The Telegraph
Since 1st March, 1999
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Clean-up act

All the hype surrounding greenhouse gas emissions — most notably, the fracas over the conversion to compressed natural gas in both New Delhi and Calcutta — has forced people to sit up and take note of the phenomenon which has global dimensions. It has been perceived that local sources of pollution and its effects are no longer locally confined, and in the global environment (a term much in vogue), every citizen, and thus every government, is a part of the problem and responsible for it. But what the “environmentally conscious” citizen has paid little thought to are the economic and scientific ramifications of the problem and most important, the flaws in the political reasoning.

The increasing importance being given to cleaning up the atmosphere has its origin in the Kyoto Protocol formulated in 1997. Ratifying nations, mostly developed countries, had agreed to reduce greenhouse gas emissions by taking up differentiated responsibilities. That is, different countries would have different reduction targets to help bring down the carbon dioxide emission levels from what it was in 1990. The deadline was fixed at 2012. In other words, cooperation among the affected stakeholders was seen as a possible solution to tackle an issue of such importance. But then, even with such an apparently simple solution, why are countries moving away from the path of cooperation'

The first hurdle crops up in the form of a free-riding problem. To understand this better, consider the case of a residential flat. Common-use staircases have to be cleaned, but nobody is willing to take on the responsibility of supervising the cleaners. They remain dirty until one resident takes the initiative and gets them cleaned. The result: everybody gets access to a clean and well-maintained staircase without having to lift a finger. In the long run, this generates a negative incentive for the volunteer to continue.

Relate this to global environmental issues and it becomes easy to understand why they do not get priority in the priority list of nations. Greenhouse gases include carbon dioxide, methane, nitrous oxide and sulphur hexaflouride among others. Now suppose a tonne of carbon emission at any point of time is polluting the upper atmosphere and needs immediate attention. This would mean a reduction of one tonne of carbon to maintain atmospheric balance and the global life-support system. Who brings about this reduction and where it is done are of little importance. In the case of cooperation in the “global village”, the best option would be to locate the least-cost option for reducing emission.

Here crops up the second problem, that of political strategies. The Organization of Economic Cooperation and Development countries say that the cheapest solution can only come from the developing countries and therefore, action must be taken by the latter. They back up their contention with ongoing research outputs and complex data. Developing countries, however, consider this an inequitable solution. Emission reduction requires funds, and the scarce funds of the developing countries has better use in tackling problems like poverty, unemployment and other developmental issues. These countries quite justifiably contend that over the years, it is the developed countries which have contributed most to the pollution problem with their lifestyles and their consumption and production patterns. So there is no reason why the former should shoulder the burden of cleaning up an act that is not theirs in the first place. Hence cooperation tends to be deferred or ruled out.

The truth of the matter is that the developed countries have already committed themselves to cleaning up the pollution they have been creating. On the flip side, given the growth rates of developing countries like India and the higher living standards being adopted here, we are already on the path of creating as much pollution as those we have been accusing. Improbable as it may sound now, a projected calculation over the next 50 years gives enough reason for us to seriously start considering an “incentive-based” cooperation towards this problem.

Some serious efforts towards cooperation are already under way. Under the United Nations Framework Convention on Climate Change, a conference of parties is held where the representatives of nations meet to discuss and design ways of cooperation, encourage voluntary cooperation and to generate scientific information, among other things. A suggestion which came up in Kyoto — and that can provide incentive for cooperation — was the “clean development mechanism”. The developed countries possess clean technology which just have to be adopted by the developing countries so that they can move on cleaner growth paths. That is, if the fast moving economies use low-pollution technology, the nexus between development and pollution will be broken.

Such technology transfer is certainly not a new phenomenon. What is new is that incentives are generated for both the parties. In our example, clean technology is identified by its carbon-reduction potential. If nations succeed in working together, the situation will be different: carbon emission continues, but its reduction is made possible by the transferred clean technology that replaces indigenous technology. All this while, there was no demand for carbon. In the new market structure following cooperation, carbon trading is taking place. The developed countries buy the unwanted carbon and get credits for carbon reduction as required by their commitment to the UNFCCC. Developing countries earn revenue by selling carbon. Extra revenue comes by way of value addition as a result of lesser pollution. The only caveat here is the price at which carbon trading should take place. Even with the developed countries as buyers and the developing countries as sellers in this hypothetical market, the price is largely indeterminate.

Over the past few years of negotiation and bargaining, a floor price of two to three dollars per tonne of carbon has been set by the developed countries (a drop from $ 10 with the withdrawal of the United States of America from the market). And a ceiling price set by the developing countries hovers between $100-$300. With such a wide price range, the actual price would obviously depend on the bargaining strengths of both blocks. Developing countries can increase theirs by remaining united and working harder for a clearer dialogue on this issue.

At the political level, it would work to the advantage of the developed countries to foil developing countries’ attempts at cooperation. For example, by persuading India or China to agree to sell at a lower price, the developed nations would tend to build a bilateral relation with it. It might be tempting for India to break away from the group and be the sole beneficiary of clean technology transfer and revenue earning. This is deceptive, because what seems a lucrative option now will turn out to be unfeasible in the longer run. This is exactly why developing nations need to keep together and work out strategies to strengthen their bargaining power for a feasible selling price for carbon. If they fail to make the most of this opportunity, developing countries will remain for ever on the losing side.

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