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+ + + + Beyond Kyoto Development and Climate: Engaging Developing Countries Prepared for the Pew Center on Global Climate Change by + + + Thomas C. Heller and P.R. Shukla + + Introduction • + * Paper is more argumentative than options * Primarily about energy development in the more advanced developing countries + + + + Rise in developing county emissions driven by development imperatives and supported by current resource and technology flows Both climate and development concern fundamental issues of energy, transport, land use and food security + + + 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 + + + + China and shifting BAU with no climate policy US, France and Japan divergence since 1960 + Climate and Sustainability + • Original formulation: CC SD + – Adaptation (relative to no policy) – No regrets – Ancillary benefits + • Alternative formulation: SD CC + + + – IPCC Family B1 – Pew Technology Triumphs Scenario – Alternative Life Styles/Social learning – Development First + + Climate Effort to Date + + + + + 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 + Regime flows from output to input + • Ideal regime is output based + + + + + – Inclusive (global problem demands global solutions) – Long term and short term targets – Property rights with cap & trade – Hard law compliance – Universal/graduation + Development Assistance + CDM holds only limited prospect of increased or redirected flows + + + Baselines and additionality Small projects and transaction costs Large projects Plantar, Chacabuquito Enforcement Low values + + US, Japan, EU Russia + Development Assistance + • No assurance of stable assistance from developed to developing countries • Kyoto Based funds + + + + + – Special Assistance Fund – Least developed Country Fund – Adaptation fund • GEF record on effective assistance – Program based assistance? + Shifting Context: Development + + + + + + Climate must be situated in development context to engage development actors New “Hybrid” States 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 + Shifting Context: Development + Market reforms driven largely by need for new development capital + Energy reforms everywhere stalled in producing competitive wholesale or retail markets + Patchwork of residual and “reformed” institutions and alliances + Fragmented agencies Corporatized firms with market power Low coordination capacity + + Gas/Oil/Coal/Renewables + Shifting Context: Private Flows Rise + + + + + + 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 + Shifting Context: Investment Strategies + FDI: organization theory of private business + + Hybrid states present new risk profile + + + FDI driven more by human resources than finance (fragmented coordination capacity) Vertical extension into infrastucture and downstream (electricity) of resource companies 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 + Shifting Context: Investment Strategies + Conservative investors hedge by acquiring local partners – i.e. brownfield investment (after PPA) Aggressive investors seek “market-making” alliances + + + + + 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 + + + Shifting Context: Development Assistance Characterized by pledges at Monterrey and Johannesburg: Softer, micro-institutional, and poverty oriented + + + + Evolution from finance and macro-policy Selective conditioning on “governance” reforms (e.g. anti-corruption) Channeled through public-private partnerships Natural resource controls AIDS engagement Chad-Camaroon pipeline + Principles Going Forward + From output to input + + + + + • 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 + From output to input + • Progression of regime formation? + + + + + – Reporting – Voluntary measures – Mandatory commitments •Not accepted by some and little substance by others under Kyoto + From output to input + • Why should developing countries accept (voluntary) input goals? + – Advance other development goals more sustainably + •Without assistance through market making •With assistance, within or outside of climate regime + + + – Plausible coalition of self-interested actors, public and private, in and out, across value chain, of host country + From output to input + • Cooperation aimed at programs to shift baselines or business as usual + – Infrastructure, policies (mitigative capacity) + •e.g., natural gas: LNG price reductions, even outside of developing countries – Foreign exchange policies + + + •e.g., relative costs of imported gas – Macro-economic policies •e.g., China and demand for foreign investment capital + Principles Going Forward • + Aligning Interests (to shift baselines) – • + Negotiated alliances of domestic firms/agencies, foreign investors, ODA providers Targeting Assistance – Adaptation • – + Capacity for climate-favoring development • + • + Target advanced developing countries as large scale (absolute) emitters, with large middle class and competitive industrial capacity Creating Regional Models – + less advanced developing states as non-emitters, but disproportional damages of climate change) Accelerate technology diffusion by targeting regional leaders + Options for a Future Architecture + • Input-based goals – Sectoral goals + + + • 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 + + + Options for a Future Architecture + • Programmatic climate cooperation + – GHG credits for broad policy shifts – A climate bank? + + + + Acknowledge the politics of baseline definition Bilateral, regional and multilateral financial institutions directed aid Block damaging projects, subsidize mitigative, organize baseline shifts + Beyond Kyoto: Summary + • New politics – Neither markets nor control + • New actors – Operational decision makers + + + + • New perspectives – Political economy and organization theory – Mainstream climate – Development first + For More Information + + + + + + www.pewclimate.org