Economics

India and the Politics of Climate Change

The Bali Conference on climate change had been convened to achieve consensus on a post-Kyoto framework for addressing climate change. It concluded without any real agreement and with India continuing to maintain its principled stand of a “common but differentiated responsibility” for the developed and developing world. However, in its aftermath, and as pressure continues to mount on both India and China to take action on the issue, the question of what strategy is best for in these negotiations has becomes particularly pressing. Should India engage the world, or remain aloof?

Discussions on this issue generally take either an ethical or an economic perspective, with very few considering the politics of climate change negotiations. Yet, that perspective is particularly important for India, because the costs of climate change are so high for it.

By some measures India has the most to loose from climate change. This is not surprising given the country’s vast rural population, overwhelmingly dependent on natural weather patterns. Intuitively, India should therefore not only be acting forcefully to help its population adapt, it should be encouraging all developed economies to tackle climate change convincingly. Yet, India has resisted calls for binding emission cuts that would spur other countries to follow and has also avoided taking a lead role in negotiations on the issue.

Such resistance can perhaps be explained by the fact that western policymakers have seldom acknowledged the vulnerability of the developing world. Nor have their policy proposals, including Kyoto, included substantive provisions for helping vulnerable countries adapt. In the absence of assistance on adaptation, India has little incentive to participate in global mitigation efforts. Instead, India’s approach reflects the advice of economist Thomas Schelling that given their limited ability to adapt, “the best way for developing countries to mitigate global warming is through economic growth.”

We are presented, therefore, with a dilemma. In the long run, India would benefit from a collective response to global warming. But in the short term and with no agreement on a post-Kyoto framework, a unilateral strategy of high emissions growth would be more beneficial. Both parties in this situation would benefit from cooperating, but cooperation is hindered both by trust and the asymmetrical cost of cooperation.

The Case for Engagement

Such cooperation could be pursued for two reasons. The first is merely existential – anything that triggers a collective mitigation response from the developed world helps India. But a more compelling argument is political – by not participating in negotiations India risks the creation of a framework that does not reflect its concerns (see Why India Must Act).

There are unmistakable signs that this will happen, particularly with American business lobbying for a “global framework” that prevents balkanization of regulation, reduces operational uncertainty and prevents dilution of their competitive advantages. Last year the American Congress proposed legislation to tax imports from countries that do not restrict carbon emissions. Early this year, the European Commission too announced it was considering import taxes for carbon-heavy imports, triggering the prospects of a trade war with China and India.

There are useful parallels here to study from the incorporation in 1995, of the TRIPS agreement. The TRIPS Agreement came into being when the US, Europe, Japan, and Canada (known then as “the Quad”) decided to create a new international framework encompassing intellectual property. Rather than attempt to modify the GATT, they instead created the World Trade Organization, and forced developing countries to accept the TRIPS agreement, along with two others. Since developing countries did not participate in negotiations, their concerns were not reflected therein – a bias that has not been adequately corrected since despite the Doha Declaration on TRIPS and the currently stalled Doha “development” round. The lesson is simple – it is better to establish a favorable international policy, rather than try to change such a policy after the fact.

The Case for Disengagement

If the case for engagement is strong, the case for waiting for action by others is even stronger, though less obvious. Arguments for not participating in negotiations lie in the dynamics of bargaining power – and how participation in negotiations affects that power.

Agreement in international negotiations occurs not because there is an economic or ethical case for it. Rather, it is based on quid pro quo. Countries that loose from the agreement join a treaty when they are appropriately compensated by those that gain.

So, who looses and who gains from climate change?

The economic models of Nordhaus & Boyer estimate the economic cost of global warming will be highest for India, Africa, and Europe. In comparison, Russia will receive a mild boost to its GDP, while the impact on America and China is expected to be relatively low. This explains why Europe and Africa are enthusiastic for a collective response. It also explains why America did not join Kyoto – because the treaty did not compensate it sufficiently for the economic costs of carbon mitigation.

This suggests it may be smart for India not to participate in ongoing negotiations just yet. As a country that looses from climate change and benefits directly from a collective response to it, India’s case for any compensation is weak. India’s bargaining power derives not from its ability for give-and-take, but rather from the world’s desire to include it in a future treaty. The moment India indicates a desire to participate in those negotiations it weakens its own bargaining power.

A Middle Path: Free Riding on China

How then is India to proceed? One option, perhaps, may be to free ride on China’s negotiations with the US. China is the counter-point to the US within the developing world – it looses little from climate change, yet its involvement is essential to the success of any future treaty. Therefore, China is much better positioned to bargain for compensation (e.g. technology transfer, R&D financing, or adaptation assistance), and should therefore be at the vanguard of negotiating a climate treaty with the US and EU.

There is still much India can do, as it reiterates the principle of “common but differentiated responsibility.” For instance, India needs to lead efforts to reframe the issue of climate change as one of adaptation, not mitigation (which is a Euro-centric view). It also should work closely with major emerging economies to define a collective bargaining position for the developing world in return for participation in a climate change treaty. Not only would such bargaining improve the potential outcome in favor of the developing world, it would also support and reflect India’s political rise and ability to convene.

Conclusion

A climate change treaty that binds India to mitigating action is no longer an option but a virtual certainty. Such a treaty will become fact either through negotiation or through unilateral measures by the developed world. To avoid lockout, India must have a strategy for addressing such negotiations.

Current disagreement between India on the one hand and Europe and the US on the other is unlikely to be resolved till a new treaty addresses the dilemma faced by India. That will essentially involve payments from winners of the agreement, to the loosers. Some of the elements of such a payment system are already in place, such as Kyoto’s Adaptation Fund, but they must be substantially expanded. Domestically, India should continue to cherry-pick and implement initiatives that are domestically economically viable to reduce emissions growth. But at the international level, India’s best strategy for negotiations may simply to promote China as a collective bargainer and signal its own resistance to bargaining – a signal which up to a point will strengthen India’s position.

© 2008 The Discomfort Zone.