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| 2. The politics of
"meaningful participation": how meaningful is meaningful? 
A. Will the US ratify the protocol? India and China hold the key
In the pre- and post-Kyoto world one thing remains the same. According
to US senators it will be countries like India, China and Mexico which will decide if the
US will ratify the Kyoto Protocol. The US position has been carefully orchestrated that
its action will be dependent on the action of developing countries. In the pre-Kyoto days,
the US industry launched an advertising blitz to convince the public that a strong treaty
on climate would, on one hand, increase the prices of everything — from oil to eggs
— and, on the other hand, developing countries like India, China and South Korea will
get a free ride while US consumers will foot the bill. Industry stressed it would lose its
competitive advantage.
The US position has been
carefully orchestrated to be dependent on the action of developing countries
This position became the
pillar of US negotiations — and remains so. President Clinton clearly stated that his
country will not agree to "binding obligations unless key developing countries
meaningfully participated in this effort."
In July 1997, the US senate passed a 95-0
non-binding Byrd-Hagel resolution which called on the president "not to sign any
treaty or agreement in Kyoto unless two basic conditions were met. First, the resolution
directed the president not to sign any treaty that placed legally binding obligations on
the United States to limit or reduce greenhouse gas emissions unless the protocol or
agreement also mandates new specific scheduled commitments to limit or reduce
greenhouse gas emissions for developing country parties within the same compliance period.
The second requirement of the resolution was that the president should not sign any treaty
that would result in serious harm to the economy of the US."
This resolution continues to shape
the US position. Responding to criticism by John Passacantando, director of an NGO called
Ozone Action, Senators Robert Byrd, a Democrat and Chuck Hagel, a Republican, defended the
role of the Senate in determining the US policy on climate change. "Our legislative
branch is not meant to be a rubber stamp for our executive branch. The administration can
negotiate but only the Senate can provide the consent necessary to give any treaty the
force of law in the US." They insisted also that "the agreement reached in Kyoto
does not meet either of the criteria laid out in the Byrd-Hagel resolution." And
until the tests were met, the protocol should not be signed by the President3.
What is now also evident is that the US negotiating
position is crafted on this basis. Its first step was to ask for something vague and
undefined as "meaningful participation from developing countries" so that the
ball would move to developing countries to say what they could do and of course, the US
could easily dismiss it as "not meaningful enough". If the US had proposed, most
likely, everyone would have opposed. Therefore, it was best to leave it undefined, but
threatening. The US strategy also included making it clear that it would walk out of the
Kyoto protocol unless developing countries proposed actions that the US considered
"meaningful".
Its second step was to get as good — or weak
— an agreement as possible in Kyoto, make it clear it was a partial solution and not
try for ratification immediately.
And its third step was, or is, to
use the threat of non-ratification and opposition from the Senate unless there is
"meaningful participation" from the developing countries. On December 8, 1997
Vice President Al Gore told a press conference in Kyoto that "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." Gore stressed again at the end of Kyoto,
"lets be clear, we will not submit this agreement for ratification until key
developing nations participate in this effort."4
The pressure on the developing countries will
therefore mount as the world’s media targets their attention on their
non-participation, which will be seen as holding up ratification by the US. Everyone knows
that without the US, the Kyoto protocol is meaningless. And every effort will be made to
bind the "reluctant" developing countries in the interest of "us all".
B. Clean Development Mechanism: inequity
in dealings
Meaningful participation is being defined in many ways.
Depending on the interests of the party involved.  One such approach is to
use the Clean Development Mechanism (CDM) of the Kyoto Protocol.
The Clean Development Mechanism is as unclear as it
possibly is unclean. Southern governments that had staunchly opposed the Joint
Implementation — project based investment to get carbon credits — accepted it
simply because of a change of the name, from the hated Joint Implementation to a softer
(more money-sounding) Clean Development Mechanism. It will be recalled that in its first
incarnation, the Global Environment Facility was called the Clean Development Fund and it
is quite possible that negotiators in Kyoto halls had wool pulled over their sleepy eyes.
It is interesting that the CDM was proposed by Brazil, but as part of a comprehensive
burden sharing strategy. But the present CDM, taken completely out of context, is only
Joint Implementation and should be renamed as such.
The Clean Development
Mechanism is as unclear as it is unclean
Take away the confusing words
surrounding each sentence and what is left of this article 12 of the Kyoto Protocol:
The purpose of CDM is not to help the South but
explicitly to "assist" industrialised countries to meet their commitment to
reduce emissions. Therefore, it is designed to help the rich and not the poor. Assisting
the poor to achieve sustainable development is hogwash.
Under CDM, countries which have commitments to
curtail their emissions can invest in projects in developing countries and will buy
certified emission reduction. Or will get the credit for the saving in carbon
dioxide emission in their own balance sheet.
CDM will be supervised by an executive board (EB).
But as this is a market based instrument, the Board at best will have nominal role to
play.
The saving in the emissions will be certified.
This is a normal trading practice which allows the investor to get the best choice and
promotes competition. Under the CDM, the Board will authorise numerous certification
agencies that will assess the internal compliance and reporting mechanisms of the country
selling the emission reduction units. The rating firms — like investment rating
companies — will rate the "compliance capability" of developing countries.
This will force the developing countries to compete with each other providing the rich
North a cakewalk option; "cheapest, most efficient" portfolio of projects to
invest in and take carbon credits for.
CDM will assist in providing funding. This is a
clear example of putting in a few words to cajole and bribe the negotiators of the South.
CDM is a clear market- based instrument. The North wants to buy and wants to pay as little
as possible for it. It will invest in projects and will buy emission units. There is no
additional aid or technology transfer which is promised.
CDM will allow the participation of private and
public entities. Therefore, not just governments but also multinational corporations can
enter into deals with Southern corporations to buy and sell their emission units.
The South must call a spade a spade and must develop
its own positions in full knowledge of its own costs and benefits. The scramble for a
piece of the brokerage — a percentage of the transactions costs has already begun and
meetings are being held to convince the South to succumb to this temptation.
The US proposes to pay as
little as US $14-23 per tonne for its emission credits. Their cost for domestic emission
reduction would have been US $125 per tonne
Speaking at a recent meeting organised by the Delhi
based Tata Energy Research Institute — interestingly sponsored by the JUSSCANNZ group
of countries (Australia, Japan, Norway and United States) who have launched the Kyoto
initiative to get developing countries to agree to commitments, John Palmisano, director,
Environmental Policy and Compliance of Enron International said," CDM is the son of
JI. For anyone shopping for cheap emission reduction options, the first option would be
CDM — project investment in the South — then JI — project investment in
Eastern Europe and Russia, and last would be to look at action to be undertaken
domestically."
The key issue is price. What price would the South
be paid for its emission units? The interest of the North is to buy these emissions as
cheaply as possible. The US administration’s calculations for its bill to meet the
Kyoto commitments is "modest" according to its official position simply because
it plans to buy as much as 93 per cent of its emission units at the cheapest cost in the
market place. The US proposes to pay as little as US$ 14-23 per tonne for its emissions
credits. The price the country would have to make for domestic emission reduction
programme would be US$ 125 per tonne.
The interest is to bargain for the "cheapest
and most efficient deal". One approach to get the best deal is to develop a portfolio
approach which drives each project to compete against each other. Effectively leaving the
buyer to pick and choose and arm twist for the best option. The World Bank’s
Prototype Carbon Fund is one effort in this direction (see box). The Bank has received
funding from a number of utility companies and Scandinavian governments to start
developing a portfolio of projects from the South. The Bank expects to play the role of an
"honest broker" in this trade. The Bank expects to get clearance from its own
Executive Board for this proposal in early June and then plans a meeting with its
investors in Helsinki to finalise the Fund.
World
Bank: the honest broker in the business of selling emissions |
The World Bank has a
most ingenious proposal in which the Bank would buy and sell, as the most "honest
broker", the rights of present and future generations of Indians and Africans and all
other such poor nations 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 song — would be rich in comparison.
The proposal is to set up
"global markets for greenhouse gas investments": recently renamed as the
Prototype Carbon Fund.
This idea has been around
for some time under the name of ‘Joint Implementation’. The World Bank with its
Carbon Fund is keen to join the ranks of a growing number of "honest brokers"
who see lucrative deals to be made. The establishment of the prototype is scheduled for
May 1998 with an initial commitment from utilities and oil companies like British
Petroleum and a number of Scandinavian and European governments totally to US$ 100
million. Five projects in Poland, Russia, Hungry, Latvia and Indonesia have been
identified and are in the project pipeline. The price range is expected to be US$ 10-30
per tonne of carbon. For instance, while the domestic abatement option for upgrading a gas
fired plan in Norway costs US$ 60 per tonne, the cost of financing a technology switch for
a low-efficiency coal power station in India is US$10/tonne of Carbon. The profit made by
Norway would be US$ 50 per tonne.
The Bank has set up an
investment fund to develop a number of projects with the potential for reducing global
warming in countries which have a low contribution to the warming of the atmosphere. It
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
industralised 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
in carbon dioxide emissions would go to the industialised 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 fix carbon dioxide, 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
uncompetitive in the global market place and the developing world gets some money for
reducing its emission. A perfect bargain in such an imperfect world ! Until you start
asking questions.
Firstly, accepting this
scheme would mean that the 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 they 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 cooperation 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 this 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.
Thirdly, and most
importantly, this so called buying and selling 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. 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. Then
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.
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 development borrowed — way beyond
its share — from the natural capital of the world. The World Bank, in its
magnanimity, would allow the North to write off this liability — without any interest
— in this wonderful new scheme. |
Interestingly, the
Bank’s proposal has reportedly run into hot water with the US administration. The
treasury – which coordinates the Bank’s activities has allegedly put on record
that it is against any effort to increase the price of carbon units. Under the Bank’s
proposal the industrialised countries would have to pay a nominally higher rate per tonne
of carbon. This approach of the cost-plus is not favoured by the administration which
would like the market- minus approach. And this when the price that is being discussed is
only US$ 20-30 per tonne in the early years, stabilising to US$ 10 per tonne of carbon
units bought.
It is vital for the South to understand the
implications of this cost issue. It has to realise that the cheap option that it is
offering the North today will be at a heavy cost to it in the future. Developing countries
will use up their cheap options for reducing emissions and not even get credits for it in
the global balance sheet. And when the South has reached high levels of energy efficiency
and the cost of curtailing emissions will be high domestically, the North will have no
economic incentive to invest in these countries. And if global warming is still a threat
— as it is most likely to be with the industrialised countries not taking any action
domestically — then the pressure will mount on developing countries to take the tough
expensive route.
The market is so distorted simply
because it has no rights of property — of the sellers in this case. It is vital that
a clear system of entitlements is set up so that the market can function with the property
rights clearly defined and enunciated. |
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