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Climate change - Promises, promises by Surjit S Bhalla


This has been a hot week for climate talks. The two laggards, China and the US, both departed from their no commitment stand to boldly announce the following: the US to reduce its carbon emissions by 17 per cent over 2005 levels, and China to reduce the intensity (CO2 emissions per unit of output) by 40-45 percent. Europe has already promised a 40 per cent cut in per capita terms. (The terminal date for these promises is 2020 or 2025). The US promise is not as little as it seems, and the China promise not as large. In per capita terms, the US is promising about a 30 per cent reduction (population will increase by 15 per cent or so between now and 2025), and 50 per cent reduction in intensity of output (output is expected to increase by 50 per cent or so over the next 18 years). (Click here for CO2 Emissions and Intensity: 1990 - 2025)

The headlines are suggesting that it is India’s turn to act. India has consistently avoided making any commitments on CO2 reduction. Its belief, and argument, is that the first commitment of India is towards poverty reduction; such poverty reduction can only come about through sustained economic growth; and sustained economic growth means that carbon emissions have to go up. Hence, India’s promise to keep its per capita emissions below the level of the developed world.

In the previous article (India: Need for Change in Climate, Business Standard, Nov. 7), I had argued that the per capita promise was not in our best interests. Indeed, a better negotiating position for India would be to say that the intensity of our output will not exceed some norm that all countries agree to. Countries whose intensity of output is worse than this benchmark should be required to cut emissions first; those with intensity less should follow in a pro-rata fashion until the world target of total emissions is achieved. Such a stance would be consistent with the negotiating position of both the big polluters, China and the US. And it would protect India’s growth prospects more. (This is pursued in the next and final part of this three part series on climate policy).

Various countries have promised various targets for various years — absolute cuts, per capita cuts, intensity cuts etc. How can these different efforts or different burdens or different promises or different sacrifices be compared? For that, one needs to have a metric of “sacrifice”. For example, assume I belong to a heavily developed economy which is in the post-industrialisation phase. This economy will have lower energy needs than an economy that is in the early stages of industrialisation (LDC). The former will be naturally reducing the intensity of its emissions (energy used per unit of income or output); the LDC is likely to go through a phase of first increasing this intensity. Analysis of over 130 countries for the period 1990 to 2007 suggests the following pattern: emissions per capita increase by 1.5 per cent for each 1 per cent increase in income for income levels up to 2007 PPP $2,700 per capita; by 1.3 per cent for the income range of 2,700 to 20,000, and by only 0.7 per cent for income above PPP $20,000 per capita. These response coefficients are higher for countries whose share of industry in GDP is higher than average e.g. China, and lower for those whose industrialisation, ceteris paribus, is below average, e.g. India. (For comparison purposes, the per capita 2007 income levels for India, China and the US were PPP $4,800, 9,800 and 47,000, respectively).

There is another stylised fact about emissions intensity — they have been falling over time and for countries at all ranges of income. This is ongoing technical change. For the last 20 years, the average worldwide fall in intensity has been around 1.5 per cent per annum. The table (above) reports these intensities, and related data, for selected regions and countries of the world.

Two business-as-usual (BAU) scenarios are reported. Given a set of per capita growth rates, and a traditional growth with emissions model, one can compute the expected use of CO2 emissions in 2025 — this is BAU. This level is computed without allowance for technical change as has already occurred, for different countries at different rates, over the period 1990 to 2007. This technical change is computed simply as the weighted average of the (log) per cent change in intensity, with a higher weight (.65) for the more recent period (2000 to 2007) and a lower weight (.35) for the 1990 to 1999 period. If this trend increase in technological change is assumed to continue for the period 2007 to 2025 (a conservative assumption), one arrives at an estimate of BAU* i.e. the best that can be expected from each country given its level of development. BAU* can also be considered as a “no sacrifice” level. (Note that the total CO2 output with the technical change assumption is 48.3 billion tonnes — still considerably higher than the 30 billion tonnes target — again, a matter explored in the next article).

The intensity of output for each of the three years — 1990, 2007 and 2025 — is also reported. The final column reports on the reduction in intensity from 2007 levels. The following three conclusions are immediately apparent. First, India’s intensity of CO2 use is among the lowest in the world (and equal to that of Europe in 2007), and China among the highest. Second, India’s trend decline in intensity is comparable to the world average. Third, China’s promise to cut the intensity of emissions by 40 per cent is good, but really, it is just what would have been expected given the nature of technical change; actually, it is a few percentage points lower! There isn’t any “sacrifice” or any extra effort. The implications of the results on intensity for country targets, technology transfer, and climate aid will be explored in the next article.

This article is part of a paper “Climate Change — What’s it all about and what is to be done”, forthcoming and available, with past articles, at http://www.oxusinvestments.com, www.oxusinvestments.com