Consumptionbased

Consumptionbased is an adjective used in several disciplines to describe analyses, measures, policies, or models that take consumer or household consumption as the central unit of analysis. The term is often hyphenated as consumption-based, but it may appear as a single word in some usages.

In environmental policy, consumption-based accounting of emissions measures the greenhouse gases embedded in goods and services consumed within a country, regardless of where they are produced. This contrasts with production-based accounting, which tallies emissions within a country’s borders. Consumption-based accounting helps reveal import-related emissions and potential leakage through trade, informing policy design and international climate negotiations.

In economics, the term appears in models that derive asset prices from the consumption path of households, notably the consumption-based capital asset pricing model (CCAPM). These approaches link risk premia to the marginal utility of consumption and expected changes in consumption, offering a theoretical framework for understanding how consumption risk affects prices.

In taxation and public finance, consumption-based describes systems that tax spending rather than income, such as value-added taxes or sales taxes, and can also refer to policies intended to influence consumer behavior. In corporate reporting and sustainability, consumption-based metrics may be used to assess the environmental or social impact of demand-side factors.

Limitations include data requirements, methodological divergence between production- and consumption-based measures, rebound and substitution effects, and the potential for cross-border leakage. Complementary use with production-based measures or lifecycle approaches is common.

See also: carbon accounting, CCAPM, production-based accounting, value-added tax, lifecycle assessment.