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Saving the firewall of the Kyoto Protocol

India must respond to the SOS for a second commitment period for the Kyoto Protocol or it may be forced into emission cuts based on global emissions rankings while completely neglecting its poor human development index, says Siddharth Pathak

The second commitment period for the Kyoto Protocol might seem like a Sisyphean task, but in the coming months India will have to make up her mind about whether to carry the boulder up the hill or stand at the bottom with it. The first commitment period, which began in 2008, ends in 2012. Efforts to ensure a second commitment period have been underway since 2008 but there are no signs of an agreement, with the protocol limping through various ‘breakthroughs’ like Bali, Copenhagen and Cancun.

Developed country signatories to the Kyoto Protocol such as Japan, Russia and Canada have made it clear they will not sign up to a second commitment period, while Australia is ambiguous about its participation. Although developed countries have made no secret of their unease with the protocol, what remains a mystery is the intentions of emerging economies like India that have publicly attempted to save the protocol but have not built the political capital to see it through a second commitment period.

It is important for India to make a rational decision on the Kyoto Protocol, or, as Milton Friedman put it, “balance costs against benefits to arrive at an action that maximises personal advantage”. India’s growth and associated rise in carbon emissions has resulted in increased international pressure to reduce carbon emissions. If the Kyoto Protocol does not continue, India will lose the firewall that differentiates it as a developing country from other developed countries. With no Kyoto Protocol, emissions cuts in a future regime will be based on emissions rather than level of development. This will pose an imminent threat to India’s position on legally binding emissions cuts where India might have to take on legally binding cuts based on its global emissions ranking, while completely neglecting its poor human development index. This loss of firewall may not mean that India will move into the developed country category, but it will prematurely force the country to peak its emissions and will siphon off precious carbon space.

The carbon market, on the other hand, is an immediate threat. India currently has 630 CDM projects, largely undertaken by the private sector. If we lose the Kyoto Protocol, these speculative markets could become extremely volatile as the Protocol provides the legal anchor for carbon markets. A recent report by the World Bank states that the CDM market is now at its lowest since the Protocol’s entry into force, having shrunk by 46% to an estimated US$ 1.5 billion in new-project-based transactions. Drawing from this, it is highly probable that project developers that are banking their credits for future sale or where the success of a project is dependent on ex post credit sales will suffer huge losses due to low carbon prices.

The demand for carbon credits is going to fall substantially if the Protocol does not survive. Developed countries will then not have strong emissions reduction targets as is evident from current emissions cuts by developed countries which amount to just 3.7 Gt of carbon annually, by 2020. This anarchic situation with low carbon prices and negligible demand for credits will result in a flushing of the market with cheap credits, leading to its eventual collapse. Those who suggest a voluntary carbon market as an alternative must realise that without common rules and negligible emissions reduction targets, developers in India will be left to the whims and fancies of developed country buyers who will put their own conditionalities, leading to increasing transaction costs of projects. Carbon markets can only survive with a legally binding anchor; if the Kyoto Protocol is lost, that anchor is lost too.

Loss of the Kyoto Protocol will also remove India’s strategic edge over developed countries in the current climate regime. Currently, the Protocol offers a compliance and enforcement regime backed by a legal mandate. The compliance and enforcement mechanism helps castigate defaulting developed countries. In the past, Greece and Canada have been reprimanded for evading their commitment to cut emissions and were penalised, with Greece being barred from participating in the carbon markets. The compliance and enforcement mechanism not only ensures environmental integrity, it also binds all countries to the same set of rules, and awards similar punishment for those found flouting the rules. This mechanism not only helps ensure that emissions cuts are carried out, it also looks into finance and technology transfer commitments. The non-compliance of developed countries to provide fast-track financing strengthens the case for a compliance and enforcement regime which will help developing countries monitor commitments made by developed countries and, if found defaulting, reprimand them.

Collective action on global warming might require polycentric approaches; there is possibly no silver bullet solution to the problem. But an agreement between countries to control global warming is essential. A legally binding global top-down regime like the Kyoto Protocol, even with its drawbacks, provides the space for action to be concomitant with the requirements of science. India needs to weigh the costs and benefits of the Protocol with other ideas like an implementation agreement where countries are obligated to inform each other about their mitigation action.

Lugging the Kyoto Protocol up the hill might be an arduous task. But the benefits of keeping it alive are tremendous. A second commitment period has less costs and greater benefits for India. A short-term diplomatic waltz with the US and China might give us ephemeral global importance, but our national interests will be compromised. India must respond to the SOS call for the Kyoto Protocol to secure her own future growth.

(Siddharth Pathak is a policy officer with Greenpeace India. The opinions reflected and presented are the author's own)

Infochange News & Features, July 2011