California’s new law aims to tackle imported emissions

California has started a large investment in infrastructure. In early 2017, the US state approved $52bn in spending on repair and maintenance projects. As one of the most progressive states for emission reductions and proactive climate policy, California has been examining ways to ensure that its infrastructure investments minimise greenhouse gas emissions.

Jerry Brown, California’s governor, signed into law the Buy Clean California Act. The act requires that the state set a maximum “acceptable lifecycle global warming potential” for different building materials, specifying that only materials with embodied emissions below that level can be purchased by the state.

As the state government is the largest purchaser of steel and concrete in California, proponents hope that it can leverage its buying power to help promote lower-carbon production practices.

This represents the first time a US state is trying not only to reduce its own emissions, but to also reduce the emissions embodied in some of the goods that it imports. This could prove to be an important part of reducing the state’s overall contribution to climate change.

As Carbon Brief has previously reported, around 22% of all global CO2 emissions stem from the production of goods that are traded internationally. About 6% of total US emissions are due to net imports of CO2 embodied in goods.

While steel and other construction materials purchased by the state represent only a small part of California’s total carbon emissions, this bill sets a precedent that imported goods can be regulated based on their lifecycle carbon impacts.

A bridge too far

The Buy Clean California Act was inspired by a controversy over the construction of a new portion of the San Francisco Bay Bridge. The state chose to purchase steel from a carbon-intensive Chinese mill to minimise costs, despite also receiving bids from cleaner mills in Oregon and California.

A report by the BlueGreen Alliance suggested that an estimated 180,000 tonnes of carbon emissions would have been averted if local steel had been used, an amount equivalent to taking 38,000 cars off the road in the US for a year. In response to this, a coalition of labour unions and environmental groups pushed the state to adopt the new law, as a way of both benefiting local (generally lower-carbon) manufacturing and lowering emissions.

The new law applies to steel, glass and insulation purchased by the state of California. It requires that state agencies take climate change into account in their planning and investment decisions, and employ full lifecycle cost accounting to evaluate and compare infrastructure investments and alternatives. The law requires that the California Department of General Services set a maximum acceptable emissions intensity for each material.

After 1 July, 2019, companies bidding for projects with the state of California will have to submit robust life-cycle assessments of the materials used in the projects and ensure that they meet the new standards.

California-based companies that manufacture steel and other construction materials are currently covered under the state’s emission trading system. Heavy energy users deemed at risk of competition from companies abroad with lower energy prices are currently given 15% of their tradable permits for free, as a way of trying to avoid carbon leakage. This bill will likely greatly benefit domestic industries by creating a market barrier for high-carbon-intensive foreign competitors.

Vastly different emission intensities

The emissions embodied in construction materials, such as steel and glass, can vary greatly depending on how they are manufactured and how the energy used in the manufacturing process is generated. For example, steel produced through the use of arc furnaces can be much less energy intensive than steel produced in traditional blast furnaces.

Countries such as China that rely primarily on coal for electricity generation will tend to produce materials with higher embodied carbon emissions than regions such as the EU or US with cleaner generation mixes.

The figure below shows an example of the embodied carbon in a number of common construction and industrial materials in the EU and in China. These materials tend to have somewhere between 200% and 400% higher embodied CO2 emissions per kg of material when produced in China.

Lifecycle CO2 emissions (in kg CO2 per kg material) for materials produced in the EU and China, based on data from Liu et al 2015. Chart by Carbon Brief using Highcharts.

Does this mean that the law will effectively ban the use of Chinese steel and other building materials in California? In the short term, this will likely be the case, as few if any existing Chinese manufacturing would meet the standards that the state will likely set. However, the law seeks to incentivise manufacturers globally to embrace lower-carbon approaches in order to gain access to the California market.

How the new law will interact with World Trade Organization regulations around the restriction of trade based on processes or production methods is still something of an open question. In general, carbon-related tariffs will pass muster as long as they are not tailored to discriminate against specific countries.

There have been some cases where countries have been allowed to restrict imports based on production practices (e.g. shrimp produced in a way that incidentally catches endangered sea turtles). However, restrictions based on embodied carbon may result in disputes over how, exactly, the lifecycle emissions values are calculated and how the thresholds for environmentally acceptable emissions are determined.

As more states adopt ambitious climate policies, the question of how to best handle the emissions embodied in goods transferred over state lines or national borders will become increasingly important.

As Professor Steve Davis at the University of California argues, “abundant evidence shows that our purchases and related trade patterns will, in many cases, determine the effectiveness of energy and climate policies”.

The new Buy Clean California Act represents a first step in dealing with the emissions embodied in imported goods. Similar action is also being discussed for the EU. In addition, there is a robust debate about broader carbon border adjustment taxes associated with state or country-wide carbon taxes.