C.K.G. Nair

Nations should rise above the political blame-game and help transfer and adopt modern technologies and practices to combat climate change.

Global warming-induced climate change is a reality, though there are differences in perception as to the degree of correlation between human activity and climate change.

There are also divergent views on the extent and pace of extreme event forecasts. But many experts and groups have painted a sufficiently grim picture of the things to come: The Stern Report, IPCC Reports, the Oscar-winning Al Gore documentary.

The meeting of the subsidiary bodies to the United Nations Framework Convention on Climate Change (UNFCCC), which concluded in Bonn on May 18, took stock of these realities and urged nations to strengthen their resolve to mitigate the impact of climate change.

The renewed urge to act has been directed at both categories of nations: Annex-1 with legally binding commitments on reducing greenhouse gases (GHGs) and Non-Annex-1, without such commitments.

Neo-colonialism in the colour of carbon?

The industrialised North, through overuse of fossil fuels for centuries, contributed to accumulation of GHG in the atmosphere. With the air space overburdened with such gases, newly-industrialising nations have no place to dump their growing dirt. So the rich nations preach to them to cap their emissions and adopt clean technology.

Many see this as a new form of colonialism. And they sharply react that India's per capita emission level is very low compared to industrialised nations. Moreover, cleaning efforts do not come without major costs — both to the economy and in terms of finances.

This is the economics of the question, making climate change policy a serious politico-economic battle. The focus on binding China and India while allowing the major polluters, the US and Australia, to virtually go scot-free strengthens the neo-colonialist argument, at times plunging the climate change negotiations into major turbulence.

The Kyoto Protocol, like many other international efforts, is also seen as an agreement between asymmetric nations wherein the powerful North tries to thrust its views and interests on weaker South.

Cap-and-trade and moral hazard

The economic brains of the North have promoted the market based cap-and-trade approach to reach targeted reduction. "If I am not able to reduce my pollution, I will make it up by buying `green credits' generated elsewhere. And pay a small price for it, much lower than the cost of reaching targeted reduction in my own place." This seems to be the approach of the developed nations.

This `Clean Development Mechanism' (CDM) is dirty to many as it simply means that a country can continue to pollute if it has the money to pay for it; the typical moral hazard in efforts to combat GHGs. Many suspect the price of these clean and green efforts (carbon saved by clean technologies) is pegged very low and are differentiated (in the range of euro 5-20 per tonne of carbon-dioxide) in some kind of "managing" by the North. Moreover, through the derivatives markets for carbon, an exotic product promoted by the Chicago Climate Exchange (CCX) and the European Climate Exchange (ECX), the rich can even buy up future produce at current cheap prices (before the reality strikes forcefully with consequent price rise of this product) and hedge their positions of reaching their targets easily.

Each doing his bit

Who will pay for the clean technologies? Let the original accumulators pay, following the cardinal rule of polluter paying the price. They should go beyond buying up green credits for meeting targets and finance adaptation activities elsewhere, beyond the CDM projects.

But is that all? Do the newly industrialising countries have any advantage over the early starters? Yes, in terms of technology. Polluters of the 18th and 19th centuries did not have clean technologies available to them. The very availability of such technologies makes a lot of difference and the new polluters, irrespective of the neo-colonialism argument, should adopt them holistically, because climate change is not an externality that can be pushed into your neighbour's courtyard. It needs concerted effort. There should be a willingness on the part of the early polluters to accept responsibility and provide/transfer the new technologies to the needy, along with finance. And the emerging economies must show a commitment to adopt the new technologies and practices that would slow, if not halt, the eco-damage.

Externalities and derivatives

Sir Nicolas Stern has called climate change `an externality with a difference'. Measuring this externality is a major exercise as extreme events are difficult to measure and forecast, both because of methodological limitations (and differences of opinion on the appropriate methodology) as well as high elements of uncertainty. Risk is measurable but uncertainty is not. The former is clearly the job of the derivatives market and the latter of insurance. But who will insure climate change-led extreme events and whether the insurance company itself will survive are, of course, questions that take us into mazes and mind-games.

Some derivative products are trying to delineate the risk and uncertainty components and promote contracts for risk mitigation, such as the contracts in carbon and sulphur traded on the Chicago exchange.

But if new risks are to be addressed through market-based tools, the entire spectrum of commodity derivatives will have to assume new shape, as climate change will have major implications for the global and inter-regional commodity mix.

But risk mitigation through the derivatives route is not the prime concern, on climate change, for countries such as India where the climate change impact is projected to be felt very strongly in all its ugly dimensions and force. Given the natural diversity, climate change will have the widest implication on India, affecting almost all major sectors — agriculture, water, energy and hence all industries, transport, environment, forest, coastal areas, health.

`Death by water' (ironically both because of non-availability as well as deluge) and consequent famine are serious concerns being raised by many experts. In short, the life and livelihood of almost everyone in this billion-plus country is likely to be affected one way or other. That is why mitigation strategies have to be comprehensive by building in both `360 degree' mainstreaming efforts as well as `90 degree' standalone attempts. In other words, as the projections reveal by even conservative estimates, we may not have the leisure to stay away, blaming neo-colonialism, and asking others to do the clean-up or to go for just the CDM projects. While we may adopt such a political economy posture, we need to be real on the ground by effectively using all available options and technology in mitigation and adaptation. We are not doing it for others but for ourselves, for our progeny.

Non-official initiatives

Every action does not need to be official or based on protocols. Non-official efforts such as the Clinton Climate Initiative could also be used as a renewed approach. In any case, we need to adopt new methods and ways of doing things in optimising the use of exhaustible resources, energy and water. The energy and water guzzlers need to be tamed. The institutional milieu, such as the tax-price policy, should be used to achieve these objectives as well as in legacy constraints on cropping pattern.

One hopes that the focus on global warming will provide the right climate for a reorientation of policies and practices in this direction.

The strong forces of climate change are unleashing a million risks, uncertainties and threats. But at the same time they are opening up new opportunities. It is time to do a SWOT (strength, weakness, opportunity and threat) analysis.

Nations should rise above the political blame-game and help transfer and adopt modern technologies and practices to combat climate change and in collectively internalising the externality.

(The author is Director — Development Policy — Planning Commission, New Delhi.)

© Copyright 2000 - 2009 The Hindu Business Line