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Beyond Kyoto
Development and Climate:
Engaging Developing Countries
Prepared for the Pew Center on Global
Climate Change by
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Thomas C. Heller
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P.R. Shukla
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Introduction
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* Paper is more argumentative than options
* Primarily about energy development in the more
advanced developing countries
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Rise in developing county emissions driven by
development imperatives
and supported by current resource and
technology flows
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Both climate and development concern
fundamental issues of energy, transport, land
use and food security
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Introduction
Climate policy must be political economy
Mainstream climate to development
Climate most viably approached through
development strategies whose climate
benefits are ancillary to sustained economic
growth
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China and shifting BAU with no climate policy
US, France and Japan divergence since 1960
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Climate and Sustainability
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• Original formulation: CC  SD
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– Adaptation (relative to no policy)
– No regrets
– Ancillary benefits
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• Alternative formulation: SD  CC
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– IPCC Family B1
– Pew Technology Triumphs Scenario
– Alternative Life Styles/Social learning
– Development First
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Climate Effort to Date
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Regime architecture is climate-centric
and flows from output to input
CDM holds only limited prospect of
increased or redirected flows
No assurance of stable assistance from
developed to developing countries
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Regime flows from output to input
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• Ideal regime is output based
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– Inclusive (global problem demands global
solutions)
– Long term and short term targets
– Property rights with cap & trade
– Hard law compliance
– Universal/graduation
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Development Assistance
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 CDM holds only limited prospect of
increased or redirected flows
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 Baselines and additionality
 Small projects and transaction costs
 Large projects
 Plantar, Chacabuquito
 Enforcement
 Low values
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 US, Japan, EU
 Russia
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Development Assistance
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• No assurance of stable assistance from
developed to developing countries
• Kyoto Based funds
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– Special Assistance Fund
– Least developed Country Fund
– Adaptation fund
• GEF record on effective assistance
– Program based assistance?
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Shifting Context: Development
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Climate must be situated in development
context to engage development actors
New “Hybrid” States
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Neither competitive markets nor former systems
of planning with state owned monopolies (SOE),
development bank financing, internal policy and
social contracts
Transition from state- to market-centered
economies is a semi-permanent state
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Shifting Context: Development
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 Market reforms driven largely by need for new
development capital
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 Energy reforms everywhere stalled in producing
competitive wholesale or retail markets
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 Patchwork of residual and “reformed”
institutions and alliances
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 Fragmented agencies
 Corporatized firms with market power
 Low coordination capacity
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 Gas/Oil/Coal/Renewables
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Shifting Context: Private Flows Rise
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ODA declined 1990-2000 while private
flows grew five-fold
Shift in flows from bank lending to
foreign direct investment (FDI)
10 countries receive 70 percent of FDI
Largest investments are in electricity,
natural gas and telecom
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Shifting Context: Investment Strategies
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FDI: organization theory of private business
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Hybrid states present new risk profile
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FDI driven more by human resources than finance
(fragmented coordination capacity)
Vertical extension into infrastucture and
downstream (electricity) of resource companies
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The Power Purchase Agreement experience of the
1990s stresses value of political assets
Commercial and political risk not transformable
into (acceptable) legal risk
Merchant markets not forthcoming
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Shifting Context: Investment Strategies
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 Conservative investors hedge by acquiring local
partners – i.e. brownfield investment (after
PPA)
 Aggressive investors seek “market-making”
alliances
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 Companies have organizations, routines and
experience that lead them to expand markets that
maximize their asset value
 Public-private alliances needed to define package of
policies, infrastructures and resources that
determine future energy shares
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Shifting Context: Development Assistance
Characterized by pledges at Monterrey and
Johannesburg:
 Softer, micro-institutional, and poverty
oriented
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Evolution from finance and macro-policy
Selective conditioning on “governance”
reforms (e.g. anti-corruption)
Channeled through public-private partnerships
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Natural resource controls
AIDS engagement
Chad-Camaroon pipeline
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Principles Going Forward
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From output to input
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• Policy must tilt development choices
toward climate-friendly options
• Operate at a scale large enough to alter
emission trajectories
 Rather than discrete projects,
measured against business as usual,
aim to fundamentally shift baselines
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From output to input
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• Progression of regime formation?
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– Reporting
– Voluntary measures
– Mandatory commitments
•Not accepted by some and little substance by
others under Kyoto
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From output to input
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• Why should developing countries accept
(voluntary) input goals?
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– Advance other development goals more
sustainably
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•Without assistance through market making
•With assistance, within or outside of climate
regime
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– Plausible coalition of self-interested actors,
public and private, in and out, across value
chain, of host country
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From output to input
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• Cooperation aimed at programs to shift
baselines or business as usual
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– Infrastructure, policies (mitigative capacity)
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•e.g., natural gas: LNG price reductions, even
outside of developing countries
– Foreign exchange policies
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•e.g., relative costs of imported gas
– Macro-economic policies
•e.g., China and demand for foreign investment
capital
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Principles Going Forward
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Aligning Interests (to shift baselines)
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Negotiated alliances of domestic firms/agencies, foreign
investors, ODA providers
Targeting Assistance
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Adaptation
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Capacity for climate-favoring development
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Target advanced developing countries as large scale (absolute)
emitters, with large middle class and competitive industrial
capacity
Creating Regional Models
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less advanced developing states as non-emitters, but
disproportional damages of climate change)
Accelerate technology diffusion by targeting regional leaders
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Options for a Future Architecture
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• Input-based goals
– Sectoral goals
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• Delhi CNG buses example (more sustainable,
politically supportable, if sub-optimal)
– Intensity goals
• Theft reduction
• Agricultural cropping shifts
– Policies and measures
• Shadow pricing of dispatch rules for electricity
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Options for a Future Architecture
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• Programmatic climate cooperation
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– GHG credits for broad policy shifts
– A climate bank?
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 Acknowledge the politics of baseline
definition
 Bilateral, regional and multilateral
financial institutions directed aid
 Block damaging projects, subsidize
mitigative, organize baseline shifts
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Beyond Kyoto: Summary
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• New politics
– Neither markets nor control
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• New actors
– Operational decision makers
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• New perspectives
– Political economy and organization theory
– Mainstream climate
– Development first
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For More Information
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www.pewclimate.org