Home >Opinion >The climate club idea

William Nordhaus of Yale University is among the world’s most pre-eminent economists. He could well be a strong candidate for a Nobel Prize in economics for his decades-long work on environmental issues (a shortlist that should contain Sir Partha Dasgupta of Cambridge University as well). Last year, Nordhaus wrote an influential book The Climate Casino, which is truly a classic in every sense. Now he is in the news again for his radical idea of a “climate club" to break the logjam in negotiations on a global climate change agreement.

What he is suggesting essentially is that countries who want to enter into an agreement should do so without waiting for all 193 countries of the world to join and then impose penalties on the recalcitrant or reluctant nations. Such a penalty could be a uniform extra duty on imports from such nations, with Nordhaus suggesting a 4% figure.

The idea of having a “plurilateral" agreement as opposed to a “multilateral" agreement is not entirely new. I myself did some loud thinking on such an idea five years back and was promptly criticized by many at home. The World Trade Organization (WTO), for instance, is a multilateral agreement now signed on to by 161 countries. But within the multilateral accord, there is a plurilateral window like, for example, the agreement on transparency in procurement of goods and services. India is a WTO member, but is not a signatory to the transparency agreement. Thus, a plurilateral agreement can be signed by a group of like-minded countries and it is open for others to do so at a later date. But Nordhaus has gone one huge step ahead and proposed a punitive measure to deal with what economists call “the free rider problem"—that is the unfair advantage taken by those who do not (but in reality those who should) subscribe to such a pact.

But while seemingly bold and innovative, the Nordhaus solution has two basic flaws. First, it assumes that countries who are big emitters of greenhouse gases that cause global warming or even a group of such countries can actually come up with an enforceable agreement to everyone’s satisfaction and that it will be environmentally optimal.

Currently, it could be argued that while the offers on the table made by the 28-member European Union— which accounts for something like 11% of global emissions—are environmentally meaningful from a 2020 or 2030 point of view, the offers made by the US, and the offers to be made by China and India will certainly not be so. Second, almost certainly the extra import duty that Nordhaus advocates would be incompatible with the existing rules governing the functioning of WTO—in technical parlance, it will definitely be ruled WTO-incompatible. Of course, WTO rules can be changed, but that itself requires all its members to agree.

Nordhaus has been a tireless champion of a carbon tax and one of the elements that would bind the members of his climate club would be an agreement on such a levy. His book suggests a tax of $25 per tonne of carbon dioxide. Some months back, former US secretary of the treasury Larry Summers too extended his support for such a tax. The timing could not have been more propitious given declining oil prices—a $25 per tonne of carbon dioxide tax would add about 25 cents per gallon to the price of gasoline (petrol).

But while such carbon tax is an economist’s delight, it is a politician’s nightmare, especially in the US and it is simply not on the cards in that country. The Europeans may buy it, but the Chinese have been quiet. India already has a carbon tax of sorts with its cess of 200 per tonne on both indigenously produced and imported coal, but increasing that to the Nordhaus level even over a period of five years would be very damaging to our growth prospects and impose a huge burden on electricity consumers in particular.

The “climate club" approach has attracted much academic support as well as support from influential media commentators in the West. It may even get the support of small island states and many African countries who are not major emitters, but who will be at the receiving end of the vagaries of climate change. The parallel with the highly successful Montreal Protocol that deals with the phase-out of ozone depleting substances has been advanced. Under that protocol, trade in such substances is banned. But a climate change agreement is totally different. The Nordhaus idea will not be accepted by the major emitters.

It is pretty obvious that at Paris later this year in December when countries congregate to finalize an agreement to combat global warming, the outcome will not be what environmental evangelists yearn for. The global goal of limiting temperature increase to 2 degrees Celsius over pre-industrial levels in this century will not be achieved with what the major emitters have put on offer. The world certainly needs an enforceable pact. What Paris should deliver is a system of enforcement. It will be a beginning, but a beginning that will reveal a huge gap between what is needed and what is actually promised by individual countries especially the major emitters, particularly China, the US, India and Russia. So if we look at Paris as a destination, we will certainly be disappointed and perhaps even enraged. But if we look at Paris as a springboard, as the beginning of a long journey then perhaps we can take hope and work towards something that is politically acceptable and that does not constrain economic growth.

Nordhaus’s frustration with current approaches is understandable and is widely shared. But his solution is not the way to go. He himself accepts that it is utopian. There is simply no alternative to patient, painstaking and step-by-step diplomacy. The solution will be incremental and will not be in the form of a magic bullet like the “climate club".

The author is a former Union minister and Rajya Sabha MP.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Click here to read the Mint ePaperMint is now on Telegram. Join Mint channel in your Telegram and stay updated with the latest business news.

Edit Profile
My ReadsRedeem a Gift CardLogout