system is coming into play, starting with California. The state’s just-enacted Buy Clean Act is the first effort by any jurisdiction to close the carbon loophole. It does so through the age-old mechanism of purchasing power. Under Buy Clean, California’s $10 billion annual budget for infrastructure will be subject to new, low-carbon standards for the industrial products used in construction: steel, glass, insulation and similar products. State agencies will be directed to buy only those products that meet or beat a benchmark for pollution.

The Buy Clean standard ratchets down over time, setting off a “race to the top” in industrial efficiency and accelerating the deployment of low-carbon technologies. The system rewards those companies that invest in a cleaner future, regardless of where they’re located — but it also gives a big competitive boost to those jurisdictions that are lucky enough to be driven by clean power, or that have invested in the policy and regulatory change to drive toward low-carbon energy sources.

California is just one state, but it’s the sixth-largest economy in the world. The Buy Clean standard has the potential to start a movement toward a new way of doing carbon accounting, starting with the 40 countries and 20 sub-national jurisdictions that already have some kind of measuring and pricing system for carbon emissions.

The world is already moving to price carbon. Soon other states and countries will very likely build on the Buy Clean model by changing their own purchasing rules to prioritize products made with the lowest carbon footprint possible. The smart play for global business will be to invest in the cleanest possible products, processes, and manufacturing locations to bring down their own emissions. Otherwise, they risk being left far behind.