Carbon accounting shapes how climate responsibility is allocated, and expanding existing frameworks could provide a stronger basis for effective and equitable climate action.
Greenhouse gas emissions can be accounted for in different ways, and each framework provides a distinct perspective on climate responsibility. The common practice in building national greenhouse gas inventories is that emissions are usually attributed to the countries in which they are released. Such a production-based approach is now the cornerstone of national climate targets. However, it is also criticized because it ignores the reality that globalization separates the locations of production and consumption; that is, it focuses more on where emissions occur geographically, rather than on the motivation that leads to the emissions in the first place1.
Credit: noppadon chaingam / Alamy Stock Photo
To address this concern, which is created by international trade and extended value chains, consumption-based accounting emerged2. Rather than focusing on production, this approach tracks emissions embodied in goods and services along the supply chain, and attributes them to the final demand. Research shows that many high-income countries import a large number of carbon-intensive products, while reporting declining domestic emissions3. By linking household expenditure and income distributions to eventual carbon footprints, it further demonstrates that substantial disparities exist between and within countries4.
However, other than demand, the consumption-based approach does not consider the key drivers that enable emission-intensive economic activities. Alongside consumption with higher greenhouse gas footprints, wealthy groups also save and invest a large share of their income, which eventually flows to assets that cause emissions. With firms and productive assets generating positive returns, it will further influence financial flow and continue to support investments that generate emissions. As wealth is usually more concentrated than income, attributing emissions according to ownership could reveal more details on how emission responsibility is unevenly distributed.
In an Article in this issue of Nature Climate Change, Chancel and Rehm quantify this previously overlooked dimension of carbon inequality, or ownership-based accounting. Based on data across 197 jurisdictions between 2010 and 2022, their findings reveal a striking fact about unequal responsibility: in 2022, the global top 1% wealth group was associated with 41% of private ownership-based emissions, while the top 10% accounted for 77%. This high proportion exceeds both the top wealth owners’ share in global wealth and consumption-based emissions. In other words, wealthy individuals have portfolios that disproportionately relied on carbon-intensive economic activities. The findings also reveal how increasing cross-border investment is reshaping the national responsibility of emissions. For example, wealthy asset owners in western Europe stand out as net importers of traded carbon emissions, and as the net positive owners of foreign emission activities.
The focus on ownership matters not only because of the unequal distribution of carbon footprints, but also its potential to influence financial decisions and corporate strategy. If the wealthy group continue to receive positive financial returns from carbon-polluting activities without exposure to the transition risk from climate-related regulations, it will be difficult to lead investment towards needed low-carbon transitions. Although pressure from asset shareholders may not directly enact immediate action at the corporate level with complex, modern ownership networks, the revealed inequality provides a starting point for identifying those actors with potential to redirect capital.
Ownership-based accounting should complement, rather than replace, existing approaches. Each approach has its own merits and fulfils different purposes: production-based emissions can be directly monitored, consumption-based emissions can guide demand-side solutions, and the ownership-based approach provides an important perspective on where to start to improve green investment. From a broader view, this information could promote more transparent corporate and portfolio emissions reporting, as well as inform policy professionals to design more effective regulations to divest carbon-intensive assets. As climate action increasingly turns towards financial flows, ownership should become a more visible part of how carbon responsibility is addressed.