Beyond Kyoto Development and Climate: Engaging Developing Countries

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Beyond KyotoDevelopment and ClimateEngaging
Developing Countries

• Prepared for the Pew Center on Global Climate
  Change by
• Thomas C. Heller
• and
• P.R. Shukla

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Introduction

• Rise in developing county emissions driven by
  development imperatives
• and supported by current resource and technology
  flows
• Paper is more argumentative than options
• Primarily about energy development in the more
  advanced developing countries
• Both climate and development concern fundamental
  issues of energy, transport, land use and food
  security

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Introduction

• Climate policy must be political economy
• Mainstream climate to development
• Climate most viably approached through
  development strategies whose climate benefits are
  ancillary to sustained economic growth
• China and shifting BAU with no climate policy
• US, France and Japan divergence since 1960

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Climate and Sustainability

• Original formulation CC ? SD
• Adaptation (relative to no policy)
• No regrets
• Ancillary benefits
• Alternative formulation SD ? CC
• IPCC Family B1
• Pew Technology Triumphs Scenario
• Alternative Life Styles/Social learning
• Development First

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Climate Effort to Date

• Regime architecture is climate-centric and flows
  from output to input
• CDM holds only limited prospect of increased or
  redirected flows
• No assurance of stable assistance from developed
  to developing countries

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Regime flows from output to input

• Ideal regime is output based
• Inclusive (global problem demands global
  solutions)
• Long term and short term targets
• Property rights with cap trade
• Hard law compliance
• Universal/graduation

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Development Assistance

• CDM holds only limited prospect of increased or
  redirected flows
• Baselines and additionality
• Small projects and transaction costs
• Large projects
• Plantar, Chacabuquito
• Enforcement
• Low values
• US, Japan, EU
• Russia

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Development Assistance

• No assurance of stable assistance from developed
  to developing countries
• Kyoto Based funds
• Special Assistance Fund
• Least developed Country Fund
• Adaptation fund
• GEF record on effective assistance
• Program based assistance?

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Shifting Context Development

• Climate must be situated in development context
  to engage development actors
• New Hybrid States
• Neither competitive markets nor former systems of
  planning with state owned monopolies (SOE),
  development bank financing, internal policy and
  social contracts
• Transition from state- to market-centered
  economies is a semi-permanent state

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Shifting Context Development

• Market reforms driven largely by need for new
  development capital
• Energy reforms everywhere stalled in producing
  competitive wholesale or retail markets
• Patchwork of residual and reformed institutions
  and alliances
• Fragmented agencies
• Corporatized firms with market power
• Low coordination capacity
• Gas/Oil/Coal/Renewables

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Shifting Context Private Flows Rise

• ODA declined 1990-2000 while private flows grew
  five-fold
• Shift in flows from bank lending to foreign
  direct investment (FDI)
• 10 countries receive 70 percent of FDI
• Largest investments are in electricity, natural
  gas and telecom

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Shifting Context Investment Strategies

• FDI organization theory of private business
• FDI driven more by human resources than finance
  (fragmented coordination capacity)
• Vertical extension into infrastucture and
  downstream (electricity) of resource companies
• Hybrid states present new risk profile
• The Power Purchase Agreement experience of the
  1990s stresses value of political assets
• Commercial and political risk not transformable
  into (acceptable) legal risk
• Merchant markets not forthcoming

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Shifting Context Investment Strategies

• Conservative investors hedge by acquiring local
  partners i.e. brownfield investment (after PPA)
• Aggressive investors seek market-making
  alliances
• Companies have organizations, routines and
  experience that lead them to expand markets that
  maximize their asset value
• Public-private alliances needed to define package
  of policies, infrastructures and resources that
  determine future energy shares

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Shifting Context Development Assistance

• Characterized by pledges at Monterrey and
  Johannesburg
• Softer, micro-institutional, and poverty oriented
• Evolution from finance and macro-policy
• Selective conditioning on governance reforms
  (e.g. anti-corruption)
• Channeled through public-private partnerships
• Natural resource controls
• AIDS engagement
• Chad-Camaroon pipeline

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Principles Going Forward

• From output to input
• Policy must tilt development choices toward
  climate-friendly options
• Operate at a scale large enough to alter emission
  trajectories
• Rather than discrete projects, measured against
  business as usual, aim to fundamentally shift
  baselines

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From output to input

• Progression of regime formation?
• Reporting
• Voluntary measures
• Mandatory commitments
• Not accepted by some and little substance by
  others under Kyoto

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From output to input

• Why should developing countries accept
  (voluntary) input goals?
• Advance other development goals more sustainably
• Without assistance through market making
• With assistance, within or outside of climate
  regime
• Plausible coalition of self-interested actors,
  public and private, in and out, across value
  chain, of host country

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From output to input

• Cooperation aimed at programs to shift baselines
  or business as usual
• Infrastructure, policies (mitigative capacity)
• e.g., natural gas LNG price reductions, even
  outside of developing countries
• Foreign exchange policies
• e.g., relative costs of imported gas
• Macro-economic policies
• e.g., China and demand for foreign investment
  capital

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Principles Going Forward

• Aligning Interests (to shift baselines)
• Negotiated alliances of domestic firms/agencies,
  foreign investors, ODA providers
• Targeting Assistance
• Adaptation
• less advanced developing states as non-emitters,
  but disproportional damages of climate change)
• Capacity for climate-favoring development
• Target advanced developing countries as large
  scale (absolute) emitters, with large middle
  class and competitive industrial capacity
• Creating Regional Models
• Accelerate technology diffusion by targeting
  regional leaders

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Options for a Future Architecture

• Input-based goals
• Sectoral goals
• Delhi CNG buses example (more sustainable,
  politically supportable, if sub-optimal)
• Intensity goals
• Theft reduction
• Agricultural cropping shifts
• Policies and measures
• Shadow pricing of dispatch rules for electricity

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Options for a Future Architecture

• Programmatic climate cooperation
• GHG credits for broad policy shifts
• A climate bank?
• Acknowledge the politics of baseline definition
• Bilateral, regional and multilateral financial
  institutions directed aid
• Block damaging projects, subsidize mitigative,
  organize baseline shifts

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Beyond Kyoto Summary

• New politics
• Neither markets nor control
• New actors
• Operational decision makers
• New perspectives
• Political economy and organization theory
• Mainstream climate
• Development first

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For More Information

• www.pewclimate.org