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Saturday, March 27, 2010

CARBON TRADING AND INDIA’S FOREIGN POLICY

BIJU P R
LECTURER IN POLITICAL SCIENCE,
GOVT.BRENNEN COLLEGE,
THALASSERY.

Seminar paper presented at State Level Seminar organized in St.Mary's College,Sultan Battery,17th September,2009,


Increasing industrial activity and burning of fossil fuels and deforestation have resulted in higher level emissions of carbon dioxide and other green house gases which eventually led to global warming. Concerns about global warming and climate changes were subsequently directed to a growing debate on the impact of development on the environment. Global warming and climate change require all societies to work together. While the major responsibility for the accumulation of green house gasses in the atmosphere lies with the developed countries, its adverse affects are felt most severely by developing countries like India. When we speak of ‘shared responsibility’, it must include the international community’s shared responsibility to ensure the right to development of the developing countries. Development is the best form of adaptation to climate change.

Control of climate change and global warming without compromising the development requirements becomes the greatest challenge that India’s foreign policy ever faced. For academicians and students, it is in the analysis and working of these challenges that the opportunities, threats and joys of diplomacy and foreign policy lie. Our generation has been fortunate in having lived through the fastest ever period of change in India’s history of foreign policy.

Perhaps the simplest definition of foreign policy is that it is the attempt by a state to maximize its national interest in the external or international environment. Even this simple definition suggests some of the complexity of this attempt. The definition assumes a commonly agreed definition of the national interest in the country. Foreign policy is an ends and means problem, a problem of achieving certain national goals with the limited means available. Unlike domestic policy, the attempt to attain one’s goals has to be made in an environment which is largely outside of one’s own control. For instance, if any one state in the international system attains absolute security for itself, there would be absolute insecurity for every other state in the world. So merely maximizing one’s own interest competitively will not suffice. One needs to include some measure of cooperation, or at least of alliance building or working together. Of the two basic goals of the state, security and prosperity, one, security, is often presented as a zero sum game. The other, prosperity, requires states to cooperate with each other. Both goals can therefore pull one’s foreign policy in opposite directions.And this competition and cooperation with other states to maximize one’s own interests takes place in a perpetually changing external environment and while the states themselves gain and lose relative and absolute power. As they change, states change or modify their definitions of national interest.

India’s Foreign Policy Today

The true realization of our foreign policy potential had to wait for the end of the bipolar world in 1989 and our economic reform policies, openingup the Indian economy to the world. Historically speaking, India has been most prosperous and stable when she has been most connected with the rest of the world.

In many ways, the period after 1991 has been the most favorable to our quest to develop India. The post Cold War external environment of a globalizing world, without rival political alliances, gave India the opportunity to improve relations with all the major powers. The risk of a direct conflict between two or more major powers had also diminished due to the interdependence created by globalization. And the strength of capital and trade flows was directly beneficial to emerging economies like India, China and others. We saw the evolving situation as one in which there is an opportunity for India. The consistent objective of our foreign policy was and remains poverty eradication and rapid and inclusive economic development. If we are to eradicate mass poverty by 2020, we need to keep growing our economy at 8-10% each year. This requires a peaceful and supportive global environment in general and a peaceful periphery in particular. The period since 1991 has therefore seen a much more active Indian engagement with the neighbours, whether through repeated attempts by successive governments to improve relations with Pakistan, or the border related CBMs with China, or free trade agreements with neighbours starting with Sri Lanka in 1998, or the Ganga Waters Treaty with Bangladesh.

The period since 1991 has been a period of remarkable change in the scale of our ambitions, and in our capacity to seek to achieve them. The international situation made possible the rapid development of our relationships with each of the major powers. Equally important was another necessary condition which gave India space to work in: India’s rapid economic and social transformation. As a result of twenty five years of 6% growth and our reforms since 1991, India is today in a position to engage with the world in an unprecedented manner. Our engagement with the global economy is growing rapidly, with trade in goods and services now exceeding US$ 330 billion. Our needs from the world have changed, as has our capability. India can do and consider things that we could not do or consider twenty years ago. This is reflected in how India perceives itsown future, its ties with its neighbourhood and its approach to the larger international order.

Today, however, it seems that we may be on the cusp of another change in the nature of the world situation. Looking at the world from India, it often seems that we are witness to the collapse of the Westphalian state system and redistribution in the global balance of power leading to the rise of major new powers and forces. The twin processes of the world economic crisis and economic inter-dependence have resulted in a situation where Cold War concepts like containment have very little relevance and where no power is insulated from global developments. The interdependence brought about by globalization imposes limits beyond which tensions among the major powers are unlikely to escalate. But equally, no one power can hope to solve issues by itself, no matter how powerful it is. What seems likely, and is in fact happening in Iraq, Afghanistan and elsewhere, is that major powers come together to form coalitions to deal with issues where they have a convergence of interests, despite differences on other issues or in broader approach. In other words, what we see is the emergence of a global order marked by the preponderance of several major powers, with minimal likelihood of direct conflict amongst these powers, but where both cooperation and competition among them are intense. The result is a de-hyphenation of relationships with each other, of each major power engaging with and competing with all the others, in a situation that might perhaps be described as “general un-alignment”.
Looking ahead, the real factors of risk that threaten systemic stability come from larger, global issues like terrorism, energy security and environmental and climate change. With globalization and the spread of technology, threats have also globalised and now span borders. These are issues that will impact directly on India’s ability to grow and expand our strategic autonomy. It is also obvious that no single country can deal with these issues alone. They require global solutions.

Energy Security and Climate Change

As for energy security, this is one issue which combines an ethical challenge to all societies with an opportunity to provide for the energy so necessary for development. For India, clean, convenient and affordable energy is a critical necessity if we are to improve the lives of our people.Today, India’s per-capita energy consumption is less than a third of the global average. (Our per capita consumption is only 500 kgoe compared to a global average of nearly 1800 kgoe). For India a rapid increase in energy use per capita is imperative to realize our national development goals.

The Market Approach Under Kyoto Protocol .

The Kyoto Protocol was initiated by the United Nations Framework Convention on Climate Change and ratified (agreed to in principle) by 181 countries and the European Union as a whole, individual entity in 1997, and was put into effect in 2005. This protocol was proposed by the international community to address and reduce greenhouse gas emissions that have led to global climate change. Member countries are placed into different categories; Annex I countries make up the industrialized nations. Annex II countries are developed countries that provide financial support to the developing countries. The Annex II grouping consists of countries that are members of the Organization for Economic Co-operation and Development. The third and final category makes up the developing nations, who have no limitations on greenhouse gas emissions as emissions are an essential by product to building a stable economy and raising their citizens out of poverty. Once these countries become “developed” they are then subject to the greenhouse caps that Annex I and II countries currently have. Many countries are both Annex I and II countries. The allowable emissions for member countries are between 6 and 8% less than their 1990 emission levels; meaning the limit is different for every member country; keeping in mind that developing nations are exempt from emission caps and are inelligible to sell carbon credits. It is up to each individual country to regulate their industrial outputs to meet the 1990 levels of emissions .

The Kyoto Protocol has some flexibility, allowing credits to be obtained as part of the cap-and-trade system (original assigned quotas) and as the result of a project that offsets emissions. There are three methods by which this can be accomplished: Joint Implementation---a developed country, or operator within that country, seeking to avoid the costs of domestically reducing polluting gases, can instead set up a project to reduce emissions in another country and receive emissions credits. Clean Development Mechanism---a developed country or operator can sponsor an emissions reduction project in a developing country and receive emissions credits. Emissions Trading---participating countries and operators can trade credits over the international carbon-credit exchanges, allowing those with an emissions allowance shortfall to purchase credits from those with a surplus .

The Clean Development Mechanism (CDM) allows governments or private entities in industrialized countries to implement emission reduction projects in developing countries in order to meet their emission objectives. The industrialized nations receive credit for these projects in the form of "certified emission reductions" (CERs). The purpose of the CDM is to promote "sustainable development" while contributing to the objective of the FCCC. In contrast, the purpose of JI, according to the Protocol, is simply to help Annex I countries meet their emission commitments. Developing countries including India have been absolved of any responsibility towards reducing emissions in the first commitment period 2008-2012, of the Kyoto Protocol.

C D M AND India

Increased energy efficiency, greater reliance on renewable energy sources, and the use of cleaner technologies together bring enormous economic, social, and environmental benefits that can lead the country on a much-desired road to sustainable development. Clean Development Mechanism can be one of the major tools to bring in the above benefits for developing countries including India.

India entered the CDM market early on with the submission of a new methodology in April 2003. Since then, the Indian CDM pipeline diversified into projects from 30 economic sectors, mainly small (on average 70,000 credits per year), although the observed trend is that it is increasing. This is not surprising as India’s per capita carbon dioxide emission is very low — only 1.21 tonnes per annum, roughly one-fourth of the world average per capita emission of 4.50 tonnes per annum. However, in aggregate terms, India is the fifth-largest emitter of fossil fuel-derived carbon dioxide, and its total emissions are growing rapidly. Not surprisingly, India is now under severe international pressure to accept binding commitments for emission reduction in the post-2012 phase of the Kyoto Protocol (KP).However, cuts in absolute emissions are not only morally unjust to impose on the part of the developed countries, but also practically suicidal for India to accept them. But due consideration must be given to potentially beneficial policy instruments, such as a participation in an internationally tradable emission permits regime, or, what is alternatively referred to as, a global cap-and-trade system of emission permits

Challenge and the Policy Scenario

The foreign policy scenario of carbon trading can be understood on the backdrop of the flexibity mechanism implied in the market approach under Kyoto Protocol.

Policy scenario I-In the context of carbon trading what matters most is the three flexibility accorded to developed countries in meeting their reduction commitments.Among the flexibilities emission trading and joint implementation are exchanged between developed countries where as the third category clean development mechanism requires a partnership between developed and developing countries.The paradox is that at the sametime there exists parallel market for carbon trading among the developing countries especially in asian countries like india,china,japan.The differential treatment between developed and developing countries in the flexibility mechanism therefore seems directly corresponding to the existing unequal exchange in world trade.

Policy scenario II-In carbon trading,there exists free and open access between developed countries,where as it is not so open in the case of developing countries.Therefore it creates a situation in which what is not used in one part is normally taken to use in another part of the world.Thus the exchange of carbon credits deliver a transferable right to dumb toxic elements in to the environment and vegetation.In short the scheme can achieve a maximum of carbon neutrality that 9is there is no improvement in the rate of net emission reduction.

Policy scenario III-developing countries especially India has commitment to reduce there carbon emissions under the Unframework Convention on Climate Change,eventhough this commitment is not presently quantified.In future,after the commitment period 2008-2012, it is anticipated that Indian foreign policy has to face immense pressure from the international community to have quantified limitation or redcuction commitments

Conclusion

The foreign policy issue and concerns related to the implementation of emission trading in India is attributed to this context.Acces to the flexibility is unequal.At the same time,developing countries have a parallel market for carbon trading among themselves with potential to implemenmt it especially among india and china ,who are the largest sellers of carbon credits and japan which is the largest buyer of the carbon credits.Since carbon trading is not a part of the global trade as conditioned in WTO ,the scheme provides better opportunities for vested interest to hinder Indian market. Infact the trade seems to carry negative environmental, social, political and economic consequences for India and poses great foreign policy challenges

Endnotes

The regulated green house gases are Carbon Dioxide,Methane,Nitrous Oxide,Sulphur Hexafluoride, Hydrofluorocarbons, and Perfluorocarbons and commonly referred to as ‘Carbon’.
The Kyoto Protocol includes three so-called ‘flexible mechanisms’, instruments which allow governments in industrialised countries to achieve parts of their emission reduction commitments under the Kyoto Protocol through projects abroad rather than through action or policy changes at home.

The emission trading system will allow industrialised countries to buy and sell emission credits. Countries that keep emissions below their agreed target will be able to sell the excess emissions to countries that find it more difficult or more expensive to meet their own targets.

Joint Implementation mechanism will allow industrialised countries to gain credits for financing emission reduction projects in other industrialised countries with Kyoto targets.

Clean Development Mechanism (CDM) will allow industrialised countries to gain credits for financing emission reduction projects in countries without Kyoto targets. The CDM was added at a late stage of the negotiations that culminated in the Kyoto Protocol. The CDM goes back to a Brazilian proposal to create a "Clean Development Fund" as part of the Kyoto Protocol. This proposal, supported by G-77/China, was based upon penalizing those industrialised countries not complying with the emission targets set in the Kyoto Protocol. The resources of the fund were to be made available to non-industrialised countries for use in climate change mitigation projects (90%) and projects to help countries fight the consequences of climate change such as floods, droughts – the so-called adaptation projects. Industrialised countries opposed the idea and the Clean Development Mechanism was created as a compromise.

Bibliography

1.Forests and the European Union Resource Network (FERN). Flexible mechanisms
Three ways to sidestep emission reductions, http://www.fern.org/pages/climate/flexmech.html.

2.Menon,S., India’s Foreign Policy, Delhi University, 19 January 2009

3.What is a Carbon Credit? http://www.wereyouwondering.com/what-is-a-carbon-credit/, retrieved on 13/09/09

4. Ho .Dennie. , Definition of Emission Allowance Credit, http://www.ehow.com/about_4855733_definition-emission-allowance-credit.html,retrieved on 13/09/09

5.Tata Energy Research Institute,CDM in India ,(Kyoto Mechanisms : InformationPlatform for CDM) march 2004,http://www.kyomecha.org/pdf/TERI_Report_0729.pdf,retrieved on 13/09/09

6. Gorina, Natalia., CDM in China and India: different challenges ahead, CDM & JI Monitor, 31 October 2007, http://www.icfi.com/Markets/Climate-Change/doc_files/cdm-china-india.pdf,retrieved on 13/09/09

7.Ojha ,Vijay P., Emission trading rights and India,The Economic Times,19 Jun 2009, file:///C:/Documents%20and%20Settings/user/Desktop/carbon%20trading.htm,retieved on 13/09/09

8. Assunção ,Lucas and Beatriz Garcia, Trade and Investment Implications of the Kyoto Protocol, retrieved on 13/09/09,http://r0.unctad.org/ghg/download/publications/Trade%20and%20Investment%20Implications%20of%20the%20Kyoto%20Protocol.pdf











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