To be clear, BP must carry substantial blame for what happened. And given the very public pressure on it, it is clear that BP will pay both now and later. Indeed, President Obama made it clear that the escrow account is “not a ceiling.” But there is plenty of blame to go around beyond BP. What of the others?

Let us start with the oil industry itself. BP has been criticized for being totally unprepared to handle this oil spill, despite having submitted contingency plans for a much larger spill. Yet, virtually the same contingency plan, prepared by the same consultancy, was submitted by all other companies. In short, nobody in the industry ever expected or planned for this spill.

What about the regulator? BP might have been at fault for not being prepared, but the regulators did little better. It is, after all their job to hold oil companies responsible for their preparedness and safety standards. But rather than ensure accountability, regulators have ensured confusion prevails, in order to keep the oil flowing. As the NY Times reported:

Deepwater rigs operate under an ad hoc system of exceptions. The deeper the water, the further the exceptions stretch, not just from federal guidelines but also often from company policy.

So, for example…when company officials wanted to test the blowout preventer, a crucial fail-safe mechanism on the pipe near the ocean floor, at a lower pressure than was federally required, regulators granted an exception, documents released last week show.

And finally, what about the American people themselves? Deepwater oil exploration started in the Gulf in the 1970s, but expanded in the 1990s after new technology made it possible. But it was also encouraged by federal incentives. At the heart of that expansion has been America’s addiction to oil. This is a general and global challenge – as easily accessible oil reserves are depleted, oil prices go up and US citizens complain about their commute getting more expensive. The US government then encourages oil companies to go deeper under the ocean and further into the wild for oil, and simultaneously encourages them to ignore its own regulations. 

Of course, when things go wrong someone must be blamed. So much the better if that evil is foreign and not the American President or the people themselves. Thus, rather than blame regulators who granted BP the fatal exception, President Obama has taken to bullying a foreign owned corporation. Quick to find someone to blame, and to score political points, the US Congress too has already found BP guilty. Yet, Congress conveniently ignored that for every safety rule that BP might have broken, it had federal permission to do so.

Ironically, the American government and industrial lobby have in the past protected American corporations guilty of massive damage abroad. As John Elliot points out, the US protected Union Carbide and its CEO Warren Anderson in the aftermath of the Bhopal gas leak in 1984.

Since then Anderson has been protected by the US business-political establishment from being extradited to India to answer for the appalling human and environmental damage wrought by his company’s gas leak in Bhopal a few days earlier. That was one of the world’s worst industrial disasters, leading to the death of over 5,000 people and continuing ill-health of over 500,000.

Now that same American establishment that has protected Anderson has been pillorying Tony Hayward, BP’s chief executive, following BP’s oil leak in the Gulf of Mexico. The tirade has been led by President Barack Obama, who has been behaving like a spoiled child for the past 50 or so days, casting around for someone to blame when it is his own officials who are primarily at fault.

The real tragedy in all of this is that the focus on finding someone to blame will prevent a fix of the problem. In particular, two issues will remain unresolved.

First, the regulators that encourage risky oil drilling will not be held accountable. By finding a single organization to blame, the US President has made it easy to explain the disaster: “BP was reckless.” Yet, such a simple explaination hides the truth – that at fault was a complex system of oversight and ownership – and prevents fixing what does not work.

Second, and more important, it hides the fundamental fact from the US public – that deepwater drilling is dangerous. If the US wants to avoid another Gulf disaster the only way to do that is by not drilling in the Gulf. And the only way to do that is to reduce America’s dependence on oil. Of course, that requires some difficult changes in America’s lavish lifestyle. But that is hardly a message President Obama can deliver to his public – that it is their lifestyle that led to the Gulf’s oil spill.

In “What’s wrong with democracy” Loren Samsons points out that a democracy requires leaders that are willing to challenge the popular will. This is a startling contrast to modern political leadership, as demonstrated by President Obama. The tragedy is that the political posturing of Obama and Congress will force us to repeat the mistakes that led to the Gulf oil spill. And those that are really responsible for it will not be held accountable.

Mull over that one for a moment. Mr. Blumenthal isn’t suing to right a wrong. He admits that he’s suing to coerce a change in policy no matter what the public’s elected representatives choose.

No doubt, there is truth to each of these criticisms of climate litigation. But they are all also irrelevant.

Bad for Business? So What?

Yes, climate litigation might be bad for some businesses – particularly the more polluting ones. But it would also be good for others, such as businesses involved in improving energy efficiency, renewable energy generation and the like. But regardless, what if such litigation was bad for business – should we then disallow it? The US Clean Air act, when it was enacted in 1970, was also no doubt seen as bad for business. But hardly anyone would argue that it should not have been enacted on those grounds. So, “bad for business” does not qualify as a potential shield against such litigation.

What is a Nuisance Law?

What about the suggestion that such litigation is a “nuisance”? But who gave the WSJ the right to label certain laws as a nuiscance? Certainly not the citizens of America. In fact, the very term “nuisance laws” is an oxymoron. Laws are not a nuisance – they exist to provide citizens protection of their rights. And due process exists to ensure objectivity in the deliverance of justice, as far as possible.

Take the case of the Tobacco industry, which was sued by hundreds of individuals from the 1950s to the 1990s. No doubt such litigation was both “bad for business” and a “nuisance” for some. But it led to the Tobacco Master Settlement, a USD 206 billion settlement, and dramatically changed views on smoking across the US and the world. Interestingly, no individual “nuisance” lawsuits ever won in court, a validation of the checks and balances of the American legal system and the high burden of proof required of plaintiffs.

Given this history climate skeptics and the WSJ – “if that’s not redundant” – should actually welcome such lawsuits. They would allow both sides of the story to be heard in open court and an objective assessment can then be made of the link between CO2 emissions, global warming, and its effects on cities or ecosystems. Indeed, the burden of proof would be on the plaintiffs from the “green lobby” – so if the skeptics really believe there is no global warming they should hardly worry about such lawsuits. Just as in the case of the tobacco industry, no definitive link may be found for some time – but it may still lead to a better understanding of the issue.

Regulation through Litigation?

Finally, what of the criticism that such litigation arrogates power from Congress to the courts? This is indeed correct. Theoretically, the legislature legislates, the executive “executes” and the judiciary serves as the last word on the matter.

However, this broad principle cannot be taken as absolute because there has always been an overlap of power across these arms of government. And that overlap exists because the legislature is not a perfect representation of the people’s will – insofar as it is not direct democracy and is often biased by private lobby groups. Thus, the potential arrogation of some power to the judiciary is understandable.

Furthermore, there is a long tradition of regulation through litigation including by the US government itself (United States vs. Microsoft Anti-trust lawsuit, or lead paint litigation). At issue here are not the outcomes of these  efforts but the principle of whether individuals and private groups can sue. If the government can, then why not individuals?

Finally, regulation through litigation, while having its own set of problems, also provides benefits. These are summarized well by Tim Lytton in the Texas Law Review:

(1) framing issues in terms of institutional failure and the need for institutional reform; (2) generating policy-relevant information; (3) placing issues on the agendas of policy-making institutions; (4) filling gaps in statutory or administrative regulatory schemes; (5) encouraging selfregulation; and (6) allowing for diverse regulatory approaches in different jurisdictions.

Conclusion

The WSJ editorial argues that litigation against high emitters of CO2 is both frivolous and sets and a dangerous precedent for an anarchic world where everyone can sue everyone. Yet, a long history of similar litigation suggests that both governments and individuals have used litigation in the past to raise issues that the legislature failed to do so. Society is no worse, and some may argue, is better for such litigation. Despite the costs involved, the principle should simply be to let the truth prevail – rather than avoid facing it because it is “bad for business.”

He has a point. The recent climate summit came out with very little in the way of concrete actions, except a declaration of intent to keep global temperature rise limited to 2 degrees C or less. As international treaties go that is decidedly weak, particularly given the urgency of the issue with the expiry of the Kyoto Protocol in 2012.

The question, of course, is who will pay for a new framework. And it is here that Chanda is being unreasonable in placing any responsibility on the developing world. Quoting Figueres at the Taellberg Summit, he says the world must undergo three “decouplings.” The first two are particularly relevant.

Firstly, decouple growth from carbon emissions. Contrary to the common belief that reducing carbon emission is a costly undertaking, significant gains can be made through efficient use of energy. The development of renewable energy and associated technologies also opens up good business opportunities while mitigating the effects of climate change.

The second decoupling is essentially for developed countries. “We have to decouple our personal satisfaction from over-consumption,” he said, pointing to the carbon cost of excessive consumption of natural resources by the developed world. “In our world today, one billion people over-consume and are wasteful, and six billion people do not have enough.”

Nobody can argue that both decouplings are essential. The question, of course, is in which order should they occur? Should developing countries decouple their growth before having achieved higher living standards, even if the developed world continues with its profligate ways? More important, who will pay for these two decouplings? Should developing countries pay for adopting a low-carbon economy, even if it reduces their growth rates and in the process compromises their only defense (rapid growth) against climate change?

Chanda is right to point out that developing countries will suffer more from climate change, and India will suffer most. But as Thomas Schelling pointed out, “the best way for developing countries to mitigate global warming is through economic growth.” Yet, the developed world has so far put forward no substantive proposals, backed by serious money, to help poor countries adapt to or insure against climate change. Their entire focus has been on mitigation, so that the rich countries can avoid having to decouple their living standards from carbon emissions.

Given the unwillingness of the US and Europe to fund a low-carbon economy elsewhere, developing countries only have two options at present – to develop rapidly and ignore long-term impacts or to develop slowly at their own cost. Noone can blame them for taking the first option.

This is not to say that developing countries are inactive. India, a country often cited as being obstructionist in climate negotiations, is one of the largest producers of wind energy and earlier this year unvieled two major initiatives.

The first is to improve energy efficiency through ratings on a range of electronic goods, as well as benchmarks for various industrial sectors, and a “a trading scheme centred on energy efficiency certificates that could possibly expand to renewable energy. The plan involves creating a market-based mechanism that would allow businesses using more energy than stipulated to compensate by buying energy certificates from those using less energy or using renewable energy.”

The second initiative, still in the planning phase, can best be described as the most ambitious solar power project in the world. In late May, the Indian government revealed plans to harness 200 GW of solar energy by 2050. By 2020, India hopes to have 20GW of additional capacity at a cost of USD 20 billion.

Interestingly, and to demonstrate the fallacy in Chanda’s argument, the first is being paid for domestically – because it is economically viable and does not risk reducing growth. For the second, however, the Indian government stepped back from funding the upfront costs and may ask international sources to pay for it.

The Indian Solar Mission is a clear example of a developing country accepting its responsibility and attempting to decouple growth from carbon emissions. But such decouplings will be expensive once the low-hanging fruit (e.g. energy efficiency) have been taken. So if Mr. Chanda is serious and wants to see responsibility accepted where it lies, he should exhort developed countries to put their money where their mouth is. Then we can get on with the business of defining a post-Kyoto framework.

But leaving aside its cultural or anthropological implications, this reform is complete nonsense from a legal point of view and another example of how little substance the new Constitution of Ecuador has. As the Ecuadorian jurist Xavier Flores mentions:

It is completely inappropriate to confer rights without correlate obligations (what kind of duties can we demand from lakes or rivers?). But even worse is to confer rights to an entity that cannot exercise them.

The new constitutional article tries to solve this problem by stating that human beings can act as proxies, and grants these proxies the right to sue on behalf of an ecosystem. To justify this the Ecuadorian legislators used as an analogy the case of legal persons (companies, foundations, NGOs, etc.), which are represented by physical persons.

First, this analogy is incorrect from a legal perspective because legal persons constitute an extension of the rights of the physical persons that create or administer them – and not the other way around. This is obviously not the case of nature.

Second, this legal inconsistency also translates itself into a practical problem: how is it going to be decided who has the right to represent nature? Since there is no ownership tie here, this might become an impossible task, particularly considering that there will be competing interests over any given case. Take, for example, the case of an environmental activist who wants to present a lawsuit on nature’s behalf against the construction of a dam. Should this person be granted this right, even when local communities close to the future dam site express their agreement with the construction, due to the benefits it would bring?

The expression of principles is a part of any constitution. But that is not going to protect the environment. Instead of creating simple declarations of principles without any legal validity or practical application the members of Ecuador’s Constituent Assembly should have come up with effective mechanisms to protect the environment.

This is, of course, complete nonsense. The neo-malthusian argument that population growth cannot continue forever has been repeatedly disproved. It is surprising that immigration conservatives are trying to use the environment as their new rallying call. What is worrying, however, is that they are succeeding – and the Christian Science Monitor is asking if “immigration is an ecoissue.” Nor are their efforts new – in 1998 the Sierra Club membership was forced to go to the ballot on the issue; two years ago the CSM reported on a widening (and possibly imaginary) rift amongst environmentalists.

Who is Behind this Argument?

Before addressing the argument, it is interesting to evaluate who is behind this “population-growth” environmentalism. A quick search reveals two organizations that frequently pop up - Population-Environment Balance (or BALANCE) and the even more right-wing Federation for American Immigration Reform (FAIR).

Their agendas are straightforward, alarmist, and (contrary to the name), completely unbalanced. An alarmist article on BALANCE calls for an immigration “moratorium,” claiming that “since 1945 the U.S.’s population growth rate has equaled that of India’s.”

Such statements reveal both the line of attack being deployed by these groups and its weakness. The arguments are targeted at a traditionally liberal group. After all, who would not be concerned about the “War on Poverty,” or on America’s carbon footprint. But they implicitly associate the environmental failures of the US on a single bogeyman – population immigration. Yet, that link between population and environment has been repeatedly disproved.

But first, is immigration event a problem? According to the Pew research center, 82% of US population growth has been due to immigration. But in this era of aging populations and underfunded pension systems in much of Europe, a large and young population is, in fact , an asset. So if America’s population is growing like India’s – American’s should rejoice at their own demographic dividend.

At the micro-level however, BALANCE’s two arguments deserve credible responses.

The Neo-Malthusian Thesis

The first argument is an absolute one – that America cannot afford more people, given the limited natural resources available. It is, in this view, critical to “stabilize” the population to preserve American’s quality of life.

Yet, this argument has been repeatedly debunked. Donald Boudreaux, from George Mason University, did it well in 2006, in his article “Absorption Nation“:

I agree that America’s ability to absorb immigrants has changed: it’s higher today than at any time in history.

Only by naively supposing that a country’s ability to absorb immigrants is determined chiefly by the availability of unsettled land do people conclude that America today is less able to absorb immigrants. It’s true that more land was available for settlement in the 19^th century. That land, however, was never much of an attraction to immigrants. Historically, most immigrants settled in cities — think, for example, of Manhattan’s Little Italy and San Francisco’s Chinatown.

Also, of course, we’re better able to feed ourselves today, even though the amount of land used for growing crops and pasturing animals is no larger now than in 1900. Higher agricultural productivity enables farmers and ranchers to produce more output on the same amount of land.

What about workers? A measure of ability to absorb workers is capital invested per worker. Today, the amount of capital invested per worker is nine times greater than it was just after World War I. Because a worker’s productivity rises when he has more capital to work with, and because his pay is tied closely to his productivity, workers today produce and earn more than workers did during the open-borders era.

If there is no particular “absorption limit,” there is also no correlation between population density and environmental degradation:

Holland, for example, is one of the most densely populated countries in the world, with 4,500 people per 1,000 hectares. It is also one of the most ecologically strong, devoting 10% of its land to ecological protection. Compare this to Brazil with only 170 people per 1,000 hectares and an unprecedented rate of rainforest destruction and it becomes clear that corporate and government policy, not population density, accounts for environmental degradation.

Clearly, the ability to absorb immigrations has little to do with natural resources. Land is abundant – only 3% of America’s landmass is urban; agriculture is flourishing; and quality of life keeps rising. Immigration does not pose a threat to the sustainability of American’s quality of life.

The Impact of Immigrants in America

There is a second argument. Since Americans consume more than others, a lower population is desirable by itself in order to keep overall consumption low. And, since immigrants use more resources in America than they would in their home country, less immigration implies a better planet. A Carry Capacity Network article states:

As an example consider the impact of a typical family of seven, immigrating from a country where their owning a car was highly unlikely. When they come to America they are likely to acquire cars (0.76 cars per family member). For every mile they drive, they pollute and deplete resources that could have been relatively unaffected had they continued their prior lifestyle. The act of border crossing enables them to make lifestyle changes that adversely affect the environment; by becoming Americans they adopt the consumption and pollution patterns of the world’s most environmentally destructive lifestyle.

In evaluating this argument, it is useful to view environmental impact as a combination of three variables – population, consumption, and technology. America has higher consumption – thus it should have a lower population.

First, this argument is egregiously elitist, for it condemns immigrants – who have the natural right to seek a better life – to misery and poverty. Indeed, the natural extension of this argument would be to force people outside America to live in utter deprivation, so that American’s can continue their polluting ways.

This argument is misguided, overlooking the actual problem – the high consumption lifestyle of Americans. Real environmentalists would convince Americans to consume less.

Finally, this argument focuses attention on the least important of the three solution variables – technology. It is technology that helped humanity avoid a malthusian famine by increasing food and worker productivity. It also offers solutions to problems such as energy, waste generation, and water conservation. True environmentalists would recognize both the true problem (consumption), and the potential solution (technology), and focus efforts there.

The Ugly Truth

The population-growth environmentalist’s arguments hold no water. Yes, America’s population is increasing and “far from stabilized.” Yes, this is largely due to immigration:

[Hispanics] are 14.3 percent of the overall population, but between July 2004 and July 2005, they accounted for 49 percent of US population growth. Of the increase of 1.3 million Hispanics, the Census Bureau reported, 800,000 was because of natural increase (births minus deaths), and 500,000 was due to immigration.

“The Hispanic population in 2005 was much younger, with a median age of 27.2 years compared to the population as a whole at 36.2 years. About a third of the Hispanic population was under 18, compared with one-fourth of the total population,” according to the Census Bureau report.

In view of humanity’s ability to adapt and develop new technologies, there is no known limit on the Earth’s “carrying capacity.” And while environmental degredation is a phenomena, it is occuring not because of large populations or higher density, but because of overconsumption in America, by native-born Americans. Ironically, it is these immigrants which will pay the pensions of the population-growth environmentalists that oppose them.

These pseudo-environmentalists would do well to reveal their true agenda of preventing immigration. This love for environmentalism is old wine in a new bottle – and the environment has nothing to do with it.

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.

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.

That said, the field is not well understood, with a lot of hype reminiscent of the dotcom bubble. Two articles today shed a skeptical light on the sector.

In an oped titled “Global Warming, Inc.“, the Wall Street Journal takes a skeptical view of the alternative energy industry, arguing that the hiring by Kleiner Perkins of Al Gore suggests the industry does not really have an economically sustainable model, and remains dependent on government subsidies:

Nope, but then again alternative energy has never fit the usual venture model. Jack Biddle, co-founder of Novak Biddle Venture Partners, says there’s a reason few start-up companies try to build commercial jetliners. “Large, complex systems with slow deployment cycles do not play to venture’s strengths. The whole idea with venture-backed companies is speed, speed, speed.” Mr. Biddle says the size and complexity of energy systems “make 787s look like tinker toys. You need lots of capital, lots of time, lots of people.”

Which leads us to suspect that maybe Mr. Gore has been hired by Kleiner Perkins for more than his technological knowhow, investment acumen, or global vision. His new partners may have hired him for the more prosaic task of getting 60 Senate votes to keep those taxpayer greenbacks coming.

In a separate article, CNET asks why First Solar stands alone (for background, read how its stock went from $20 to $220 in one year)? Among the many conclusions, is one relevant to this discussion:

Patient Investors. John Walton, of the Walton family fortune, was an early investor and stuck by the company through the very difficult early years. Interestingly, Myers noted that none of the big solar success stories have been emerged from the usual Silicon Valley path of being fostered along and funded by VCs, which usually want a return after five years or so. Instead, these companies have taken years to incubate.

When the dotcom bubble burst, all the venture capitalists needed a new place to park their money. Luckily, climate change happened and cleantech became the new dotcom (see chart, and this post on evolution of the issue). But these articles suggest that venture capital may have to tweak its model, to accommodate longer innovation cycles, if it is to truly address the issue (of energy efficiency and use), rather than simply make use of subsidies. It also means that public policy will continue to be important, and developing countries risk being left out of the innovation cycle, if they are not aggressive in encouraging innovation in the sector.

Update: Separately, Cleantech.com reports (also on CNET) that OPEC nations have put up USD 750 million for a cleantech venture fund.

And what does this have to do with peace?

Last year, the prize was awarded to Yunus and the Grameen Bank, recognizing the need for poverty alleviation for lasting peace. Never mind that the link between microfinance and poverty alleviation is tenous at best, I cheered nonetheless because Yunus has made other significant contributions, not least of which is to prove that the poor can be part of an economic cycle.

But now, in trying to ride the climate change bandwagon, the Nobel Committee is going too far. It is turning itself into a follower of what is cool in the development community. Last year was microfinance, this year climate change, next year who knows.

I have another candidate pair for the Peace Prize - Paul Wolfowitz and Donald Rumsfield. Through their combined arrogance and incompetence these two turned Iraq into a mess. But in the process, they have set back America’s intervetionist foreign policy decisevly. No longer will, or can, the US act alone in the world. Surely, that is an outcome worth celebrating, even if it was not the intended one.

They deserve the prize no less than Al Gore. Certainly, he did much to highlight climate change and his movie made a lot of money. So perhaps he deserves the Academy Award for “most politically savvy film”. But the Nobel?

This year’s choice for the Prize bodes ill for the world. Maybe the Nobel Committee could not find any real peace makers and champions. Perhaps it is a sign that the world is sliding into chaos – in the Middle East, Burma, and elsewhere, and that democracy is so out of favor that even the Nobel Committee dare not celebrate it. Or perhaps, the Nobel Committee couldn’t be bothered to really go out there and look at who’s really doing the work. It would much rather just sit in Stockholm and bask in the glory of whoever the world has already embraced in any given year.

Yet, affluent countries press the poor to accept a very different approach. They urge the developing countries to strike a “balance” between development and climate-change mitigation. Their argument is that the industrialized countries are unable, or unwilling, to reduce their own greenhouse-gas emissions on the scale required for limiting climate change within a certain range. Therefore, according to this line of reasoning, developing countries should curb their rising greenhouse-gas emissions, even at the cost of slowing down development.

The proposal fails to meet the tests of efficiency as well as equity. By slowing development, the proposal would undermine the efforts of poorer countries to build up a capacity to adapt to climate change. It would increase the vulnerability of developing countries to the impacts of climate change. It is thus a deeply flawed response to climate change. 

Any future agreement on climate change must fully conform to the framework convention, which correctly reflects the relationship between climate change and sustainable development.

Ambassador Dasgupta, in spite of his substantive insights on climate change policy negotiation, has mistaken ethics for politics. Any future agreement on climate change must confirm – not to the framework convention – but to what rich and poor countries agree to give and take. Mr. Dasgupta repeats the standard Indian line of “common but differentiated responsibility”, but the sad irony is that standing on a pedestal and reading the principles of the UNFCCC will neither solve the problem (of climate change) that threatens the poor, nor offer the poor any say in a solution that eventually develops.

Indeed, this should now be abundantly clear to everyone in view of the climate change meeting hosted by the US this week. The Bush administration is asking all participants to provide information on their internal mitigation targets. Further, the US Congress is contemplating – and will eventually impose – penalties on countries that do not mitigate emissions.

With the US willing to wield the stick the time for the poor to try and shape any future agreement may already be past. This is reminiscent of the creation of the WTO and TRIPS agreements which were forced down the throats of poor countries. It suggests India would do well to move quickly to preempt such moves by the US through aggressive engagement with Australia, Japan, China, and the EU – in order to ensure its own needs (of adaptation and compensation) are incorporated in any framework. But one can be certain that discussing ethics, equity, and efficiency will not win the day.