Vagaries hurting climate issue

Pressure is mounting on the world to come up with a climate agreement for the post-2012 period - the time up to which the Kyoto Protocol has been negotiated. Having achieved precious little since the Rio Conference in 1990 and the Kyoto Protocol in 1997, beyond making many more promises for the future, the developed countries are readying themselves to make the clean development mechanism (CDM) their scapegoat.

The CDM, as we recall, is a mechanism of the Kyoto Protocol, which allowed developed countries to invest in greenhouse gas (GHG) emissions reduction projects in developing countries - thereby allowing themselves the opportunity to meet their obligations on reducing emissions at a lower cost and also contributing to sustainable development. It was never a mechanism that was designed to measure the achievements of developing countries on GHG reductions, nor was it meant to provide the \'least cost\' opportunities to developed country parties. Instead, it was seen as a vehicle for technology transfer to the developing world.

Judging the CDM mechanism harshly, unsuitably and prematurely, and worrying primarily about their own competitiveness if they were to take corrective action for solving a problem of their creation, some developed countries are aggressively pushing for a new sectoral approach to GHG reductions that would be binding on both the developed and developing countries.

The argument, under this approach, is that a handful of countries account for the major part of emissions from that sector - be it cement, steel or other such energy-intensive sectors. By virtue of their small numbers, it would be easier for these countries to agree on a global sectoral target with appropriately defined incentives for developing countries - largely in the form of carrots associated with actual performance rather than the CDM approach of providing upfront investments. Prima facie, this seems a practical way of moving forward. However, in reality and politically, this approach would pose enormous challenges for countries as well as for industry.

Apart from being a mode designed primarily to cut the relative cost of compliance to climate change commitments for industry in the developed world, this approach would tantamount to a back-door entry to imposing quantitative performance targets on developing nations. This would be in complete violation of the spirit of the Framework Convention on Climate Change and would force developing country industry to be measured on the same scale on GHG emissions (or energy efficiency), while keeping all other competitive advantages for the developed world intact - technology superiority, better infrastructure, fuel quality and so on.

If indeed, as is being proclaimed, it is possible to factor in commitments to reflect the local context of the sector under consideration, the complexity of target setting and agreement could render the transaction costs of design unviable. Imagine the diversity of industry associated with the iron and steel sector in India in terms of scale, technology and products.

Also, this approach runs the danger of pitting one industry against the other within a sector. Unless the mechanism deals with each industry (set) separately, the larger, globally competitive industry would be better placed to meet such targets, if established, and would feel burdened by the responsiveness (or lack of it) of the smaller, less advantaged players in this market.

India has a large small and medium enterprise sector that is active even in the energy - intensive sectors. The CDM mechanism was originally ideally designed primarily to cater to such actors. However, the developed world does not have solutions - technologically or otherwise - to offer to this segment. The sectoral approach based on carrots would push the onus of finding solutions for this segment largely on to the developing country governments and industry.

Industry, especially the larger ones, could well take the view that this approach is not inimical to the directions in which they see themselves moving in any case and be, therefore, amenable to such suggestions. However, they need to be wary of the large-scale social consequences of such potentially exclusionary approaches and, of course, to the weakened position of their government to negotiate internationally. We could, unless we are very careful, inadvertently lead development along the path of the Malthusian saying of \"survival of the fittest\".

Finally, it is obvious that no sectoral agreements can happen without the consent and concurrence of national governments. The Indian government, it can be said with some confidence, will see the advantages of stressing on a programmatic CDM strategy even for energy-intensive sectors rather than the alternative being proposed.

Policies and regulations would necessarily have to be aligned with any fiscal incentives to drive industry along desired pathways, and by doing so, the government can ensure that the issue of equity and development is not sacrificed at the altar of otherwise rent-seeking behaviour that is intrinsic to industry. Even as an effort to move the climate achievements forward, programmatic CDM, with full government support, would be easier and more cost-effective to implement vis-a-vis the sectoral approach.