Game at Bali

Game at Bali

Halting climate change is a difficult game. Like other aspects of international relations, trust is a commodity in short supply in negotiations to this end. In such talks, progress is intermittent and halting. Too much should not be expected from the UN climate change conference being held in Bali now.

The spotlight is on China and India. Developed countries hope to shift the burden of halting emissions on the two countries after 2012. India’s position is marked with resistance, for it routinely argues against increased emission caps being imposed on it. Its argument is based on the fact that its per capita emission of CO2, a major component of greenhouse gas emissions, is low in comparison with developed countries. India’s average of 1 tonne per capita is much lower than the US’ 20 tonnes per capita.

There are serious limitations to this argument beyond a point. One, it’s used by rich countries to argue against any emissions cap unless India and China are brought into a binding agreement. Two, India is not a planet; it’s part of the world and has to face climate change consequences as any other nation. Three, it must take into account its present growth concerns with those of its future generations.

The rich and poor country, “get them first or bust" argument reminds one of a game called Prisoner’s Dilemma. The parable is simple: lack of mutual trust leading to poor outcomes when efficient results are possible.

All is not lost, however. Even in Prisoner’s Dilemma situations, cooperation is a distinct possibility. For one this requires that the game not be a one-shot, once-and-for-all, grand treaty, type of bargain. The play should be continuous, with the agreement on controlling climate change unfolding over time. A series of trigger points whereby countries are penalized for deviating from pollution quotas, not ensuring smooth carbon trading, etc., have to be part of the package. In this respect, carbon trading markets involving countries is the best means to ensure a continuous game and cooperation.

An equally important condition is the will of the nations involved to tackle the problem. In economic parlance, it’s called discounting the future. A “business as usual" scenario is the result of a low discount factor. This implies impatience. A country does not care about its future, so long as it continues to grow. A larger discount factor leads to cooperative outcomes. But how does one generate higher values for this factor? In financial markets, it’s the rate of interest on assets. But in carbon trading markets, where externalities are writ large, this is not well defined. Matters such as equity, endowments and past history of pollution among other issues, intervene. One way of ensuring cooperation would be to transfer high-end environmental technologies to developing countries at low cost. This should be in addition to developmental aid. Here rich country reluctance is very visible. They are yet to deliver 0.7% of their GDP in aid by 2015. This is a big roadblock in progress towards an effective climate change regime.

These factors explain many aspects of the Indian position. The country moved to a high growth path only in the last 10 years. This high growth path is energy-inefficient, but is important for eliminating poverty and ensuring prosperity. Indian policymakers are scared that binding emission targets may derail this trajectory.

Rich nations have freely polluted the earth since the Industrial Revolution. It’s iniquitous to demand that India and China share a big part of the burden. But equally, the two countries have to realize that it can’t be business as usual. If the world goes waste, so do they. As Nicholas Stern has argued, even a minimal view of equity demands that rich countries’ reductions should be at least 80% of the overall target.

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