Analyzing attribution factors for sovereign financed emissions

Abstract

In an effort to facilitate consistent reporting of the greenhouse gas (GHG) emissions of their financial activities, financial institutions establish the Partnership for Carbon Accounting Financials (PCAF). Out of seven asset classes, only the attribution for the sovereign asset class is not aligned with the GHG protocol. The total value of an asset is an essential variable for assigning an attribution factor. For sovereigns, however, it is impossible to estimate their value simply because they are not for sale. Our research illustrates the limitations of the PCAF-2022 attribution factor by presenting practical computation issues. We develop an alternative approach for calculating the attribution factor. Our approach utilizes the Keynesian multiplier effect and allocates emissions based on economic activities that are enabled through recently raised net sovereign debt. We conclude that PCAF-2022 overestimates the attribution factor for sovereign financed emissions. Our approach yields on average 83% lower values than PCAF2022 for EU-27 over the period 2019 till 2022. Our approach aligns towards a more reasonable attribution of financed emissions. While it is impossible to validate the accuracy of attribution factors, our case study on the Netherlands indicates that our methodology is a more reasonable attribution for sovereign financed emissions.