In Bali, just sit tight

Repairing the environment is essentially about transfers, specifically, who will bear the burden of curtailing emissions. There are three, albeit not entirely independent, aspects. Firstly, between developed and developing countries. Secondly, across generations in each country. Thirdly, within the present generation in each country, which would entail, inter alia, accounting for lower growth if, say, coal mines are closed down, consequences of changes in fiscal priorities of governments, and health implications of moderation in weather cycles (a positive).

The climate change review by Nick Stern provides an ethically (but not necessarily economically) defensible inter-generational principle to underpin responsibility. The current generation does not have the right to damage the environment and the planet in a way that gives the successor generation inferior life chances compared to itself. The capital stock passed on to the next generation consists of structures, equipment, natural resources, the environment, and human capital covering education and health. The standard of living available to the next generation depends on this whole collection of stocks; therefore, a decline in one type of capital stock might be compensated by another one. However, some of the stocks that the current generation would like to leave for future generations require enhanced economic activity, hence an accentuation of the trade-offs and distributional complexities.

The UN Framework Convention on Climate Change (UNFCCC) recognises the “common but differentiated responsibilities” of all countries. From this standpoint, the UNFCCC provides useful organising principles for global action at the level of nation-states, specifically: (i) developed countries should support poorer countries in their efforts to adjust to climate change; (ii) historic responsibility for emissions that have originated in developed countries (or polluter pays); and, (iii) the low per capita emissions in developing countries have to be accounted, thereby creating space for developing countries to “emit for prosperity” (while overall global emissions decline). Those who want to dilute the UNFCCC’s per capita centric principles overlook that the extant (excessive) atmospheric stock of GHGs is almost wholly due to the pursuit of economic well-being in developed countries.

Developing countries should not agree to formal targets for GHGs in any form at Bali. Formal targets should be eschewed in the absence of a well-funded and durable mechanism to (at the least) generously finance diffusion of carbon abatement technology. An integral feature of climate change is that the subject is about long horizons, and there is uncertainty about the scale and timing of the impacts. In the context of climate confabulations, this aspect is precisely what gives India an opportunity to gauge along two dimensions, say, over the next three years, whether rich countries are serious about doing their bit to retreat from the climatic precipice. The approach would be consistent with the gradualist policy advocated by some influential economists.

Firstly, for agreement on a common global emissions target, requisite and predictable provision of subsidies to developing countries by shifting down the marginal cost of abatement curve is sine qua non. The existing technology is neither cost effective nor easily accessible. However, over the next few years, some key technologies for reducing (and/or sequestering) emissions could become affordable. Innovation and diffusion in this area will have to be viewed as global public goods. Secondly, developing countries will also be able to determine the quantum of emissions that have actually been cut by the wealthier countries. Has this been commensurate with the excitement and urgency (some would say alarmist talk) engendered by, for example, NGOs, the Stern Review and the EU Emissions Trading System? Thus far, this has not been the case. Given this, developing countries will have to build credible, comprehensive systems for monitoring emissions. Given the obvious scope for gaming, it would be naive to rely solely on developed country monitoring agencies.

The incremental costs of low-carbon investments in developing countries could be in the range of $20-30 billion/year. Subsidies could be based on Technology Needs Assessment of individual countries. Supporting the reduction in costs of low greenhouse gas emitting technologies is critical, and it is estimated that the Global Environment Facility (GEF) would require a ten-fold increase in funding to accomplish this (since inception in 1991, the GEF has provided $6.2 billion in grants). The extent of relaxing the intellectual property right (IPR) regime as part of a multi-pronged strategy will, in part, be determined by the availability of subsidy for diffusing technologies. Conceptually, a pure fully financed subsidy mechanism may be superior to relaxation of IPRs, as the latter entails some blunting of incentive of the innovator.

An easily ascertainable signpost for financing subsidies is an ex ante establishment over the next year or two of an institutional mechanism for the benefit of developing countries funded by the rich nations. So far rich nations have done little beyond grandstanding utterances akin to the charade for funding the Millennium Development Goals; if there is lack of tangible progress, then developing economies should eschew a formal commitment to targets below a business-as-usual scenario three years hence. The existing level of development and per capita consumption of energy, and related goods and services, implies that economy-wide cuts by developing countries are impossible. (There are some who are “looking to India to take a leadership role” — frankly, more like a sucker-of-the-first-order role — in committing to an emissions target.) Expecting citizens of Asia and Africa to agree to (potentially) compromise their economic well-being is laughable.

The writer is a fellow at the Brookings Institution, Washington DC

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