We all know that developing nations hold the key to the future. They will become the largest emitters as they industrialize. In 1997, on a per capita basis, industrialized countries in Annex I of the UNFCCC had emissions that were on average 2.5 times more than those of developing countries. Yet, since the IPCC Fourth Assessment Report in 2007, total emissions from countries not listed in Annex I have over- taken the emissions of the Annex I developed countries.18 To avoid worsening this trend, developing nations should follow a clean path to industrialization, something that is obviously not happening. In 2014, China built one out of every two of the world’s new coal power plants every week.19 China is today the world’s largest emitter of CO2.
The issue is how to ensure a clean future for the poor nations of today. One question that was widely discussed is whether or not to cap developing nations’ emissions. This is specifically forbidden in Article 4 of the 1992 UNFCCC, which states that unless developing nations are compensated they will not be required to reduce emissions. The issue is so controversial that it can be called the “third rail” in international climate debates. If the issue is not resolved, negotiations could break down without an agreement for what should follow the Kyoto Protocol. The U.S. has already stated its unwillingness to accept limits on its greenhouse gas emissions unless China accepts the same. But now they appear to be uniting towards the EU’s call to cap developing countries’ emissions. The EU had said that developing nations should accept caps of 15% to 30% of their business-as-usual emissions.20
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First, the nations have to agree to lower the global cap on emissions. The Kyoto Protocol mandates an average emissions reduction of 5.2% of 1990 levels. So far this excludes the U.S., who did not ratify the Kyoto Protocol, so the Protocol accounts for only part of the emissions from the industrialized world. This was a good start, but it was not enough. Further emissions reductions need to take place after the first commitment period. To avoid major climate disruption, the IPCC urges an 80% cut in emissions within 20 to 30 years. The international community understands the need for a lower emissions cap; what it does not agree on is how to reach it. Do we increase the caps for developed countries? Do we impose caps on developing countries?
Warming Up to Climate Action
One thing is clear: we cannot significantly reduce emissions without U.S. participation. On this front, things are not nearly as bad as they were before. The U.S. is the world’s second largest emitter — about 25% of the world’s emissions come from the U.S. — and it has been the strongest opponent of Kyoto. Things were changing; hundreds of
U.S. cities and towns have signed petitions demanding that the federal government in Washington ratify the Kyoto Protocol and join the carbon market. In 2007, the U.S. Supreme Court agreed that the U.S. Clean Air Act of 1963 gives the federal government the authority to regulate and limit greenhouse gas emissions. Still, under the Trump administration, the U.S. just withdrew from the Paris Agreement.
Since the U.S. abandoned the Kyoto Protocol in 2001, climate policy had slowly but surely advanced at regional, state and local levels within the U.S. The Regional Greenhouse Gas Initiative (RGGI), a collaborative effort of 10 northeastern and mid-Atlantic states, has mandated a 10% cap on carbon emissions from the power sector by 2018. This is the first mandatory, market-based effort in the United States to reduce greenhouse gas emissions. Permits will be auctioned and revenues will be invested in energy efficiency, renewable and other clean technology projects.
The Western Climate Initiative, which involved seven western states and four Canadian provinces, has been moving towards the creation of its own regional cap-and-trade program. These two regional initiatives could allow some U.S. states to join the carbon market. In addition, the first federal climate policy initiative, the Lieberman Warner Climate Security Act, reached Congress in the spring of 2008. It too was based on a cap-and-trade system for emissions reduction and, although it was defeated across Republican and Democratic Party lines, it set the stage for further negotiation over climate policy.
Then-President Barack Obama acknowledged the urgency of the climate crisis and had called for national action to combat climate change. In particular, he announced his support for moving the U.S. back into the Kyoto Protocol. Environmental organizations across the U.S. were geared up for a national cap-and-trade program and expected ratification of the Kyoto Protocol. President Obama and the USEPA created the clean Power Act in 2014, which when implemented is the basis of a national carbon market; however the execution was delayed by legal challenges in several states.
Business interests in the U.S., the bastion of innovative capitalism, had warmed to climate policy as well. Silicon Valley Venture Capital is already investing a significant part of its risk capital in clean energy projects, and it is believed that this could increase rapidly. Analysts in major investment banks, such as JP Morgan Chase, now routinely use carbon foot-printing to evaluate a company’s risk profile. Despite the hostility of the current administration, it is well known that more jobs have been created by the renewable energy indus- try than the entire oil and gas industry, in the U.S. and also globally. Business interests acknowledge that the U.S. auto- mobile industry is handicapped from benefitting from the “price signal” of the carbon market that helps orient industry elsewhere to build vehicles with lower carbon emissions.
To Cap or Not to Cap: Is that the Question?
Actually, in the end, it does not matter. CO2 levels are too high already. Arguing about who or what is responsible is useless. The only certainty is that the climate is changing. This is a war, and the battles are for survival. Discussions and conversations have lasted long enough. It is time to lead, to follow, or to get out of the way.
But let us examine the situation one last time.
The policy of rich nations investing towards poor nations is essential to the climate negotiations. It was the foundation of the CDM, which unifies the interests of businesses in the rich nations with the interests of poor nations in clean development. This community of interest between the North and the South, and the importance of the role of developing nations, is grounded in the Climate Convention of 1992. It is in fact, memorialized in its Article 4. The idea is that developing nations should be able to increase emissions for a time to grow their economies and lift their citizens out of poverty. The World Bank reported that approximately 32% of the people in the world live on less than $2 per day in 2011, and roughly 1.2 billion people live on the brink of survival, with incomes of less than $1.25 per day.22 The developing nations export most of the fossil fuels that are used in the world, but they neither use most of the fossil fuels nor produce most of the world’s emissions. Latin America and Africa are the main resource exporters in the world economy. They have exported their resources at prices that are so low that poverty has taken grip of their people and the rich nations have become “addicted” to their fossil fuels and other resources.
Many poor nations hardly consume energy at all. Consequently they produce very few emissions; in contrast, all the industrial nations together produce about half of the world’s carbon. Poor nations are not the main cause of the global warming problem. Nor can they be the solution. In reality, poor nations are the main victims of global warming risks. Over 80% of the planet lives in the developing world, where we will see the worst consequences of global warm- ing: desertification, agricultural losses, interruption of water supplies and terrifying exposure to rising sea levels.23
It made sense for the Kyoto Protocol to grant developing countries unlimited rights to the global atmospheric com- mons on equity grounds. But it was much easier to make this concession in 1997 than it is now. Energy consumption and emissions production in the developing world was so low that these countries offered little potential for emissions reductions. Because poor countries did not emit much in the first place, it was obvious that developed nations had to shoulder the burden of global emissions reduction. But this is under consideration, since China is now the largest emitter, despite being a developing nation.24
The good news is that developing nations are growing in economic terms — some much faster than others, and none with any guarantee that growth will trickle down to their poorest, but growing nonetheless. The bad news is that, as developing nations are growing, they are consuming more energy in the process. There is a clear and direct connection between energy use and economic output. A country’s industrial production can be measured from its use of energy.25 Emissions from developing nations are increasing at a growing rate. The emissions growth rate in the developing world is higher, on average, than it is for all other countries, including the U.S. In the U.S., carbon dioxide emissions are projected to increase at an average annual rate of 1.1% from 2004 to 2030. Emissions from developing nation economies are projected to grow by 2.6% per year.26 As a result, developing countries’ share of global emissions will rise. China now has surpassed the U.S. as the world’s largest emitter, producing 10,975.5 MtCO2e in 2012 compared to 6,235.1 MtCO2e in the U.S.27 This is all very persuasive evidence for capping emissions growth in developing nations. But there are equally persuasive arguments for not imposing emissions caps on low-income countries. Global income inequality is more acute now than it has ever been in human history. Inequality between nations is larger than inequality found within any single country, including Brazil, South Africa and the U.S., where income inequality is known to be high. The top 5% of people in the world receive about one-third of total world income. The top 10% of people in the world receive one-half of the world’s income. The ratio between the average income of the richest 5% and the poorest 5% of the world is 165 to 1. Roughly 70% of global inequality can be explained by differences among countries, rather than within.28 To tackle the global divide, we need to increase income growth in the poorest nations. This is much harder to do in a carbon- constrained world unless we can develop and transfer technologies to the developing world for renewable and clean energy resources and greater energy efficiency. Additionally, we must create incentives to reduce emissions in the developed world.
What about China?
What about China? Should China be treated differently? It is tempting to treat China, and India to some extent, as distinct from the rest of the developing world when it comes to global climate. Indeed, there are some important differences. China’s annual economic growth rate trumps the growth rate of all other economies worldwide. China’s economy is now the size of the U.S. economy. But with a population of over 1.3 billion people, most of whom live in China’s impoverished rural areas, per capita income in China still is about $2,360. In the U.S., per capita income exceeds $54,629.5.29 Disparities this large still warrant attention.
China adopted massive energy policy reforms over the last two decades aimed at increasing energy efficiency and conservation. Between 1997 and 2000, China increased its emissions by 6.7%, while its economy grew by 26%.30 China’s sweeping measures represent emissions savings nearly equivalent to the entire U.S. transportation sector.31 It is not only China that has taken large voluntary steps to reduce or slow the growth of their emissions. For example, both Indonesia and China are phasing out fossil fuel subsidies. China, Mexico, Thailand and the Philippines have established national goals for renewable energy use and energy efficiency. Argentina and India are converting auto- mobiles and public transport to natural gas.32 The Costa Rican government recently announced its goal of making the country carbon neutral over the next 10 to 15 years.
In comparison, U.S. initiatives aimed at reducing green- house gases have been mostly voluntary and poorly coordinated across the country. In contrast, Chinese fuel efficiency standards are more stringent, as they are based on European standards. It is hard to expect developing countries to implement binding limits on their greenhouse gas emissions when the wealthiest of the industrialized nations is unwilling to follow suit.
Yet at the same time, recent news coming from China is a source of concern. Although it can still boast much lower per capita emissions than the rich nations of the world, the Chinese Academy of Sciences now reports that China’s aggregate emissions tower above all other countries in the world, including the U.S., much sooner than anyone had anticipated.33 This news increases the pressure on China to accept caps. It also indicates the enormous challenge China will face meeting any emissions target. Acknowledging the need to cap China’s emissions is only the first step, and taking that step will be an uphill battle. But demonstrating the capacity of China to meet such a cap would be even harder. This is where the carbon market can help; it can channel investment into emissions reduction where the world needs it most — in China. China accepts this logic and has now adopted a carbon market.
The conflict between the U.S. and China has plagued climate negotiations since their beginnings. More generally, the conflict between the rich and the poor nations is the cause of Kyoto’s growing pains. Why?
What is at stake in the global negotiations is fundamentally a question of who has the right to use the world’s resources today and in the future, the rich or the poor nations.
How can poor countries pursue their economic development without jeopardizing the future for us all? If we perfect and expand Kyoto’s global carbon market, it will create the potential for a new form of clean industrialization.
The global carbon market, if carefully regulated, could ensure an appropriate global cap on emissions and transparent trading. The result could change the world.
Once this is achieved, the CDM can provide powerful incentives to developing countries to reduce emissions, with- out resorting to caps. It effectively imposes a price on their carbon emissions, a price that they still have the flexibility not to pay, but at a cost.
Even without caps, developing countries could gain more from limiting emissions and selling credits through the CDM. In effect this means that developing countries still incur a “price” for their emissions. Every ton of emissions they produce represents a ton of emissions reduction they could have sold at the prevailing world price for carbon reduction. Economists have a special name for this: it is called opportunity cost. The opportunity cost of generating emissions when you could have sold emissions reduction credits to industrialized countries is in itself a powerful incentive not to emit.
This is a different incentive structure than what existed for all nations prior to the Kyoto Protocol, a time when all emissions were essentially unpriced and unaccounted for in decision making. Thanks to the CDM, developing countries face an incentive to reduce their emissions, even without caps.
And yet we still have not fully utilized the CDM, a potent feature of the Kyoto Protocol. The demand for buying emissions reduction credits through the CDM is less than its potential. The market is new and the learning curve for buying and selling in this market is steep. The cost of starting a CDM project is high and must be decreased. At present the costs are prohibitively high, in terms of both cash and know- how, for all but the largest projects. Time and improved streamlining of the costs of applying for CDM project certification can fix this part of the problem. But as long as the EU limits the use of the CDM, by maintaining that developed countries must meet most of their emissions reduction commitment “at home,” the demand for these credits and the price developing countries can be paid for these credits will be less than its potential. And without emissions caps and a carbon market, there is no source of funding for the CDM. The 2015 Paris Agreement has no emissions caps.
We can increase the demand for CDM projects, and facilitate a greater transfer of technologies and capital to developing countries, by imposing more stringent caps on industrialized country emissions. To the extent that an expanded global carbon market can provide developed countries with greater flexibility, lower mitigation costs, transfer technology and direct more energy for development, it makes it easier to convince industrialized countries to accept lower emissions caps for the future.
The carbon market saved the Kyoto Protocol once, by providing a mechanism for uniting the interests of poor and rich nations. We could perhaps do it all over again. Proposals on negative carbon and new financial mechanisms could save the day. This technology changes dramatically the perception of what is possible. That is what’s required. As Einstein said, you cannot resolve a problem with the same mindset that produced it in the first place. Paris, however, proved to be a disappointment. And the 2017 COP meetings provided no solutions.
Excerpted with permission from REVERSING CLIMATE CHANGE by Graciela Chichilnisky and Peter Bal. Published by World Scientific Publishing. © 2019. All rights reserved.
About The Authors
Dr. Graciela Chichilnisky, co-author of REVERSING CLIMATE CHANGE, is a Professor of Economics and Mathematical Statistics at Columbia University, and Director of the Columbia Consortium for Risk Management. She is also co-founder and CEO of Global Thermostat, and co-creator of a carbon removal technology that the National Academy of Sciences has said is the only one that can reverse climate change. The technology was chosen by MIT Technology Review as one of the Ten Breakthrough Technologies of 2019, curated by Bill Gates. In addition, Global Thermostat was named one of the top ten most innovative companies in energy by Fast Company and Dr. Chichilnisky was selected by International Alternative Investment Review as the 2015 CEO of the Year in Sustainability. In 2019, Global Thermostat and ExxonMobil signed a joint development agreement to advance breakthrough technology to scale up to the removal of 1 gigaton of CO2.
Chichilnisky worked extensively on the Kyoto Protocol, creating and designing the carbon market that became international law in 2005. In 2017, she was selected by the Carnegie Foundation for their prestigious Great Immigrant, Great American award and in 2018, she was awarded the Albert Nelson Marquis Lifetime Achievement Award.
Chichilnisky holds Ph.D. degrees in mathematics and economics from MIT and the University of California, Berkeley. She is the author of more than 300 scientific articles and 13 books, including Saving Kyoto which won the American Library Association’s 2010 Outstanding Academic Title of the Year and the American Geographical Society’s Book of the Month Award in October 2009. She acted as the lead author on the Intergovernmental Panel on Climate Change which received the 2007 Nobel Prize for its work in deciding world policy with respect to climate change.
Peter Bal, co-author of REVERSING CLIMATE CHANGE, is a businessman and ecological restoration practitioner. He sees carbon dioxide as an asset to be mined, focusing on natural plant absorption as well as industrial solutions to retrieve carbon dioxide from the atmosphere. He is currently working on a containerized carbon dioxide absorbing unit with Global Thermostat and also involved in setting up ecological research and training centers.