CSE Briefing Paper 2 The Kyoto protocol — to cut carbon emissions in industrialised countries in order to avert global warming — is increasingly being understood not as an environmental agreement but a trading agreement. Speakers at a recently organised symposium by the World Trade Organisation noted that Protocol could well be the most significant trading agreement of the century. Under the protocol, industrialised countries are expected to cut their overall carbon emissions by at least 5 per cent below 1990 levels in the commitment period, 2008 to 2012.

To "assist" the industrialised countries to meet their committed reductions, the Protocol provides for the setting up of a system of trading emissions within the industrialised world. These flexibility mechanisms include the buying or selling of national emissions or buying or selling of emission reduction units from projects. To trade with the developing world, the Protocol provides for the "Clean Development Mechanism (CDM)" — another name for Joint Implementation — which was proposed by the North and rejected by the South in the first round of negotiations.

This mechanism has been provided with the explicit aim of "assisting the parties in Annex 1 (that is, the industrialised countries) in achieving compliance with their quantified emissions limitation and reduction objectives." Under this mechanism, the industrialised countries and their private corporations could invest in projects in developing countries which are carbon efficient. The net benefits of carbon reduction would accrue to the industrialised country or its private corporations in order to improve its balance sheet of carbon accounting. Developing countries would be selling "certified emission reduction" units. To oversee the trading, a global Executive Board is proposed to be set up. The Board, in turn, will authorise numerous certification agencies that will assess the compliance of the country selling the emission reduction units. It is being discussed that the seller must be legally responsible for ensuring compliance. Therefore, the rating firms — like investor rating firms — will rate the "compliance capability" of the developing country — or in other words, its national carbon accounting system. This will force the South to compete — within a market framework — and will provide the industrialised countries the cheapest, most efficient portfolio of projects to invest in and to take carbon credits for.

It is because of this that the Kyoto Protocol is making multilateral institutions and banks scramble to own a slice of the brokerage. The World Bank wants to corner the market with its Carbon Investment Fund; the Asian Development Bank, is developing a portfolio of "bankable projects"; UNCTAD, based in Geneva and a proponent of the tradable emissions scheme, would like to establish itself to become the "manager" of the emissions trading corporation; UNEP, with its new director, is looking for its own role and contemplating an intergovernmental panel on emission trading. And UNDP, with its development focus, is positioning itself as the legitimate broker of the Clean Development Mechanism.

But in the 21st century carbon rush, what is conveniently forgotten is the creation of property rights of the buyers and sellers. Klaus Topfer, the new executive director of UNEP said at the same meeting in WTO, that the Kyoto Protocol was about the creation of a new property rights regime for a global resource — the atmosphere. But he also went on to say that in his experience, establishing these rights was an issue fraught with tension and conflict. That may be so. But it is vital that these rights be established. The developing countries that are being asked to "assist" in meeting carbon reduction targets of the industrialised world, must do so, with their full entitlements over the atmosphere, a common property of humankind. What is needed instead is a framework built on the concept of "equal per capita entitlements".

They must insist that this "commodification" of the atmosphere — without an appropriate framework of rights — is like the appropriation of the West by the colonisers. This is clearly immoral. And unacceptable.

But with Kyoto, one thing is clear — climate change, has been taken out of the goody world of the environmental lobby to the big bad world of money. The key issue — between the buyers and sellers of this borderless commodity — is to trade without limits and without the interference of prickly issues such as the property rights of the poor.

1. Politics of the "baseline"
Paradoxically, one of the most environmentally unfriendly decisions of Kyoto was to agree to set a reduction target of 5 per cent by Annex I countries on their 1990 levels. This has set a precedent in target-manipulation that will only lead to more greenhouse gas emissions. In hindsight, Kyoto was a massive exercise in juggling books of rich countries climate accounts. And what is most unfortunate is that it will now force each country to fiddle its own carbon budget.

In the 21st Century Carbon Rush, what is conveniently forgotten is the creation of property rights of the buyers and sellers

To recapitulate, what was agreed at Kyoto was to set a target of reduction of "at least 5 per cent below 1990 levels in the commitment period 2008-2012." The operative word is 1990 — as it essentially means that the country has to reduce its emissions by 5 per cent below what it emitted in that year. Therefore, in case its emissions were high in 1990 and it had reduced the emissions between 1990 and 1998 then it could actually increase its emissions once again or only stabilise these but does not need to bring about any reductions.

Take the case of Australia. In 1990, as much as 30 per cent of the country’s emissions were from deforestation. Emissions which are still present in the atmosphere and are causing global warming. But instead of being penalised for creating the problem in the first place, Australia has been able to use its high emissions to its advantage by winning the right to count any improvement from this position as its national credit. And, as its deforestation rate is already controlled, Australia can actually increase its emissions above and beyond that figure by 8 per cent.1

The politics of the baseline was most intense just before Kyoto. US and Japan were lobbying hard to change the date for basing each country’s cuts — not on their emissions in 1990 but on 1995 emissions. This is because carbon dioxide emissions in these countries had actually increased during 1990 and 1995 and accepting cuts on 1995 levels would mean they have to cut less, not more. For instance, USA’s CO2 emissions increased by 6 per cent during that period. Therefore, its agreement to cut emissions by 5 per cent of its 1995 levels by 2008-2012 would mean that it could increase its emissions by 1 per cent. Japan’s emissions had increased by 12 per cent and would gain even more. The plan was stymied by the EU which stood to lose as its own emissions actually reduced during this period. British magazine New Scientist reports that weeks before Kyoto, John Presscott, the British Deputy Prime Minister travelled across the world to broker an agreement on this and discussed this issue with US Vice President Al Gore. Japan’s Prime Minister Ryutaro Hashimoto proposed it to the German Chancellor, Helmut Kohl. Kohl reacted angrily to this suggestion, reported New Scientist2.

What then is the implication of the ‘baseline’ for the future? If this innovative climate accountancy is accepted as the method of calculating a nation’s targets then it would serve developing countries to actually increase its emissions as fast as possible. In fact, officials at the United Nations Conference of Trade and Environment (UNCTAD) who are keen to work on a tradable emissions programme are even suggesting that the target set on the baseline can be viewed as a country’s entitlement — share of the atmosphere and that officials in developing countries should use this opportunity to increase their projected emission targets. They argue that the term ‘assigned amounts’ used in the Kyoto Protocol for the reduction target is actually the country’s "assignment" of its entitlement over the atmosphere. Therefore, in order to maximise their assigned amounts developing countries must start emitting more or at least start trying to emit more.

This precedent being set by the emission-profligate North is going to destroy, not save, the worlds climate system.