counting framework for environmental factors, something in which some progress has been made; but a lot still remains to be done (Daly and Cobb, 1989; McDonough and Braungart, 2002; ISAR, 2004; Bainbridge, 2007).
As agreed at Rio, there is a "common but differentiated" responsibility for reducing carbon or GHG emissions. The historical responsibility of the developed countries in having used up most available global carbon space means that they should bear the major burden of reducing emissions. At the same time, the large developing economies, such as China and India, also need to undertake measures to reduce emissions in order to make an impact on global emissions. A system of a global carbon tax (akin to the proposed Tobin tax on hot capital movements) could be instituted, along with a system to redistribute the revenues from the carbon tax. There is no reason why the country that pays the carbon tax should get the revenue. In fact, it should be the other way around and counties that emit the least should benefit the most from the revenue. The carbon revenue could then be distributed on the basis of both population and per capita incomes,
A carbon tax would have the disadvantage in that it does not, by itself, set a limit to the total emissions. It would induce technological change, by making more carbon-intensive products and processes more expensive than less carbon-intensive products and processes. But there is no necessary limit to total emissions. On the other hand, a system of tradable emissions, with total emissions and its distribution, set through international decisions could have the same technology effect, but also set a cap on total emissions. In this case too, the tradable emission quotas could be distributed positively with population and negatively with per capita income. A negative relation of tradable emission quotas would mean that countries with higher per capita incomes, which have already more than used up their proportion of global emission space, would get less than developing countries, which have much lower per capita income and also lower per capita emissions.
There are various proposals in discussion on linking trade with climate change. But to be acceptable and workable, it would seem that a proposal needs to be based on an equitable distribution of burdens, based on both historical and present positions.
3.6.3 Carbon markets
In the Kyoto Accord, targets were set for the developed countries to cut emissions, along with provision for carbon trading through the so-called Clean Development Mechanism (CDM). The carbon market, as it has since developed, has three components: (1) project-based transactions in the CDM, where the buyers purchase additionality; (2) trading of greenhouse gas emission allowances under the cap-and-trade regimes as in the EU; and (3) voluntary carbon market, as in the US and Australia (World Bank, 2006b). The carbon market was a $325 billion market in 2005.
The CDM has shifted the emphasis on making the transition to a low carbon economy from polluting industries in the developed countries to industries in the developing countries, where the costs of such transformations are supposedly lower. In ESAP, China and India have been the main beneficiaries of CDM payments. This, however, does not re- |
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sult in any change in emissions from the developed countries, for whom it is a "business as usual" situation. Further, doubts have been raised about whether any real additionality has been achieved through CDM projects (see UNCTAD, 2006a; Carbon Trade Watch, 2007).
With regard to the EU emissions trading system, two points of criticism have emerged (World Bank, 2006b). First, the allowable emissions for each country have been set very high and therefore there has been little need to trade in or reduce emissions. In fact, the high level of carbon allowed resulted in a crash in the European carbon market, where the price of a tonne of carbon fell from $30 in 2000 to just $2 in 2006. Second, emission rights have been given free to industries, in what has been called a "grandfather" approach, i.e., as a patrimony. Instead of paying for emissions, polluters are given polluting rights as property (Carbon Trade Watch, 2007). This does not put any pressure on them to reduce emissions.
The carbon trade approach has not worked to stimulate investment in renewable-energy technologies. Again, as prices of carbon-using commodities are not affected, there is pressure to switch to a low carbon economy. As discussed below, another and probably more effective approach would be that of imposing a tax on carbon emissions.
3.6.4 "Avoided deforestation" in carbon trades
In the current carbon trading system, carbon offsets are granted for additional growth of forests. Under the Clean Development Mechanism (CDM) of the Kyoto Protocol, payments can be made for reclaiming land to forests. But this does not take into account the incentive to clear existing forests—for the timber they provide or to convert the land to other uses, such as oil palm plantations, or, as is likely given the current emphasis on bio-diesel, to plantations for sugarcane or corn to produce ethanol or jatropha plantations.
A 15-country coalition of rainforest nations, led by Papua New Guinea (see www.rainforest.coalition.org) has proposed a change in the method of carbon credits for forests to include payment for "avoided deforestation." Such avoided deforestation has an opportunity cost, in terms of livelihoods foregone. This opportunity cost needs to be compensated in order to provide an incentive to maintain existing forests intact. Taxes on carbon emissions can be used to pay small landowners, local communities and indigenous peoples to keep their forests intact, as is done in Costa Rica.
The introduction of the notion of opportunity costs in terms of livelihoods foregone is a shift from the Kyoto concern with simple costs of technologies. In the Kyoto-system, the costs of reducing a ton of carbon could be lower in the developing countries, when compared to developed countries. Consequently, a large part of CDM trade involved purchasing offsets from developing countries. But besides the cost of utilizing there is another notion of cost that comes into the picture, that is, of opportunity costs or the livelihoods foregone.
The method of financing such an "avoided deforestation" initiative could be of a number of different types, including payments out of a carbon tax, or even from a new |