Environment

Climate Change and India: Negotiating A Friendly Global Policy

Few people these days question the science behind global warming. Fewer still question that countries need to act decisively to curb greenhouse gas (GHG) emissions. Even President Bush, long an opponent of Kyoto, recently attempted to create a new post-Kyoto initiative that would require both the developed and developing world to act in concert.

This follows a major shift within the US, where major interests groups are now aligned in favor of climate change action. In late July the National Petroleum Council, the industry advisory body to the US government, released a report calling for among other things, “an effective global framework for carbon management incorporating all major emitters of CO2″. More recently, the US Congress has proposed legislation that would extend domestic legislation to America’s trading partners - in effect, everyone.

It is neither surprising nor counter-intuitive that the US industrial establishment – long known for its aversion to emission targets – should ask for such legislation nationally. As reported in the FT, businesses worldwide are worried by climate change, but even more by a changing patchwork of state and national regulations. The same argument also explains the desire for a “global framework” – western corporations fear loss of competitiveness if emerging countries such as India and China are not part of international legislation.

Thus far, both countries have responded to calls for a global framework by reiterating the principle of ‘common but differentiated responsibility’, and by a steadfast refusal to accept any obligation to act unless sufficiently compensated. It is time India abandons that reductionist approach, and articulates a coherent negotiating position.

The Need to Engage: Preempting International Negotiations

There are both ethical and economic arguments for India to participate in global climate change action. After all, climate change threatens India more than most countries yet its inaction engenders inaction by the US and other major emitters. Climate change is also an economic opportunity, which has created new industries such as cleantech, and provides developing countries the ability to leapfrog to a low-carbon economy now, rather than transitioning to one later (see also Beyond Principle (IEB, or Pragati July 2007).

There is, however, also a political compulsion for India to develop a climate change policy urgently – to preempt international negotiations on the issue that exclude the Indian perspective. It is significant that the primary driver for US action is now economic. With powerful industrial lobbies favoring a “global framework” it is no longer a matter of if, but when, the US will articulate its vision of a post-Kyoto world. When that happens, India can choose either to be part of the problem, or the solution.

The establishment of the World Trade Organisation (WTO) has important lessons in this regard. The WTO was created by the US, Europe, Japan, and Canada (known as “the Quad”) to include intellectual property (TRIPS) and services (GATS) in an international framework. Since expanding the scope of the GATT (which only dealt with trade in goods) was impossible, the Quad created the WTO and forced developing countries to accept all three agreements. Few developing country concerns were 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. Further, the spoils of bargaining seldom go to the one that merely claims ethical superiority without offering any real solutions. Rather, benefits accrue to the leader with clear solutions, bargaining power, and the ability to negotiate across a range of issues. Viewed this way, India’s opposition to emissions targets is counter productive, because it turns a win/win situation into a zero sum game, and risks isolating India in future negotiations.

To ensure a favorable outcome in future negotiations India must engage, not stand aloof. But negotiations are based, first and foremost on quid pro quo. So, what exactly can India offer? What might it ask for in return? And how can it seek a favorable outcome.

The Portfolio of Climate Change Responses

The first step in this process is to establish India’s priorities. To do so, it is important to understand the nature of climate change and the types of impacts it engenders. These, and the associated responses, fall into three non-overlapping categories.

The root cause of climate change – GHG emissions – is reversible, and is largely addressed by mitigation. As it is currently engineered in the Kyoto protocol, mitigation is an economic response to an economic problem (unaccounted negative externalities). It therefore focuses on reducing GHG emissions through economic incentives that reward the development and deployment of low-carbon technologies. Mitigation has always been at the center of climate change action. Most recently, expanding incentives have led to a boom in the global clean energy market, which expanded in 2006 to USD 55 billion, and given rise to the cleantech industry, which grew the same year to be the third largest venture capital segment in North America (it attracted USD 2.9 billion in VC investments, over 50% directed to energy).

While the cause of climate change is reversible, most of its immediate impacts are not and must be managed. A certain temperature rise has already occurred and will persist. The IPCC concludes that climate change will lead to “alterations in the frequency and intensity of extreme weather events” – a point underscored by recent studies showing that the frequency of Atlantic hurricanes and duration of European heat waves have doubled over the past century. Such impacts are not addressed by mitigation and require adaptation. Potential responses include improved disaster warning and prevention, transition to alternative crops and lifestyles, and increased water efficiency in irrigation, purification, and use. In all cases, technology will play a pivotal enabling role.

Finally, some of the worst impacts will not even be manageable, given the cost involved or the likelihood of a climate induced event. As a result, nations will have to insure against their potential consequences – measures include disaster risk management systems, resettlement of populations, building grain reserves (as is being done in Malawi), or more forthright insurance of crops, livestock, lives, and homes. Again, technology will be essential – for instance in better predicting rainfall and turning previously uninsurable assets (such as crops) into insurable ones.

Choosing a Frame of Reference: Incorporating Adaptation & Insurance

Thus far, international discussions on climate change have usually focused on mitigation. This is primarily because the climate change agenda has always been driven by Europe – for which it is mainly an economic problem. Unfortunately, this does not adequately reflect the needs of the developing world. Adaptation – or lack therefore – is a much larger and immediate threat to India than mitigation.

This point was brought painfully forth by the recent flooding in Asia and Europe. At last count, these floods had displaced over 20 million people in South Asia and over 100 million in China. The damage caused by flooding in England, considered the worst in recent history, pales in comparison, yet the UK has already announced it will spend up to £800 million to upgrade flood defenses. Similarly, the Netherlands has committed only US$18 million to international adaptation funds, even as it spends at least US$2.9 billion on new flood dykes at home.

For India the problem of climate change is not economic – it is existential. Therefore adaptation, not mitigation, should be at the center of any negotiating framework. To ask for India’s participation in mitigation efforts without addressing adaptation through substantive funding is a travesty of the harsh reality of climate change.

Redrawing the frame of reference, thus, is not merely a technical exercise; it is a major element in strengthening India’s hand and in determining the final outcome – a point underscored by the Doha Declaration on TRIPS. For this reason it is important that the negotiating framework place adaptation at its core.

What India May Offer: A Roadmap to Emission Reduction

Having established the ground rules, let us look at what India can offer. Fortunately, India is constrained. Despite large total CO2 emissions, India’s per-capita emissions remain extremely low. Given the need to draw millions out of poverty, India’s emissions will – and need to be allowed to –increase. Studies show that imposition of a carbon tax or emission reduction targets will have a significantly retarding effect on India’s growth, and are therefore unacceptable. A more reasonable measure is for India to commit to increase energy efficiency, reduce the rate of growth of emissions, and establish a timetable for stabilizing and eventually reducing emissions.

Such a commitment has a good chance of being acceptable for several reasons. First, it mimics the development and emissions path of most industrialized countries. Second, it is measurable, with energy efficiency already a standard KPI in several heavy industries across India. Finally, it is practically achievable through currently available technology and incentives.

Indeed, some of these measures are already happening and desirable in and of themselves. Much of India’s industrial sector is seeking to boost energy efficiency in a quest for global competitiveness. Leapfrogging polluting technology, also avoids the negative impacts of carbon intensive economic growth. Those problems are best illustrated by China where headlong growth has resulted in massive pollution, and according to the World Bank (see also Wilson Center) accounts for health costs worth 4.3% of GDP annually.

What India May Demand: How to Pay for a Low-Carbon Economy?

The only remaining piece of the puzzle is what India itself needs, and may reasonably demand. This is, of course, the most crucial part of this exercise. The most obvious compensation is financial, and matches possible climate change responses – financing mitigation, adaptation, and insurance.

Mitigation finance, through carbon funds and the CDM, already exists but must be expanded to include more projects, including new industrial deployments of energy efficient technology. Such funding has so far been denied because these projects happen anyway, or because they lead to concomitant productivity improvements. Yet, collateral benefits cannot be accepted as a reason for denying funding to such projects. If India is to reduce its emissions, at the risk of reduced growth, any and all possible help in migrating to a low carbon economy must be forthcoming, without preconditions.

The most pressing needs, however, are adaptation and insurance finance. Of course, hopes of funding on the scale required – of the order of billions of dollars – remain a pipedream. Since foreign aid remains a foreign policy tool, large transfers of such aid are both undesirable and unlikely, ethical considerations notwithstanding. Yet, alternatives exist – the Kyoto Adaptation Fund is one such mechanism, which collects 2% of the share of CER proceeds. Like CDM itself, this fund must be expanded to cover an eventual global emissions trading scheme and incorporate other sources of income. Similarly, finance for insurance can be funded through donor-government established weather insurance. Such funds would have two benefits. By avoiding direct transfers, they would avoid the problems associated with large cash transfers. And by providing predictability and a safety net, they would allow governments to focus on longer-term domestic priorities, rather than having them fight fires – or floods.

The final component of India’s demands should relate to the other major enabler of an effective climate change response – technology. India must demand better access to cleantech and adaptation technology, facilitated through a looser intellectual property regime that transfers technology as India increases its own mitigation commitments. Another alternative is to establish advanced market commitments (AMCs), of the kind currently en vogue in global public healthcare, that serve as incentives to address developing country needs and subsequently transfer innovations at cost. Like health R&D, climate change is also a global public good – so such mechanisms are transferable.

Conclusion

It is a sad irony that while the developing world is not responsible for climate change, it will both bear the consequences of and is least able to prepare for it. It is even more unfortunate that this reality is reflected nowhere in the current climate change debate and that India – one of the countries that will suffer the most – has hindered rather than encouraged global action.

This can be explained by the fundamental rule of international negotiations – that they are triggered by a cost-benefit analysis. In that analysis, India looses. Climate change is a much larger threat to India than most countries, yet the cost of its own immediate action is also high. Further, the mere admission of its need for global action weakens its bargaining position.

The resolution of this contradiction is that India’s needs for adaptation are immediate, while its emissions pose a future threat to the environment. Demanding adaptation and mitigation assistance now, in return for mitigating future emissions would be acceptable, while allowing India to leverage growth and future technology development. Despite India’s own vulnerability, the country’s bargaining position remains strong because of domestic constraints and because its participation is actively solicited and crucial to eventual success.

Given the clear danger posed by climate change and potential costs notwithstanding, it is time India became an issue leader and focused attention from mitigation towards adaptation. Climate change serves as an opportunity to define a new international framework. India must help define what that framework will be and which institutions shall govern it (a point not addressed here). But to succeed, India must first abandon its principled stance and define the exact cost of its participation. For in the end it is not the strength of the argument, but rather the argument of strength that will carry the day.

© 2008 The Discomfort Zone.