Why COP26 Is a Missed Opportunity

Going by the past record of UN Climate Conferences, the latest one that concluded in Glasgow a few days ago was no different. It was a repeat of the same old discussions, the same sticking points, the same contentious issues, and finally the usual watered-down statement that is palatable to all. That is because it’s hard to get 190 odd countries to agree on what is the best way to mitigate and contain climate change, given that each is at a different stage of economic development.

If the Kyoto Protocol of 1997 had legally binding obligations that countries were expected to sign up to, many rich, advanced countries including the US didn’t ratify it. And some others like Australia signed up to it, a decade later. So legally binding commitments and obligations are avoided nowadays at these summits. Which is why the Paris Climate Accord of 2015 was hailed as a success because, if nothing else, it acknowledged for the first time that countries can have “common but differentiated responsibilities”. Article 2.2 of the Paris Accord statement says

“This agreement will be implemented to reflect equity and the principle of common but differentiated responsibilities and respective capabilities in the light of different national circumstances.”

There were nationally determined contributions (NDCs) that countries could now make and there was also greater agreement than before that rich and advanced countries needed to help poorer, developing ones with transfer of clean technology and with the means to finance their adoption.

Climate change is a vast subject and has several focus areas, that the world has agreed to concentrate on, such as carbon emissions, greenhouse-gases, global warming, deforestation, water conservation and management, etc. The prime focus of COP26 at Glasgow was carbon emissions and to achieve net-zero levels by 2050. Some European countries have set themselves even more ambitious targets of achieving net-zero levels by 2030.

In my recent blog post on the carbon-border tariff planned to be introduced next year by the EU, I had written that it would be a terrible idea, it reeks of protectionism and it would be ill-timed, when the world is still reeling from the Covid pandemic. That said, the European Union has always been at the forefront of leading initiatives on climate change, and it would have made much more sense therefore, to reform the emissions trading system that the EU currently has, to a carbon tax on businesses.

I thought that carbon tax and the EU’s CBAM (Carbon Border Adjustment Mechanism) would be discussed at the COP26 Climate Summit in Glasgow. This, especially because it was reported that climate finance got a lot of attention at the summit. However, there was no mention of carbon taxes being discussed or EU’s CBAM at the conference. Instead, CBAM became a side-event at the Glasgow conference, with EU sharing its CBAM plan at its pavilion at the summit.

How can countries discuss climate change and reduction of carbon emissions without discussing industrial contributions to it, and how they are to be reduced? Besides, even as part of climate finance and government policy, carbon taxes – whether of the border tariff type or not – are highly relevant and should have been part of the main conference agenda.

I think that the idea mooted by China at the Copenhagen Climate Summit in 2009, of carbon-intensity of a country’s GDP as being the determinant of its carbon-reduction efforts is worth serious consideration. It is a much fairer and just measure than per capita carbon emissions which can be quite misleading when it comes to large, populous countries such as India and China. However, it is not merely the carbon-intensity of GDP that matters, because in a globalized world, one needs to factor in what portion of total output is produced on behalf of other countries. For example, China has been factory to the world for the past couple of decades, if not more, but not all of it is for domestic consumption. If countries such as the US, UK and Europe decide to shift their manufacturing to China for labour cost arbitrage reasons or any other, then they should share their burden of China’s emissions/pollution as well.

The globalised world of business needs to share the costs of carbon reduction; Image: Chris Leboutillier on Unsplash

This is where the EU’s carbon border tariff idea might be useful as a starting point. A similar system can be worked out which applies to all countries that manufacture/produce merchandise that is traded, including as part of global supply chains. Suddenly, what reeked of protectionism by the EU can become a way of countries sharing the carbon emission reduction costs, based on the goods they trade.

At the micro-level, the system will help share costs of carbon-reduction within firms operating in different markets/regions, as well as between firms that trade with each other as part of the supply chain. These will, of course, be carbon duties that will be decided and imposed by governments of all countries at a rate commonly agreed upon. Just as in the recent case of the minimum global corporation tax that several countries have agreed to, this carbon-tariff will also have to be a fixed rate, so that companies can’t get around it by shifting production or changing suppliers from different countries.

This could be one way to make carbon-intensity of GDP work at the level of goods that are traded between countries globally and put the EU CBAM idea to work for the benefit of all. Separately, there ought to perhaps be a carbon tax on the most polluting industries even on domestic output within countries. In this context, I thought it might be worthwhile sharing a report by the IMF that was discussed with Brookings Institution in June 2021 that I came across recently at the Brookings website. It shares ideas on a carbon floor price that could be set by a group of high-emitting countries and could then be implemented on a global or regional basis. While I find it an idea worth exploring, it lacks a basis for determining what the floor price ought to be, in the way that carbon-intensity of GDP works as a determinant for the carbon tariff. The absence of a significant discussion around any of these or any other ideas on carbon pricing at the Glasgow summit is a missed opportunity.

The other disappointments expressed by many observers and commentators already is the phasing out of subsidies on fossil fuels as well as the deferred target years for net-zero carbon reduction. China and India have set their net-zero target years as 2060 and 2070 respectively, which were hardly inspiring. However, in the case of India, we have also committed to reduce carbon emissions by one billion tonnes by 2030, and pledged to increase the share of renewables in our energy mix to 50% by 2030. We have also committed to reduce the carbon intensity of our GDP to 45% by 2030. India is not only the fourth largest carbon emitter in the world, we are also reported to be the fourth largest in installed renewable energy capacity, with 40% of our energy mix already coming from renewables. If that is indeed true, increasing it to 50% over the next decade should be a cakewalk.

India’s reduction of emissions by 1 billion tonnes from total projected emissions by 2030 is a feeble commitment to climate change, considering that on a cumulative basis, we already account for 48.3% of total global emissions according to Our World in Data. What’s more, on an annual basis India emits almost 2.5 billion tonnes of carbon each year, an amount that has steadily risen since the mid ‘90s, when we experienced a higher rate of economic growth. A commitment to reduce annual emissions by 1 billion tonnes – equivalent to halving our annual emissions – might have been a stronger commitment to make.

On subsidies for fossil fuels, India and China are both overly dependent on coal as well as oil. In energy alone, most of our electricity is thermal power and therefore, even shifting to electric cars makes little sense, if most of the electricity to power them comes from coal. We ought to have shifted to natural gas for our ultra-mega power plants at least, since that is a cleaner source of energy, though that would have required renegotiating power purchase agreements with states, and raising power tariffs which states have been loth to do. To make matters worse, states offer farmers (an important vote bank) free power, which has not just affected the performance of utilities, it has depleted the ground water table and presents a serious water scarcity crisis, especially in states like Punjab.

Subsidies are of two kinds: to consumers to protect them from exorbitant price increases, and to producers to encourage innovation and production. In most developing countries, including India, consumers of oil and gas are offered subsidies to allow them to consume the fuel without paying exorbitantly high prices. There are taxes, though, on fuel and in recent years, those have been increased steadily by the government to make up for the shortfall in tax revenue, having given the corporates generous tax breaks. Those taxes tend to have an inflationary impact on all goods and services, as is bearing out in India, and the government has recently made a token cut in excise duty ostensibly to dampen inflation. I would think it’s more with an eye on assembly elections next year, since all BJP ruled states have also responded with a cut in state VAT on fuel.

The one good development in India in the past couple of decades is the scrapping of subsidies on LPG (liquified petroleum gas) or cooking gas for most urban middle-class households and targeting the subsidy to low-income households and the poor, including in rural areas.

What we need to subsidise are renewables, clean tech, EVs, bio and synthetic fuels, green hydrogen, etc. both in terms of R&D, production and consumption. Reducing subsidies on fossil-fuels is a contentious issue with poor and developing countries, since their people depend on them. However, governments can consider reducing subsidies to producers of fossil fuel, or discourage them from producing more, so that they shift to cleaner-burning fuels and renewables. That said, it is not going to be possible to completely avoid fossil fuels anywhere in the world; one must attempt to reduce its share in the total energy mix to as low as possible.

In that respect, the preferred phrasing of “phasing down fossil-fuel subsidies” over “phasing out”, which seems to have taken up a lot of the media time and space is not necessarily misplaced. What it needs, though, is a clear time-frame and level to be specified and that can be part of the nationally determined contributions (NDCs) that each country makes.

The real disappointment with COP26 is that there was nothing new brought into the discussions that could take the climate change agenda forward. Climate finance specifics for mitigation and technology transfer and especially discussions around a global carbon tariff on traded goods might have injected a much-needed dose of time-bound, action-oriented decisions. Instead, it was the usual commitments and pledges and going over the same ground again and again, that the world is really quite tired of.

Until the next climate summit, then. Unfortunately, climate change and global warming won’t wait for time.

The featured image at the start of this post is of Indian Prime Minister, Narendra Modi, being welcomed by British Prime Minister, Boris Johnson, and UN Secretary General, Antonio Guterres at the recently concluded COP26 Summit in Glasgow, UK; Image: Prime Minister’s Office on Wikimedia Commons under the Indian Government Open Data License.    

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