With the conclusion of the Copenhagen Conference on Climate Change, with policy papers out, with accusation and recriminations about which delegates hijacked the conference or which ones messed it up, it is perhaps time to take a step back and provoke a broader discussion on climate change.

First - a great animation on Cap & Trade. 

A significant portion of the global community (except for a group of doubters) accepts that there is a significant change in global climate and that human activity has had a major role to play in this change. With increased volatility in weather patterns around the globe, receding glaciers, rising sea levels and significant changes in polar landscape, it has been hard to deny the evidence. This was the context of the gathering of 'global leaders' at the UN Climate Change Conference.

The gathering of 'global leaders' was really a gathering of politicians and business representatives. While other leaders – representing social groups, people movements, NGOs etc – did come to Copenhagen at the same time, their gathering was outside the major discussions organized by the UN (as has become the norm in most such conferences). It was this UN organized conference at the Bella Center that was the forum making decisions on behavior of nations, policies and the future landscape of businesses in the context of Climate Change.

A key goal of the conference was to reduce and control CO2 emissions such that the average global temperature rise could be limited to 2C. While many countries, including the Fijians, wanted this goal to be 1C (and justifiably so), the conference seems to have decided on limiting emissions so that the temperature rise is no more than 2C. “Seems” - since there is language that suggests such a goal; there is little in terms of enforcement or real commitment from the perspective of nations.

The basis of this change – it has been agreed by these political and business interests - will be market regulations and trade [2,3]. In recognizing that business driven industrial activity has had a major role in climate change, it makes sense that a solution directly involve the business community. And, at least in the recent past, the business community has been enthusiastic (or at least somewhat willing). The business community has thus proposed – and the world has accepted – that the goal of reducing emissions to limit temperature rise be achieved through pricing carbon emissions.

The logic is that by pricing carbon emissions, one can quantify the amount that an organization or a country is contributing to the rise in temperature. By estimating (and these are indeed rough estimates) the amount of emissions that will amount to the above-mentioned rise in temperature, one can place a cap on total emissions that can be given off by human activity in the next few years. In principle, then, each country could be allowed only a certain amount of emissions. Of course, this has caused major arguments amongst countries – what will be the cap for each country. (There is another significant problem – there is no good way to measure emissions or sequestration at a broad level – but hopefully technologies can be developed to address these). In principle, countries have agreed to such a strategy and the details are being worked out.

Businesses can then price the emissions they produce. If they produce more, they will have to pay penalties. If they produce less, they can receive credit. The price of these emissions, whatever the unit of choice be, will be decided by market forces. Thus, companies that have credit can sell these credits for money to another company that is emitting more. It is believed that as the commodity (carbon credits) become less available (as we get closer to the emission targets), the cost of the credits will increase and hence make the cost of emissions higher. Thus, the model of market regulations and trade should work, according to the business leaders and economists.

To support achievement of these emission targets, the USA and EU are providing large amounts of money for investment in 'clean' technology – for energy generation, carbon sequestration, use of energy such as transportation, etc. This capital will spur on market innovation, that guided by the carbon markets, will result in global achievement of emission targets.

The developing countries have argued that this model weighs unfavorably for their industries. While the developed countries have done most of the polluting and have developed the technologies to achieve cleaner processes, developing countries and their businesses will bear the cost of this process since their technologies are less developed and cannot compete if the bar is raised in terms of emissions. The developed countries, in response, have promised grants to developing countries to help these countries build their technologies as well agreed to less constrained emission targets. Examples of the Chinese is being held up to show that market forces and technology support can bring such change. The Chinese are supposed to have the cleanest gasification today – having leapfrogged the US along the way.

So, it seems, all is well. Except for China – which the Guardian reports – believes that it will be a developed country in the next few years and does not want to agree to the intense emission constraints for developed countries. And India, whose delegation seems less driven by a clear strategy on climate change and more by a plan to corner USA and the EU into positions that will help make deals wherever possible. Or so the international press suggests.

However, in coming to decisions where the representatives of businesses are the only influencing agencies, perhaps the strategy to address climate change has been too one-dimensional and vulnerable to failure.

(It was unfortunate that only business interests were represented directly at the conference. That was not surprising given the direct organizing influence of such think tanks as the Monday Morning[1] – a key player in the Copenhagen Climate Council. This council includes CEOs of numerous MNCs – a list is available on its website.)

While the threat of climate change is real and needs to be addressed – and the threat is even more potent for poorer and high population density communities as in South Asia – it is not clear how the process can be enforced in countries with low human index. One problem, for example, is that a major portion of the population (in such countries) is part of the unorganized sector of the economy. Enforcement could backfire if not threaten their lives and livelihoods. If a country prices fossil fuels too high (as a way of reducing emissions), it would threaten the lives and livelihoods of these communities. Those that have (legal or illegal) access to forest wood would choose to use that source – threatening conservation activity that needs to be at the center of carbon sequestration. Else, their lives (already at the edge of survival) would be further pushed into conditions of inhumanity and further exploitation. And this population would consist of tens to hundreds of millions of people in South Asia alone.

In not including any safeguards or guarantees for livelihoods and protection of lives, this model has in fact threatened a large section of people whose lives are for most part outside the domain of markets. This is a major question that needs to be addressed – and one paragraph does not do justice to the nuances of specific conditions (dependent on means of livelihoods, access to water and energy and access to markets) that require specific and varied solutions.

Second, in most countries such as those described above (and they include all the nations in South Asia), a very large section of small manufacturing units operate at very low levels of technology. They are competitive only because of the low cost of labour. It is important to note that in many sectors in such countries, MNCs have not been able to penetrate the market and compete effectively primarily owing to the 'low tech' processes that require low capital and are thus easy to start up and owing to the ability of semi-skilled and low cost of labour to run and maintain them. It is of strategic value that the need for compliance to emission control will result in greater regulatory mechanisms, thus increasing the cost of start-up. These industries include large numbers of mechanics, welders, small scale molding and casting units, and small manufacturing units that surround most mid to large size cities producing small and medium size machines, and repairing and reusing goods. A very large portion of this small and low cost industry will become defunct. While those promulgating the plan might point to the aforementioned Chinese example and the billions of dollars of aid being provided to developing countries to improve technologies, none of these aid funds will be available to the poor who run these kinds of manufacturing and repair units. The policies being suggested as per these regulations will do what the forces of globalization could not – they will probably wipe out local competition to the MNCs in these markets.

While this discussion has focused primarily of the direct impact of the suggested strategy – and it is by no means exhaustive – there are other perspectives of the strategy that also raise significant human questions. These will be raised in subsequent articles.

- Sanat Mohanty

[1] http://www.copenhagenclimatecouncil.com/about-us/councillors/erik-rasmussen.html

[2] http://www.pwc.com/en_GX/gx/sustainability/pwc_ceo_guide_climage_change.pdf

[3] http://www.copenhagenclimatecouncil.com/get-informed/thought-leadership-series/tackling-emissions-growth-the-role-of-markets-and-government-regulation.html