The single most important issue in the climate change debate is the question of how northern industrialised countries can pay southern industrialising countries to develop cleanly. Unless an answer is found soon, there is no hope of avoiding the worst impacts of climate change.
Projected emissions of greenhouse gases from the global south would trigger dangerous climate change even if the north were to cut its emissions to zero tomorrow. The developing world is already responsible for 45 per cent of carbon dioxide (CO2) emissions, with China having just overtaken the US as the biggest single emitter and India set to become the world's third largest emitter by 2015.
Two thirds to three quarters of the projected increase in global CO2 emissions between 2000 and 2030 is forecast to come from developing countries, mostly China and India. The growth from China alone is phenomenal. Between 1995 and 2005, its emissions grew by 87 per cent, fuelled by rapid economic growth, a growing population and lots of coal. China is opening two coal-fired power stations every week, and over the next eight years it plans to build as many as western Europe has built since 1945.
The implications are dire. There is a growing consensus that avoiding the worst impacts from climate change will require preventing global average temperatures from rising by more than 2°C above pre-industrial levels. To have a high chance of achieving that, global emissions of CO2 would need to peak by 2015, then fall, by 6 per cent a year, to 80 per cent below 1990 levels by 2050. On the current trajectory, within 15 years emissions from developing countries alone will exceed the global emissions level allowable by then to meet the 2°C objective.
This explains the mounting pressure on developing countries to commit to constraints on their emissions under the climate negotiations launched in Bali late last year. But what happened in Bali illustrates the challenge ahead. Developing countries, led by India, made it clear that their willingness to consider adopting action to mitigate climate change will depend on the level of financial and technological support provided by industrialised countries.
The politics of green equity
It's easy to see why they take this view. CO2 emissions accumulate in the atmosphere for decades, and as CO2 is a heat-trapping gas, the more it accumulates, the more global temperatures will rise. Over the course of the last century, the developed world was responsible for 80 per cent of accumulated CO2 emissions. Europe bears the greatest historical responsibility, with a 38 per cent share, followed by the US at 30 per cent. In comparison, China was responsible for 8 per cent and India just 2 per cent.
Industrialised countries currently emit four times more per head than developing ones. In 2005, an average American citizen was responsible for emissions of 20 tonnes of CO2—about twice as much as an average European, five times more than a Chinese citizen, 20 times more than an Indian and 333 times more than an Ethiopian. These disparities reflect the huge differences in wealth between north and south. Just 16 per cent of the planet's population live in high-income countries, while 37 per cent live in low-income ones (defined by the World Bank as countries with an annual per capita income of under $905). Here lies the problem.
India, which emits four times less CO2 than the EU, must meet the needs of twice as many people, 900m of whom live on less than $2 a day and 500m of whom have no access to electricity. Across the world, 1.6bn people—a quarter of the planet's population—have no electricity. The trouble is that developing countries, like developed ones before them, are using their plentiful, cheap supplies of coal, the dirtiest of fossil fuels, to fill the energy gap.
Low-carbon energy technologies exist, but they are more expensive, at least in the short term. The 2006 Stern review on the economics of climate change, commissioned by the British government, concluded that it would cost the world around $650bn a year—1 per cent of global GDP—by 2050 to stabilise concentrations of greenhouse gases at a level that has a modest chance of keeping the temperature increase below 2°C. Stern estimated that the amount of low-carbon investment needed now in developing countries is likely to be at least $20-30bn per year. To that must be added the tens of billions of dollars developing countries will have to pay to adapt to the changes in climate that are now inevitable. In all, Stern calculates that the extra costs that developing countries face now as a result of climate change are likely to be at least $80bn a year.
Southern governments say they cannot afford these costs when their priority is poverty reduction. Over the past five years, the Indian government has spent $25bn on its social development goals. It would cost the country the same to reduce its emissions by half below "business as usual" levels between 2012 and 2017. If the price to India of mitigating climate change involves depriving people mired in poverty of access to energy, it won't pay it. Similar concerns are voiced by other developing countries, like Malaysia.
Although it is southern countries that face the biggest dangers from the effects of climate change, at least in the short term, southern governments do not believe they should pay when they have much smaller per capita carbon footprints, much less historical responsibility for accumulated emissions and far less financial and technological capability to reduce them. The north is responsible for most of the excess carbon in the atmosphere, so it owes the south a large debt. If the north wants to avoid dangerous climate change, it will have to repay that debt by financing low-carbon development in the south.
For once, southern governments have the north in their power. If the north refuses to help and business as usual prevails in the developing world, rising emissions feeding into rising temperatures will trigger what may be the greatest threat to civilisation we have ever known. Ultimately, hard-headed realism dictates that the north has no choice but to pay the south to develop cleanly. The question is how. There is an obvious answer. Just as the Marshall plan transferred billions of dollars from the US to rebuild economies and ward off communism in postwar Europe, so a "green" Marshall plan could transfer the money needed to build low-carbon economies in the developing world to ward off climate change.
A new Marshall Plan?
Such a plan could be used to finance a programme to transfer technology, knowledge and expertise from north to south. This could involve collaboration on research and development, and on the deployment of low-carbon technologies in the power and transport sectors. In particular, it could help facilitate a much-needed acceleration in the timetable for demonstrating and deploying carbon capture and storage technologies for sequestering emissions from coal.
One way of funding such a plan has already been suggested by the Greenhouse Development Rights framework (developed by EcoEquity and the Stockholm Environment Institute). This apportions responsibility for the costs of mitigating climate change worldwide, according to three simple principles. The first is a country's historical responsibility for accumulated emissions. The second is the size of its population. And the third is its capacity to pay.
The details can be argued over, but applying this approach broadly illustrates who might have to pay what. Under this framework, if the annual additional cost of low-carbon development in the south amounts to the $80bn a year suggested by Stern, high-income countries would have to pay $64bn of this, with the US paying $27bn and the EU $20bn.
Any number of different mechanisms could be used to raise these funds, from general income or consumption-related taxation, to carbon taxes, trade-related charges, or, if an international agreement on it could be reached, a Tobin-style tax on currency speculation. In theory, it could work.
However, north-to-south government-to-government transfers of finance are fraught with problems. How would the money be administered once it was received? How could we ensure it was spent on low-carbon schemes? If conditionalities were imposed, would it be seen as a form of neo-imperialism? If payments continued for decades, would it encourage a kind of clean-energy welfare dependency?
But the biggest problem would be that the scale of payments needed is likely to exceed the capacity of rich-world altruism to deliver. To illustrate this difficulty, take the example of the Global Environment Facility (GEF)—by far the largest global fund supporting action on climate change in developing countries. An independent body that works with the UN and the World Bank, its members include most of the world's governments, who fund it through voluntary donations. The GEF is supposed to disburse $3bn between 2006 and 2010 for low-carbon investment and for adaptation to climate impacts in developing countries. But northern governments have failed to honour even these small pledges to resource it. By September 2007 they should have contributed $1.2bn, but the GEF's three operational climate change funds had only received $177m.
Similarly, in 2004 the World Bank promised to increase its support for renewable energy projects in developing countries by 20 per cent a year. But in 2006, support fell by $35m. Just 4 per cent of the $4.4bn that the World Bank invested in the energy sector in 2006 went to renewables, while its support for fossil fuels actually increased by 93 per cent compared to the previous year.
When it comes to meeting its promises to the south, the north has a poor record. Consider the pledge made by wealthy countries in 1970 to devote 0.7 per cent of GNP to foreign aid. Only five countries, mainly Nordic, have met this target. Promises to fund the efforts of developing countries to combat climate change are unlikely to be different, even though the north's interests are also at stake. Rich countries and their citizens simply aren't very keen on making payments to people in other countries.
Is carbon trading the answer?
A more promising solution for delivering the scale of investment needed may lie with a substantially reformed version of international carbon trading. The main form of global emissions trading is the Kyoto protocol's clean development mechanism (CDM). It works by allowing companies in rich countries to meet emission reduction targets, imposed on them by their governments as a result of their Kyoto commitments, by buying carbon credits from initiatives in the developing world which cut emissions. As a tonne of CO2 abated in India has the same overall effect as one abated in Britain, this offers a cost-effective way of mitigating climate change. Critically, it also provides a potential vehicle for rich countries to finance emission reductions in the poor world without the need for developing countries to take on emission reduction targets themselves, a task which, as we have seen, can conflict with other priorities.
In its current form, however, the CDM is riddled with problems and is failing to live up to its name. Finance has been flowing into projects that have nothing to do with building low-carbon economies. Accusations abound that emissions reductions from CDM projects are being overstated and would have happened even without the CDM. And the inspection regime is said to have been guilty of gross incompetence—permitting rule-breaking and fraud.
These problems can and should be fixed. To work well, a tough, properly funded validation, inspection and enforcement regime will be needed, involving stringent rules and penalties; only this can ensure emissions reductions over and above what would have happened anyway. The CDM executive board is beginning to move in this direction, but much still needs to be done to instil confidence in the system. As the global carbon market expands, it may become necessary to create an entirely new body to police it—one with as much overseeing authority as the IMF has over the international financial system, and the WTO has over global trade. What we may eventually move towards is some variant of the EU's own emissions trading scheme (see "A rough guide to carbon trading," Prospect February 2007) applied throughout the world, with an overseeing authority applying emissions caps to each country and regulating a truly global market in carbon.
In the meantime, the EU could help by placing restrictions on the type of CDM credits brought into its emissions trading scheme—which is supposed to drive the EU's attempts to meet its Kyoto commitments—so that only credits from certified "gold standard" CDM projects can be used.
The biggest challenge of all, however, will be to achieve a major increase in the volume of investment channelled through emissions trading. In 2006, the CDM directed only $4.8bn to developing countries. This will have to be scaled up dramatically. For that to happen, northern countries will need to take on much steeper emission reduction targets, which would be met in part by investing in CDM-type projects in the south. Pressure is mounting for exactly that.
Towards a grand global bargain
The range of targets discussed (but not agreed) at the climate change talks in Bali involved a global cap on emissions of about 50 per cent below 1990 levels by 2050. Developed countries would cut their emissions by 25-40 per cent by 2020 and by 60-80 per cent by 2050. This appears significant, and it is. But for some southern delegates and campaign groups, it wasn't acceptable. Although emissions cuts for developing countries weren't specified, they were implied by stating what the developed-country effort would be. These implied reductions may not, it was felt, allow developing countries the space they require to meet the needs of their poor and growing populations.
If a global cap on emissions is on the negotiating table, so too should be a framework for meeting it that is capable of delivering rapid emissions reductions without compromising the economic prospects of the south. Many in the climate change debate had thought a framework that apportioned a share of a global carbon budget to countries according to the size of their populations would do exactly that. But given the speed and scale of the action now needed, even that approach may land some big developing countries, including China, with emission reduction targets that would allow them little room for development—and which would therefore be rejected.
The Greenhouse Development Rights (GDR) framework described above may provide a better way forward by apportioning responsibility for mitigating climate change not only according to current (per capita) emissions, but also to historical responsibility for emissions and capacity to pay. What could be fairer? The implications, though, are big. The results of applying GDR would be that rich countries—including the US, Britain and most of Europe—with high responsibility for causing the problem and capacity for dealing with it would need to adopt emission reduction targets over 100 per cent. In other words, even if these countries were to reduce their emissions to zero, they would still need to pay for reductions elsewhere—through transfers or some form of global emissions trading scheme.
This represents a politically explosive new concept in climate change policy. If it has been hard work persuading the British government to revise its 2050 target for reducing CO2 emissions from 60 to 80 per cent, imagine how difficult it will be to convince it to take on a target in excess of 100. Building political will for anything like this will be an uphill battle, particularly in the US. But it might be the only way to get the south to accept a new global regime for avoiding dangerous climate change, while delivering the step change in investment needed for low-carbon development.
It doesn't let southern governments off the hook either. In exchange, they would need to accept a global cap on emissions and commit to taking action to create the right domestic conditions to attract investment and ensure low-carbon technology can be transferred. The least developed countries in Africa and Asia—especially small island states, which stand to lose the most from the effects of climate change—are pressuring China and the other large developing-country emitters to commit to action. China, at least, is starting to make the effort with its policy to generate 10 per cent of electricity from renewable sources by 2010 and its tough emissions standards for new cars. And South Africa and Brazil also appear ready to do more.
Conclusions
The burden the north bears to correct the climatic imbalance we face is a huge one. But as we have left far too little atmospheric space for the lot of the world's poor to improve along anything like the path the north has, it is a burden we will have to find a way of shouldering.
The next two years will provide a critical test of just how willing rich countries will be to rise to the challenge. The outcome of the summit planned for late 2009 in Copenhagen—at which it is hoped a new global climate agreement can be hammered out to succeed Kyoto's first phase, which ends in 2012—will be hugely important. For substantial progress to be made, two developments will be key.
The first will be a shift in the position of the US. While all the leading presidential candidates recognise the need for action on climate change, the eventual winner will have under a year to establish their position and will need a high degree of commitment well before their inauguration to develop a credible US stance in time. Many in the US, including those on the progressive side of the political spectrum, are still looking for progress outside the UN framework, which is not encouraging.
The other key development to look for will be the formulation of a deal to prevent a boom in emissions from the largest developing countries—and one that they can agree to. Given that a national cap of the sort faced by developed countries will not be acceptable, it will be vital to define appropriate responses from China and India, supported by far greater action than we've seen to date from the countries of the rich world. That will be the hardest to achieve. Winning political acceptance for it is the greatest geopolitical challenge for our era.
The IPPR's new report, "Switched-on India: how can India address climate change and meet its energy needs?" is available to download at www.ippr.org
