Accounting for transnational impacts will be crucial for evaluating a country's progress towards sustainable development and overall international progress. The practice of shifting burdens elsewhere does not move us collectively towards more sustainable development.
Background Paper No. 6
By Terri B. Chapman
Terri B. Chapman is Program Manager for the Economic Policy Program, Observer Research Foundation America.
Celebrated for its commitment to sustainable development, Norway ranks seventh on the Sustainable Development Goals Index which ranks countries by their progress towards achieving the SDGs. Among Norway’s priorities is the transition to renewable energy. Ninety eight percent of the country’s electricity comes from renewable sources. However, Norway remains one of the largest oil exporters. Crude petroleum and petroleum gas accounted for around 48 percent of Norway's exports in 2019. Emissions from the oil exported by Norway are ten times higher than its domestic emissions. Because the emissions from Norway's oil exports are occurring elsewhere, they do not impact its performance against most sustainable development measures.
Many countries are shifting the consequences of their development process to other countries. There are many ways in which a country’s actions can have cross-border impacts, both good and bad. These dynamics are important. If the negative costs of development are shifted to other countries – especially countries with fewer resources to address them - global sustainability does not improve. However, the extent of transnational impacts of development remains underexplored.
Transnational Development Impacts
At the heart of sustainable development is a balance between economic interests and efficiency, alongwith ecological and environmental sustainability, and social wellbeing and equity. The notion that economic growth alone will lead to social and economic development and environmental preservation is no longer tenable. The signing of the Sustainable Development Goals by most countries is illustrative of the widespread recognition that new approaches are needed.
The temporal dimension of sustainable development has long been appreciated: that is, the need to preserve resources and institutions for future generations. More recently, the significance of the spatial aspects of sustainable development is being recognized. The Conference of European Statisticians (CES) recommendations for measuring sustainable development suggest that sustainable development must be sustainable through time and space: meaning that actions taken in one country should not have harmful spillover effects in other countries. The CES recommendations, therefore, outline three dimensions of sustainable development, i) here and now, ii) later, and iii) elsewhere. Here and now refers to the standard of living a country can achieve in the present. The later dimension refers to the sustainable use of resources for future generations. The third dimension, elsewhere, refers to the spatial aspects of development and how a country’s actions impact the sustainable development of other countries. While Norway cleans up its energy at home, it comes at the cost of emissions in other countries leading to harmful effects elsewhere. And, of course, Norway is just one example of many countries’ performance in terms of ‘net sustainability’. To illustrate these dynamics, the OECD developed a framework of transboundary spillovers in the context of the SDGs (see Figure 1).
Figure 1: Framework of Transboundary Impacts
Source: OECD (2019[11]), Measuring Distance to the SDG Targets 2019: An Assessment of Where OECD Countries Stand, https://dx.doi.org/10.1787/a8caf3fa-en.
An example that lends itself to this discussion is the construction of hydroelectric dams. Hydroelectric dam construction is rapidly increasing in many countries. In addition to the well-documented social and environmental challenges caused by such projects domestically, significant transnational spillover effects can result when these dams are constructed on waterways that transcend national borders.
Chinese dams on the Mekong/Lancang River and American dams on the Colorado river illustrate this. The Lancang River in southwest China flows south across the border, turning into the Mekong River, which supports 60 million people's livelihoods in Thailand, Laos, Cambodia, and Vietnam. Over the past decades, China has constructed six dams on the upper part of the river, with several more planned. China is the largest producer of hydropower, accounting for 28 percent of global capacity. Hydropower also accounts for 19 percent of China’s total energy capacity, and China’s hydropower ambitions for the next decades are significant.
The domestic and upstream challenges of dam construction aside, the construction of dams on the Lancang has transboundary impacts on the lower Mekong countries dependent on the river for drinking water, agriculture, food security, employment, and the fishing industry. Dam construction also appreciably disrupts natural river and ecological systems. Moreover, the practice of ‘impounding’ water upstream is creating insecurity for lower Mekong countries. In 2019, for example, during a wet-season drought, China withheld water in its reservoirs without releasing it to downstream countries in need.
Not only has China impounded water during periods of drought, but also released more water during wet periods. The unpredictable patterns of holding and releasing water have destructive impacts on downstream communities, wildlife, and ecosystems. While a moratorium was signed on constructing new dams, China's control over water resources remains a critical issue of concern in the region. As China pursues hydroelectric hegemony in the region, the impacts are felt beyond its borders by the countries losing access to a vital source of livelihood downstream.
Similarly, the Colorado River and its tributaries in the United States flow through seven states before crossing into Mexico. The river was a vital water source for communities in Mexico, for irrigating agricultural land and supporting wetlands and wildlife. Dam construction on the U.S. portion of the river happened rapidly in the early and mid-twentieth century. There are 15 dams on the central part of the river and thousands of additional dams on the river's tributaries. The Colorado River is a crucial source of water for agriculture and urban areas in the U.S. However, poor water management, climate change, and overconsumption have led to a decline in water flow. Over the last two decades, the flow has decreased by 20 percent. Because of overuse on the upper part of the river, today, the river basin in Mexico is essentially dry. While the river used to flow through two states in Mexico before letting out into the Gulf of California, it now dries up miles from the Gulf.
While the U.S. and China aim to increase clean energy (SDG 7), ensure access to sufficient water supply (SDG 6), and ensure food security (SDG 2) through the construction of dams and the diversion of water to agriculture, the negative consequences are not only being felt in the immediate areas but also in downstream countries.
Another example is the offshoring of high-emitting industries to lower-income countries. Emissions related to the production of goods and services are embedded in traded products that move between countries. More than a fifth of emissions are embodied in products consumed in a country where they were not produced. Most countries use a production-based system for emissions accounting, which measures all of the emissions related to domestic production. However, most high-income countries have relatively high levels of consumption. Therefore, if the goods and services they consume are imported, the emissions embedded in those goods and services are accounted for in the producing countries rather than the countries in which they are consumed.
Switzerland is a good example of this. Annual production-based CO2 emissions in 2019 were 37.6 million tonnes. However, when exports are taken away and imports are added, consumption-based emissions in the same year were 119.8 million tonnes. Research shows that this is also true in Sweden, Austria, the U.K., and France, where more than 30 percent of consumption-based emissions were imported from other countries. Interestingly, most high-income countries performing well on the SDG Index overall are lagging on SDG 12 (Responsible Production and Consumption).
There are countless other examples of spillover effects, from the failure to regulate air pollution that moves quickly across borders, the widespread use and export of harmful pesticides, and the creation of tax havens that starve countries of needed revenue. Transnational spillovers are not a new phenomenon. It takes little effort to find examples of domestic interests having negative consequences elsewhere. The race to develop sustainably means nothing if the consequences of the economic models designed by mostly Western countries accrue in less advantaged societies, while 'green consumption’ in the Global North leads to ever rising living standards.
Assessing Transnational Impacts
Evaluating and accounting for negative spillovers is important because it is most often happening in a way that imperils countries of the Global South. Shifting the consequences of sustainable development to other countries does not improve sustainability overall. What remains in question is the extent of these effects. A growing body of research aims to fill this knowledge gap.
Perhaps the most ambitious effort to evaluate a country’s performance towards sustainable development incorporating all three of these dimensions is the Monitor of Wellbeing (MoW) created by Statistics Netherlands. The MoW is the first effort to implement the CES recommendations. The MoW presents disaggregated data on the Netherlands' performance against a wide range of social, economic, and environmental indicators. Findings from the initial years of the MoW reveal that the Netherlands does exceptionally well in terms of its sustainable development here and now and later, but its impacts elsewhere remain substantial. Thus, the MoW is an essential test of the CES recommendations, revealing that in practice, the statistical recommendations can be a valuable tool for the evaluation of sustainable development. The MoW, however, is only applied to the Netherlands and has not yet been applied in an international context.
A second significant development in evaluating transnational development impacts is the Spillover Index created by Jeffrey Sachs, Christian Kroll, and Guido Schmidt-Traub of the Sustainable Solutions Network. The index makes the notable contribution of accounting for countries' elsewhere effects within the SDG framework. The index is the first systematic approach to assessing countries' positive and negative spillovers by using 11 indicators under three environmental and social impacts: trade, economy and finance, and security. The Spillover Index ranks and scores all countries according to their impacts on other countries.
Interestingly, Myanmar, Sudan, Somalia, and South Sudan top the list with more significant positive spillovers than negative ones. Conversely, upper middle-income and high-income countries have significant negative impacts on other countries. For example, Singapore, Guyana, Luxembourg, and the United Arab Emirates perform worst according to the Index. The Spillover Index is the most ambitious effort to account for transnational development impacts at an international level.
The Environmental Impact Index (EII) builds on the Spillover Index by adding additional bilateral spillover indicators focused on the environmental impacts of trade. These additional metrics include CO2 emissions embodied in imported goods and services, nitrogen emissions, nitrogen oxide emissions, sulfur dioxide emissions embodied in imports, water consumption, and fatal work-related accidents. The EII spillover data dashboard lets a user see how a country impacts or is impacted by spillovers under each of these six measures.
These efforts contribute to a growing body of analysis that is crucial for enhancing our understanding of sustainable development. We know that country actions transcend national borders, accounting for those in our evaluation of country performance in sustainable development is crucial. Such accounting may reveal a very different picture of which countries are acting as global citizens.
Conclusion
There are risks to countries pursuing their sustainability agendas without accounting for the global impacts of their actions. Accounting for transnational impacts will be crucial for evaluating a country's progress towards sustainable development and overall international progress. The practice of shifting burdens elsewhere does not move us collectively towards more sustainable development. Building on existing work, more and better frameworks are needed to assess these dynamics and call attention to established and emerging trends in exporting externalities of development elsewhere.