Key Questions for India at Paris, Global Policy Journal, 10 June 2015

http://www.globalpolicyjournal.com/blog/10/06/2015/key-questions-india-paris

Vivan Sharan explores the questions Indian policymakers must ask in the run up to the UNFCCC negotiations.

In December 2015, world leaders including Prime Minister Modi will gather in Paris to try and agree on the successor to the Kyoto Protocol under the UN’s Framework Convention on Climate Change (UNFCCC). This potential new agreement is eagerly anticipated by climate change observers. In India, a country with 800 million living at less than two dollars a day, this amounts to only a handful of people in New Delhi. The fact that over half of the country relies on agriculture for employment is of more immediate concern than international negotiations.

There has been a rise in farmer suicides in India – poor farmers, heavily dependent on rain-fed agriculture have been unable to cope with the pressures of crop failure due to erratic weather. India needs to urgently protect its farmers from income risk due to erratic weather. Notwithstanding the overwhelming scale of domestic action required to prepare for these impacts of climate change, Indian policymakers must be able to find the answers to the following key questions in the context of the UNFCCC negotiations.

How ambitious does India want a new agreement to be? This question sounds innocuous but is linked with several implications that need to be carefully evaluated. Any agreement signed now, is likely to be in force for the next decade or more beyond 2020. A low level of ambition will correlate with a high discounting of future costs of climate change. However this strategy may not be entirely irrational given the uncertain outcomes of technological progress. For instance if Lockheed Martin is able to unlock the potential of nuclear fusion, as its experimental ‘Skunkworks’ division promises to do within a decade, all energy can become clean and free within our lifetimes. Of course India should not count on the benevolence of the US military industrial complex for technology transfer!

A high level of ambition on the other hand, is unfortunately being conflated with expansiveness of the agenda set by the agreement. An expansive agenda of the sort the sustainable development conversations have reflected can be its own enemy. On the 20th anniversary of the pivotal ‘Earth Summit’ at Rio, world leaders signed a very expansive sustainable development agenda but failed to agree on definitions of now ubiquitous terms. Terms such as “green economy” have come to represent the abstractions of the sustainable development discourse and a climate agenda that is expansive could also potentially be non-constructive.

A fine balance between expansiveness and ambition will determine the credibility of an international agreement. For India, limited but focussed ambition would go a long way in ensuring that low hanging fruits such as energy efficiency, that can save up to half of urban energy consumption in the form of transportation and buildings, can be reaped.

Should the agreement be legally binding and who should monitor it? These are two interrelated questions that OECD countries have focussed extensively on. The US in its UNFCCC submission on the elements of a 2015 agreement for instance has stressed that some elements of the agreement will necessarily have to be internationally legally binding, including most controversially, a timeline for commitments. For India to agree to an emissions ‘peaking timeline’ would imply that India is ready to cap its socio-economic progress at a certain date. Given that around 300 million people in India still lack access to electricity and per capita energy consumption is at a small fraction of OECD levels, this would amount to political suicide. The Indian parliament, much like the American congress, has to ratify all international agreements that have legal force.

Monitoring and assessment of commitments is another area that OECD countries have insisted on both in climate change negotiations as well as in the parallel negotiations on the Sustainable Development Goals under the UN General Assembly. However this is another problematic area. India’s genuine fear is that monitoring and assessment will be heavily biased against developing country priorities – including the need to build requisite governance capacities before implementing deep domestic reform. Even if a third party institution is set up, countries such as India simply do not have the capacity to contribute meaningfully.

A parallel can be drawn from the complex world of global financial regulations where India continues to be a recipient of rules based frameworks despite being a G20 member. This is owing to the inherent design of rule setting institutions such as the Basel Committee on Banking Supervision and the lack of high level Indian expertise and participation in rule setting discussions. Despite his broad understanding of monetary issues, India’s Central Bank Governor Raghuram Rajan cannot be substitute for a cadre of capable financial market professionals who can negotiate in such forums.

Should India be on the defensive in terms of local action? This is perhaps the only no-brainer from among the key questions. India has more than enough to show that it’s voluntary commitment both in has been remarkable. In a recent Brookings Institution report that I have co-authored with Samir Saran from the Observer Research Foundation, we have shown that India’s per capita commitment in terms of spending on renewable energy has been more than commensurate with its economic weight. In 2012, “the average Indian spent about one and a half times what the average Chinese spent, between 2.2 and 4.3 times what the average Japanese spent, and around 2 times what the average American spent” on renewable energy. In addition, the new targets of 100 gigawatts of solar and 60 gigawatts of wind energy over the next few years signal strong commitment that perhaps no international process could solicit.

Former Australian PM Kevin Rudd has recently authored an article for New York Times in which he has stated, rather worryingly, that India’s growing population makes it an important stakeholder in the debate on climate change. In fact this is precisely the narrative that has to be countered by Indian policymakers. India’s population is largely living at subsistence levels, and the lifetime energy consumption of the average Indian is at a fraction of the lifetime energy consumption of an average OECD citizen. Indian policymakers would do well to involve civil society and media in a meaningful attempt at presenting such facts. India’s population is not holding it back from its commitments as the per capita spending on renewable energy proves.

In addition, in terms of local action through taxation, India is well ahead of the curve according to its latest Economic Survey. The implicit carbon tax on diesel (42 dollars) and petrol (60 dollars) is well above what is considered to be a reasonable initial tax on carbon dioxide equivalent emissions per ton. India’s tax on coal is also relatively high at one dollar per ton.

What role will markets play and what will be considered as ‘credible’ policy signals? Markets will likely be a critical piece of the climate change financing puzzle. Given that the world is finding it difficult to mobilise 100 billion dollars for the Green Climate Fund (some 5 billion dollars have been earmarked thus far), markets must be leveraged to fill extant financing gaps. Long term institutional investors are sitting on enormous amounts of capital, close to 110 trillion dollars, more than enough to fulfil the global financing requirement (World Bank estimates that the cost of adapting to a climate that is two degrees warmer than today between 2010 and 2050 would be around 70 to 100 billion per year).

The challenge lies in getting investors such as Sovereign Wealth Funds and Pension Funds in OECD economies, to realize that they need to diversify their portfolios to hedge risks of being overinvested in advanced economies. This in turn requires a change in risk assessment metrics, a new financial culture of the sort the United Nations Environment Programme’s Inquiry into the Design of a Sustainable Finance System is advocating and a more context appropriate conversation in the global regulatory forums.

And finally, how should India partner with China and the US? Both countries have effectively capped their level of ambition by signing a bilateral deal at the last APEC Summit. While US President Obama has been keen on leaving a policy legacy that is not simply of inaction, China is willing to commit to peaking emission by 2030 given that it has installed large coal capacities in a short period of time. For China, the energy production baseline is already much higher than India can hope to achieve. Instructively, China produces more energy through coal than all of the oil extracted in the Middle East.
China, like the US, has seen a proliferation of clean technologies, both in conventional and unconventional energies. This has been largely led by US firms that are spearheading innovations that can also transform the Indian energy landscape. This is precisely the technological gap that India must bridge through close bilateral and trilateral cooperation.

An additional source of clean energy technologies is the US military industrial complex referred to earlier – and to solicit such technologies India would need to create a robust domestic ecosystem of policies and institutions that enable technological diffusion. A National Offset Policy would be one such clear policy measure that could help bring cutting edge clean technologies to Indian industry. As of today, a poorly articulated defense offset policy is all the country has in terms of a technological lever to help create domestic R&D capacities as a positive spin off from large defense deals. This can be democratized so that all industries can benefit from offset obligations of foreign technology firms.

Vivan Sharan is a Partner at the Koan Advisory Group and a Visiting Fellow at theObserver Research Foundation.