Cheap stake

By Anil Agarwal
Last Updated: Thursday 11 June 2015

With the world increasingly worried about climate change, a new scheme is being cooked up to deal with the problem. The World Bank has an ingenious proposal -- which is still confidential -- in which the Bank would buy and sell, as the most "honest broker", the rights of present and future generations of Indians to the common atmosphere. And would sell their rights so cheap that even the American Indians who sold New York for a few beads, or the Russians who sold Alaska for a few dollars -- would be rich in comparison.

The proposal is to set up "global markets for greenhouse gas investments." The Bank will set up either an investment fund or a similar replicable instrument. It would develop a number of projects which have the potential for reducing global warming in countries which have a low contribution to the warming of the atmosphere. The bank would then sell these projects to prospective countries who are interested in reducing their greenhouse gas emission. This makes good economics, for some, as cutting future carbon dioxide emissions in industrialised countries will be more expensive than cutting future carbon dioxide emissions in developing countries. This is because developing countries are using outdated technologies which are very energy inefficient. Whereas developed countries are already using very energy efficient technologies. So if an industrialised country wants to cut its carbon dioxide emissions it would financially assist, say India, to acquire more efficient power stations but the credit for the saving that would thus result in carbon dioxide emissions would go to the industrialised country paying for the power station. It is similarly argued that developing countries can be given money to plant trees on a big scale to remove some carbon dioxide from the atmosphere because it would be cheaper to plant trees in developing countries instead of developed countries.

Some call this -- and the Bank clearly concurs -- the win-win option. The industrialised world does not make "expensive" adjustments to its economy which would render its industries unable to complete in the global market place and the developing world gets some money for reducing its emissions. A perfect bargain in such an imperfect world ! Until you start asking questions.

This idea has been around for some time under the name of 'Joint Implementation'. The World Bank with its proposed Global Carbon Initiative is keen to join the ranks of a growing number of "honest brokers" who see lucrative deals to be made. A number of key Indian organisations are already busy brokering such deals.

Under the Framework Convention on Climate Change signed in 1992, it was agreed that the responsibilities of the industrialised countries, which had contributed to most of the accumulation of carbon dioxide in the past, was different from that of developing countries, whose past emissions have been low or negligible.

But it is clear now that big polluting countries like the us and Japan are not going to agree to cut their emissions alone. In the us, the Republican party -controlled Senate has clearly stated that it will not allow any binding commitments which are expensive for the us economy and which do not require developing countries such as China and India to meet pollution targets.

Given this situation proponents of "joint implementation" type schemes call it the perfect answer. Why then are we against it?

Firstly, and we are amazed that the smart economists in the Bank do not even note this factor, is that accepting this scheme would mean that developing countries would use up their cheap options for reducing emissions and not even get the credit for it in the global balance sheet of emissions. But once these countries have reached high levels of energy efficiency, industrialised countries would have no economic incentive to invest in developing countries. They would rather invest in their own countries. And if global warming is still a threat -- as it would be because industrialised countries have not taken any action at home -- then there will be pressure on developing countries to cut back on carbon dioxide emissions on their own. And then the costs of cutting back on carbon dioxide emissions will be very high. So what will be the form of international co-operation then?

Secondly, what the Bank's proposed investment scheme does -- so brilliantly and so ingeniously -- is to further reduce the cost for the industrialised world. It creates competition -- and forces developing countries to outbid each other to sell their rights to the atmosphere as cheaply as possible. The World Bank's draft paper says this approach" would lower the costs of reducing global emissions substantially". What is means is that industrialised countries would be given on a platter, an option of schemes which allows them to pick the cheapest carbon dioxide reduction investment. The Bank now estimates that by 2005, the market for greenhouse gas offsets could be in the range of us $3 billion to us $16 billion. The same Bank had estimated in 1992, "that the industrial world would have to pay developing countries about us $70 billion to afford one year's emissions at 1988 levels. Such a sum roughly matches the total official development finance in 1989".

Thirdly, and most importantly, this so called buying and selling will take place without any property rights framework which is so essential for market based systems. How can one determine a price or bargain for rights without any clearly defined entitlements to the property. The atmosphere is a global common. The developing countries are being asked to sell their resource in the absence of property rights -- only a temporary and increasingly vague understanding that these are low emitting countries. Then how can the World Bank call this a "market framework" for investment. A market framework would mean that the quota -- or entitlement of each country to the global atmosphere -- is established. And it must be noted that the criteria for establishing this entitlement will have important implications for equity. These entitlements, which we believe should be fixed on a per capita basis, can be traded to allow low-level polluters to sell their unused emissions with high level polluters. Without these entitlements, developing countries are mortgaging their future development.

A leading us scientist has termed the overuse of emissions by the industrialised North as its "natural debt" to the world. Comparing it to the financial debt which cripples many Southern nations today, he says that the North has for its industrial development borrowed -- way beyond its share -- from the natural capital of the world. But the World Bank, in its magnanimity, would allow the North to write off this liability -- without even any interest payments -- in this wonderful new scheme.

Anil Agarwal

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