The most critical issue in climate change is allocation of emission rights or quotas, write Jyoti Parikh and Kirit Parikh.
Minister for environment Jairam Ramesh wants India to be a deal maker at the Copenhagen Climate Conference. We propose here a deal that India can offer that addresses the objectives of the 'deal makers' and the concerns of those who oppose any deal inconsistent with India's past stand.
Our proposal is consistent with it and the principles of the United Nations Framework Convention on Climate Change accepted at Rio.
The most critical issue in climate change is allocation of emission rights or quotas. Any accord implies an allocation.
For example, the Kyoto Protocol is a cap and trade arrangement, where caps were provided on industrialised countries, called annex 1 countries, and they were permitted to trade among themselves as well as with non-annex 1 countries, on whom there were no caps.
Thus emission rights were allocated based on past emissions to A1Cs and unlimited to NA1Cs who needed to grow. However, NA1Cs have grown at varied rates and poverty is not pressing for some of them. The A1Cs want them to act too.
There is no economic principle that suggests just and equitable allocation. Inter-personal comparison of welfare across countries with different economic, political and social environment and inequity across nations is difficult if not impossible.
One needs to rely on ethical principles.
A strong ethical case can be made for equal per capita allocation of rights to atmospheric resources. All democracies and all religions consider all persons equal. The USA's declaration of independence considers it 'self-evident that all men are created equal'.
There is a wide consensus across countries that eventually per capita emissions must be equal. Schellnhuber et al of the Potsdam Institute in Germany have recently advocated allocation on a per capita basis as per the 2010 population as the best solution from an ethical point of view.
The population for allotment of emission rights can be frozen on the day the global agreement is signed so as not to reward population growth and also to encourage early agreement. Also, migrants may be allowed to carry their entitlement with them.
India should accept equal per capita emission quotas, either allocation of tradable quotas or an annual rent or tax on emissions, either current or cumulated from 1990 onwards, with proceeds distributed equally across countries on a per capita basis.
With tradable quotas to atmospheric resource, global costs will be minimised. It is because the burden will fall on those who are responsible for the threat of climate change and can afford them, whereas benefits will accrue to the poor who need them.
As Chancellor Angela Merkel observed at a Potsdam Conference, "If it involves large transfer from USA to India, what is wrong in it?"
The USA has an option to reduce the transfer by reducing its emissions. Not paying for emissions cannot be considered just. That such transfers may not be palatable to rich countries cannot be an argument against the justness of equal per capita allocations of global environmental space.
Rental for parking emissions in the global environmental space
Considering that the global atmosphere is like a parking space for green house gas emissions, we propose that rent should be charged annually from all countries for every tonne of atmospheric space occupied by their accumulated emissions from 1990 onwards, since by 1990 all countries knew that climate change is a possibility.
It will encourage countries to delay occupying the permissible atmospheric GHG holding space. Rent by itself is independent of allocation of rights, which come into play when we distribute the proceeds from the rent.
The rent collected should be distributed on a per capita basis to all nations of the world based on their 1990 population.
The proposal has a number of advantages.
- Charging rent for the stock of accumulated emissions is rational, as it is the stock of GHGs that causes climate change/global warming.
- All countries are involved and no distinction between annex 1 and non-annex 1 is needed.
- It will provide appropriate incentives to all countries to be carbon-efficient, as they all face the same opportunity cost of emissions.
- It also rewards countries for their negative emissions, which play a very important role in many long-term global scenarios. Stabilisation to 520 PPMV requires considerable negative emissions from carbon capture and sequestration, bio fuels and afforestation.
- It will transfer resources across countries with very little transaction cost and minimal bureaucracy.
- By increasing the rental rate with a cess, compensation for adaptation can also be factored in. The cess collection can be distributed to countries as per their population and in inverse proportion to their per capita emissions, with a minimum amount given to all countries with small populations.
This to us is a just compact consistent with UNFCCC where all participate as per their common but differentiated responsibility and capacity.
The price of CO2 will have to be adjusted and the rental rate correspondingly fixed to see that the global emissions follow the trajectory of an agreed scenario.
A mechanism for updating the rental rate should be decided at the time of the global agreement. Alternatively, an acceptable stabilisation level of PPMV should be agreed on.
This will determine the trajectory of GHGs in the global atmosphere, i.e., the total available parking space. This may be allocated to all countries on an equal per capita basis.
The countries should be free to trade the space. Such a system of allocation of global environmental parking space and trading of it can force the countries to follow the trajectory. Implementation will be no more difficult than that of any cap and trade of emissions scheme.
The same mechanism that can enforce a cap and trade agreement can enforce this cap and trade of global carbon space.
If the collection of rents over a long period of time is considered impractical, a carbon tax can be considered as the present discounted value of annual rentals.
It can be levied on annual emissions and not accumulated emissions. Again, the proceeds should be distributed on an equal per capita basis.
Any of these will involve substantial transfer of funds to developing countries. These transfers will be as a matter of right and not as charity.
That should be welcome to developing countries. With the expected transfers to India, we would have all the incentives to mitigate as much as we can.
Jyoti Parikh is executive director, Integrated Research and Action for Development. Kirit Parikh is former member, Planning Commission.