The greenhouse gas trade - Climate Change: The Debate Heats Up - Kyoto Protocol

Judging by the number of unresolved disagreements, the next round of negotiations to reduce greenhouse gas emissions looks like it will be poisonous. Despite the initial consensus formalized by the Kyoto Protocol signed in Japan last December, major divisions remain. The United States wants to postpone any reductions in domestic energy consumption. Europe, although dragging its feet, has shown greater willingness to respect commitments made under the Protocol. And the developing countries refuse to sacrifice economic growth to reduce a global threat for which they do not feel responsible.

The Kyoto Protocol to cut carbon emissions in industrialized countries is increasingly understood not as an environmental agreement but perhaps as one of the most significant trade agreements of the century. Given the enormous stakes involved, it is in the interest of developing countries, like India and China, to fully explore the implications of the Protocol instead of succumbing to Western pressure to accept it.

It is important to recognize that the Protocol, signed in December 1997, still marks a step forward in the world's resolve to arrest the problem of human-induced climate change. This is of particular concern for developing countries, which are twice as vulnerable to the resulting damage as industrialized nations, according to the Intergovernmental Panel on Climate Change (IPCC), set up by the United Nations in 1988. Several commentators, especially in the West, have pointed out the Protocol's possible ineffectiveness. But it also neglects the long-term interests of the current and future generations of developing countries.

Under the Protocol, industrialized countries are expected to cut their overall emissions by at least five percent below 1990 levels between 2008 and 2012.The problem is that compliance has been reduced to a numbers game in which countries promising a higher "percentage reduction" are seen as good players and those arguing for lower percentages are the difficult ones. This is a smokescreen drawing attention away from the real issue at stake: the heaviest emitters of greenhouse gases, namely industrialized countries, can continue polluting through an accounting system which allows them to meet their promised emissions reductions targets without actually reducing emissions.

The key to this accounting lies in the base-year calculations which help to determine the "assigned amount" of greenhouse gases each country can emit. If a country does not fully use its assigned amount, it can then sell the remaining portion to another country. High calculations could give countries a head start in meeting their "percentage requirements" later because they simply phase out industries which were grinding to a halt regardless of the Protocol.

This system offers a perverse incentive for developing countries to actually increase their emissions as fast as possible so that if and when they do set their base-year calculations, they too will have a head start in meeting their percentage reductions. This is perhaps the worst aspect of the Protocol: developing countries which move towards energy efficiency in a big way today will find it harder and more expensive to meet high percentage reductions later when base year emissions are set. On the other hand, those countries which continue using high-emission technologies and fuels will find it relatively easy to accept high percentage reductions and as a result will look good in front of the world.

"Meaningful participation"

Yet despite this fatal weakness, the North is putting tremendous pressure on developing countries to take part in the Protocol. United States Vice President Al Gore could not have been more direct when speaking to a press conference in Kyoto on 8 December 1997: "In order to sign an agreement, or in order to send an agreement to the Senate, we must have meaningful participation by key developing countries."

"Meaningful participation" has proven to be a vague and perhaps misleading concept in the Protocol. For example, Article 12 ostensibly promotes North-South cooperation by setting up a Clean Development Mechanism (CDM) to encourage industrialized countries to invest in carbon-efficient technology in the South. However, the purpose of the CDM is not to help the South but to explicitly "assist" industrialized countries to meet their commitments to reduce emissions. Under the plan, developing countries sell "certified reduction" units to industrialized countries and private corporations in exchange for investment in carbon-efficient programmes. The units can be used as credits in the "balance sheets" of the Protocol's carbon accounting system.

The CDM is riddled with moral and economic loopholes. One can begin by asking if there is no other role for developing countries in combating climate change than just helping industrialized countries meet their commitments. It is important to realize that under the scheme, industrialized countries need not change anything domestically by investing in projects in the South.

At the same time, the CDM offers the North a way of buying the participation of the South. But at what price? It is clearly in the interest of the North to keep the prices of "emission reduction" units as low as possible. The US administration, for example, plans on buying as many emission units as possible at the cheapest cost. So it is not altogether surprising to find American authorities offering as little as $14 to $23 per tonne for emissions credits. In contrast, a domestic emission reduction programme is estimated to run $125 per tonne.

The CDM is designed to ensure that the North has the cheapest array of projects to choose from in the South. Under the CDM, numerous certification agencies will assess internal compliance and reporting mechanisms of countries selling emission reduction units. This will force developing countries to compete with each other in providing the North with the cheapest, most efficient portfolios of projects to invest in.

One thing is clear. Climate change has been taken out of the world of the environmental lobby and placed in the world of money. The goal is now to trade this commodity (emissions) without limits and without the interference of prickly issues like the property rights of the poor.

The cheap deal may be the most expensive

Now let us assume that this brokering system works in the short term and developing countries do move towards more energy-efficient technologies. A longer-term perspective raises important questions. The more efficient these countries become the less economic incentive there is for the industrialized countries to invest in them. It will eventually be cheaper for the North to invest in its own countries. And if global warming is still a threat - as it would be because industrialized countries had not taken any action at home - then there would be pressure on developing countries to cut back yet again on carbon dioxide emissions, this time on their own and at a higher price. So what form of institutional co-operation will be available then?

The CDM does not answer this question. It leaves the future of North-South cooperation on climate change up in the air. Even worse, it allows current generations in developing countries to sell off cheaper emissions-control options today, leaving an even heavier financial burden for future generations.

The principles of this emissions trade will be further elaborated at November's Conference of Parties in Buenos Aires. This is the occasion, however, to go a step further in recognizing and building upon the principle of "equal per capita entitlements" in which all individuals have the right to emit the same amount of greenhouse gases. This strategy would be used to calculate emissions entitlements based on each country's population. Not only would such a step be globally just, but it would offer the best way to move towards the ultimate objective of the Framework Convention on Climate Change (the origins of the Kyoto Protocol), namely the stabilization of the atmospheric concentrations of greenhouse gases. This equitable approach is far more effective than the creative accounting strategy of the Protocol.

Discussions in Buenos Aires must also take into account the rapid rate at which developing countries are growing. If they did accept the Protocol, they would have "assigned amounts" of emissions. However, it is unlikely they could make full use of these entitlements in the near future. Instead, an equitable and environmental solution lies in letting them trade this unused entitlement later as their economies develop. This provision would immediately give them the incentive to trade - not merely to help industrialized countries meet their targets - as well as to move towards a low-emissions development path in which the trading benefits and options stay open as long as possible.

This economic environment would help create a global market for Western solar energy technologies - first in developing countries and then in industrialized nations - to help kick-start the global transition towards zero-emissions technologies. The faster these technologies invade the energy sector, the quicker the world would be able to avert the threat of climate change. In this way, developing countries would, to use the US phrase, enter the most meaningful form of participation.

Anil Agarwal and Sunita Narain, director and deputy director of the Centre for Science and Environment, New Delhi, India

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