Breaking Down the Climate Talks

logo-COPThe Paris Conference of Parties (COP), long viewed as the vehicle for crafting the next phase of global climate responses, both shed light on complications surrounding the history of climate change negotiations, as well as unpack a new landmark agreement to tackle climate change and reduce greenhouse gases.

History of Climate Negotiations

The international political response to climate change began at the Rio Earth Summit in 1992, where the ‘Rio Convention’ included the adoption of the UN Framework on Climate Change (UNFCCC).   The UNFCCC entered into force on 21 March 1994.  This convention set the framework for action aimed at stabilizing atmospheric concentrations of greenhouse gases (GHGs) to avoid “dangerous anthropogenic interference with the climate system.”

One of the main principles of climate negotiations is that countries have common but differentiated responsibilities when it comes to climate change, depending on their wealth in particular. The agreement establishes an obligation for industrialized countries to fund climate finance for poor countries, while developing countries are invited to contribute on a voluntary basis.  As regards transparency, a stronger system for tracking commitments, which allows developing countries a certain amount of flexibility, has also been set up in order to keep track of everyone’s efforts .

The main objective of the annual COP was and remain to review the Convention’s implementation. The first COP took place in Berlin in 1995 and significant meetings since then have included COP3 where the Kyoto Protocol was adopted, COP11 where the Montreal Action Plan was produced, COP15 in Copenhagen where an agreement to success Kyoto Protocol was unfortunately not realized and COP17 in Durban where the Green Climate Fund was created.

The COP Climate Deal, So Far

The Paris agreement marks a major change in direction.  In terms of global responsibilities, it confirms the global target of keeping the rise in temperature below 2°C.   Scientists believe that a greater increase in temperature would be very dangerous.  However, the agreement also establishes, for the first time, that we should be aiming for 1.5°C, to protect island states, which are the most threatened by the rise in sea levels.

By 12 December 2015, 186 countries had published their action plan; each of these plans sets out the way in which they intend to reduce their greenhouse gas emissions. The UN body that deals with climate change (the UNFCCC*) published an evaluation of these contributions on 1 November 2015. This study showed that despite the unprecedented mobilization shown by States, at this rate global warming would still be between 2.7°C and 3°C, i.e. above the threshold set by scientists.

Secondly, the agreement addresses climate finance.  The agreement acknowledges that $100 billion (in loans and donations) will need to be raised each year from 2020 to finance projects that enable countries to adapt to the impacts of climate change (rise in sea level, droughts, etc.) or reduce greenhouse gas emissions. The agreement specifies that this amount should increase. Some developing countries will also be able to become donors, on a voluntary basis, to help the poorest countries. This is a first. The agreement schedules an initial meeting in 2025, where further quantified commitments will be made regarding assistance to the poorest countries.

The agreement will be open for signing by the countries on 22 April in New York. The agreement can only enter into force once it has been ratified by 55 countries, representing at least 55% of emissions.  This of course, would be the real turning point.

Why Forest Policy Matters

Every dimension of forest-related decision-making, including rights of local communities, conversion of forests to non-forest uses and setting aside forests for wildlife conservation, has become the subject of intense scrutiny, debate and change.   Most notably, the involvement of multiple actors, from local communities to the Supreme Court, has shifted the discourse from forest management to forest governance.

Forest Management

The reality is that India’s forests are witnessing a battle between the competing paradigms of the Indian Forest Act of 1927 and the 2006 Forest Rights Act.  British-era regulations sought to gain control over forests via the forest department, to enable the colonial state to meet its needs for timber and revenue in the project of empire-building. The 2006 law looked to rectify the ‘historical injustice’ of treating India’s forest-dwelling communities as encroachers in landscapes they have lived in for generations, and to recognize their traditional usage rights through forest right titles (Choudhury, 2015)

Essar Energy, a fully integrated oil and gas company, is positioned to capitalize on India’s rapidly growing energy demand.   The company has strong presence across the hydrocarbon value chain from exploration, and assets worth US$12 billion across the power and oil and gas industries (Essar, 2015).

According to Sushil Maroo, the company’s Chief Executive Officer, “One has to balance ecological concerns with India’s need for commodities and economic development.”  Essar Energy serves retail customers in India through a modern, country-wide network of 2,000 operational and under-construction retail fuel outlets.  “One way is for the government to look at the country as a whole, and say where mining can or cannot take place. Another way would be reforestation,” he continued (see Choudhury, 2015).

Forest Governance

There is no simple or broadly accepted definition of “governance,” even though the term is widely used across many disciplines.  Good governance is often associated with principles such as transparency, participation, and accountability.  In the context of international development, the notion of good governance is commonly seen as a critical foundation for achieving positive social, environmental, and economic outcomes.  Conversely, weak governance is often blamed for poor development outcomes, such as poverty and unsustainable levels of natural resource depletion.  In the context of forests, a lack of transparency and accountability is often associated with problems such as illegal logging and corruption.  Similarly, a lack of open and inclusive decision-making often contributes to the marginalization and impoverishment of forest-dependent communities and indigenous peoples.

Taken together, since decisions about forests are shaped by a wide range of public and private actors, forest governance necessarily has to do with the process of how decisions are made about forests, as opposed to focusing exclusively on what decisions are made or the outcomes of those decisions (WRI, 2013).

Why Forest Policy Matters

The forest sector in India is currently going through never before seen change.  For example, India needs coal but coal mining and subsequent usages of coal has adverse impact on climate which may risk various forest types.  Therefore forests are highly sensitive to climate change, and this has been shown by observations from the past, experimental studies and simulation models.

“Clear and secure rights to forest land are a critical enabling condition for promoting resource management decisions that value social and environmental dimensions of forests alongside economic interests.”               – Wold Resource Institute, 2013

Perhaps now, more than ever, forest policy matters.  Central to the discourse are substantive questions on forest rights, responsibilities, regulatory structures, transparency and accountability, in other words practical questions about policy and governance.

For more discussions on Environment, Forest and Rural India, follow Chitrangada Choudhury @ https://ruralindiaonline.org/authors/chitrangada-choudhury/

Will India Play Constructive Role in Climate Talks?

IPCC Climate Change 2015 Synthesis ReportThe Intergovernmental Panel on Climate Change (IPCC) published its Fifth Assessment in 2014, summarizing the work of thousands of scientists across the world.  The message was, in the panel’s own words, “unequivocal”.   Climate change will exacerbate poverty in most developing countries.  This is due to a complex range of factors, but particularly food price increases.  It notes that, in the years since its previous report in 2007, there have been rapid food price increases, following climate extremes in key producing systems.

A similar picture emerges on health.  A study, by The Lancet and University College London, stated that climate change is the biggest global health threat of the 21st century.  Climate change influences disease patterns, food, water, sanitation, extreme events, shelter and human settlements, which in turn affect health outcomes. Infant mortality is closely linked to under nutrition and food insecurity, both affected by climate change.

Reducing carbon emissions will help to mitigate these effects; meanwhile, there are economic, health and social opportunities in low carbon development pathways.   Decentralized low carbon energy, for example, such as solar and wind, can provide electricity for the 70 per cent of sub-Saharan Africans who currently have no access.  Growth in off grid solar has given 2.5 million households in Kenya access to energy.

Paris 2015 COP21 CMP11The Paris Summit in December 2015 provides a crucial opportunity for India to lead, aligning development goals with action on climate change, and given the discussions around the Sustainable Development Goals.   196 countries will meet to sign a new climate change agreement, which needs to acknowledge the importance of climate change mitigation to development and the necessity of finance, both to adapt to climate change and to invest in low carbon economic pathways.  But how likely is it that it will be meaningful and make a difference to climate action on the ground?

Is India Open For Business?

WTO logoThe Sixth Review of the Trade Policies and Practices of India offered an excellent opportunity to learn about the development of the trade, economic, and investment policies of India since its previous WTO Review in 2011, and its overall readiness for business.

WTO members commended India’s accelerating economic growth during the review period, particularly in the services sector, and the milder inflation in recent years.   However, members also recognized India’s need and willingness to overcome its structural bottlenecks, including fiscal deficit, shortfalls in infrastructure such as education, health care, transportation, and power supply, delays in project approval, difficulties in land acquisition, low manufacturing base and agricultural productivity, and cumbersome labor market regulations. In this respect, WTO urged India to pursue further tax reforms, which may increase government revenues, as well as to increase investment in infrastructure.

In terms of trade policy challenges, India’s share of world trade continues to be small, with only a slight increase from 1.3 percent in 2009 to 1.7 percent of global merchandise exports in 2013.  Further, given uncertainties in the international economic environment in general and within India’s major trading partners in particular, the country may experience future challenges in its trade sector. Moreover, domestic factors like weak infrastructure, rising wages and scarcity of skilled labor in the case of services are inhibiting growth of trade and related activities (WTO, 2015)

Finally, the rising incidence of non-tariff barriers, in the form of sanitary and phytosanitary (SPS) measures and technical barriers to trade (TBT), remain a major trade concern.  While tariffs have been going down globally (also as a concomitant to rising number of FTAs), the use of technical regulations/mandatory standards as barriers has grown, along with the growth of a variety of conformity assessment procedures.  The resultant increased transaction costs arising from complying with such regulatory requirements adds to the costs of India’s exports and erodes price competitiveness (WTO, 2015).

Women, Poverty and Economics

Macro-economic policies such as trade agreements, national development plans and poverty reduction strategies need to reflect the differences between men and women.  This includes policies that advance land and inheritance rights for women and legal protections for migrant and domestic workers in origin and destination countries to reduce the potential for exploitation and abuse.

I am (wo)man is a digital media campaign calling on women and men from all over the world to share, through a photo and personal story, what women’s economic empowerment means to them.   The purpose of I am (wo)man is to spread awareness of and encourage action for women’s economic empowerment through digital and social media.

economic_empowerment“When the land is in my husband’s name, I’m only a worker.   When it is in my name, I have some position in society and my children and my husband respect me so my responsibility is much greater to my own land and I take care of my fields like my children” – A farming woman in Maharashtra

Why Modi Matters

Time Magazine Cover Why Modi MattersIn his first year as Prime Minister, Narendra Modi has seized the global spotlight with global media coverage.  Two authoritative weekly newspaper articles published in the past week, Time Magazine and The Economist respectively, offer two important reasons why the world needs both India and the prime minister to step up as a confident global power.

Economic Reforms (Fast and Far)  

First, the outlook for the Indian economy has improved over the past year, though that’s not entirely due to Modi’s efforts.  Modi’s “pro-business orientation” is unlike its predecessor.  The government has taken steps to further liberalize India’s economy by, for example, opening up key sectors of the country’s economy and pushing through long standing proposals to increase foreign direct investment.  On whether economic reforms have gone far and fast enough, Modi told TIME editor Nancy Gibbs, “This time last year, nothing seemed to be happening in the government.  There seemed to be a complete policy paralysis. …There was no leadership.  My government’s coming to power should be viewed in the contexts of the developments of the 10 years of the last government vs. 10 months of my government (Time, May 18, 2015).”

Modi’s Pledges 

Modi's Many Tasks The Economist Special Report May 23 2015Second, Modi is a superb taskmaster.  The Economists has compiled a list of 30-odd official pledges announced in the past year to outline the government’s ambitions (see left).   Around half the tasks are means to be completed by the next election, 2019.   The article(s) were published in Time magazine, May 18, 2015; The Economists May 23-29, 2015 (US Edition).

 

 

 

Emerging Markets Need to Prepare in Advance to Deal with Uncertainty

Managing Director of the International Monetary Fund Christine Lagarde speaks as Governor of Reserve Bank of India Raghuram Rajan looks on during an event at the RBI headquarters in Mumbai March 17 2015.Unconventional monetary policies, which include large purchases of government debt, has been used to provide policy accommodation in advanced economies since the 2007 global financial crisis.  However, these policies have had both positive and negative spillovers.

During a recent visit to India, International Monetary Fund (IMF) Chief Christine Lagarde, cautioned that “the unconventional monetary policies have had strong positive spillovers for the global economy, and by implication for India and other emerging markets.”  However, “it is also true that these policies led to a build-up of risks.” 

Between 2009 and the end of 2012, emerging markets received about US$ 4½ trillion of gross capital inflows, representing roughly one half of global capital flows.  Such inflows were concentrated in a group of large countries, including India, which received about US$ 470 billion (IMF, 2015).  As a consequence, bond and equity prices rallied, currencies strengthened, and spillovers to asset prices and capital flows were even greater than from earlier conventional policies (IMF, 2015).  “The danger is that vulnerabilities that build up during a period of very accommodative monetary policy can unwind suddenly when such policy is reversed, creating substantial market volatility,” she told Raghuram Rajan, Governor of Reserve Bank of India (RBI) and audience at the headquarters in Mumbai, March 17.

I agree the next move for emerging markets is to prepare in advance to deal with this uncertainty.  The reality is that as economic conditions improve in at least some advanced economies, portfolio rebalancing out of emerging market economies can be expected, and some volatility cannot be ruled out.  Remember the surprise indiscriminate capital outflows from India mid-2013?  With all eyes on US Federal Reserve change in posture, the timing of interest rate lift-off and the pace of subsequent rate increases can still surprise markets.

Photo source: voanews.com

The Superior Financial Powers of Modi’s Fiscal Roadmap

One of the key features of the Modi administration’s fiscal roadmap is the move to increase disinvestments to include both disinvestments in loss making units, and some broader strategic disinvestments.  The government plans to raise 695 billion rupees ($11.2 billion) in the year starting April 1, an amount crucial to its efforts to narrow the budget deficit.

The sale target includes stakes in central public sector enterprises, holdings in non-government companies, strategic disinvestment and Specified Undertaking of the Unit Trust of India (SUUTI).  In an interview with Bloomberg News (March 3), Disinvestment Secretary Aradhana Johri  reported India’s divestment receipts in the current year ending March 2015 was at 254 billion rupees.  The government is looking to raise 285 billion rupees through sale of its holdings in SUUTI, Bharat Aluminium Co and Hindustan Zinc Ltd.

The scaling up of disinvestments is ambitious, and highlights an important characteristic of Indian federalism: Central government possesses superior financial powers.

Part of the revenue levied at the Central government is of course redistributed among states, on the basis of advice of the organizationally independent Finance Commission or through the National Institution for Transforming India (NITI Aayog), and constitutes a significant source of income for them.  However, the impression that is thus created is one of profligate states, and a more careful and sophisticated Central financial management (Mitra/Pehl, 2012).

Since the liberalization of economic policies and the decentralization of policymaking to states from the early 1990s onwards (and even before then), states have been able to exercise some autonomy in regulating their own development trajectory (Mitra/Pehl, 2012).  However, the picture today is one of differentiation among India’s states in terms of their fiscal capabilities as well as their developmental potential, and a need for reform of inter-state mechanisms of coordination and equalization (an issue NITI Aayog promises to address).

The government is firm on achieving a fiscal deficit target of 3% in 3 years.  The fiscal deficit targets are 3.9%, 3.5%  and 3.0% in FY 2015-16, 2016-17, and 2017-2018  respectively.  But that journey has to take account of the need to increase public investment.

Budget Proposes Game-Changing and Revenue Significant Reforms

There are several specific proposals in the Budget 2015-16 to recalibrate India’s tax effort so that fiscal consolidation may be achieved in the short and medium term.  The game-changing and revenue significant proposals include:  Goods and Service Tax (GST) and Jan Dhan, Aadhar and Mobile (JAM) – to implement direct benefit transfer.   “GST will put in place a state-of-the-art indirect tax system by April 1, 2016.  The JAM Trinity will allow us to transfer benefits in a leakage-proof, well-targeted and cashless manner,” said Finance Minister Arun Jaitley during the budget speech on February 28.

In preparation for the introduction of the GST, the Government has been taking consistent policy steps to expand the scope and reach of service tax.  The shift is monumental in terms of changes in the mode of implementation and will undoubtedly require a transition phase.

Economics for the Common Man

AAP chief and its chief ministerial candidate for Delhi Kejriwal waves to his supporters in New DelhiAam Aadmi (AAP), or Common Man Party ran a  simple but formidable campaign, beating back the Bharatiya Janata Party (BJP) ambitions to gain political capital in a Delhi state election.    The message was simple, “Never underestimate the power of the common man.”

Economics for the Common Man  

Aam Aadmi Party Common Man Political Cartoon published on AAP website 10 February 2015

The rise of the AAP’s Arvind Kejriwal, Delhi’s new Chief Minister and former tax inspector provide important insights into the nature of politics at the grassroots level in India.  On the one hand, ‘pro-poor polices and clean government’ is the narrative for the ‘common man.’  Politicians functioning as intermediaries with the state acquire influence and amass political capital (Krishna, 2012).  On the other hand, a great deal of hard work is required to mobilize non-caste based political entrepreneurs who can deliver economic benefits and provide avenues for greater political participation (Krishna, 2012).  From this vantage point, it is imperative that the ruling party remain focused on redistributing wealth from the more advantaged to the less advantaged.

The Challenge for Economic Reforms 

In October 1929 Sir Basil Blackett characterized political unrest in India as an economic phenomenon of the middle class, the “outcome of discontent and maladjustment” (Foreign Affairs, October 1929).   Today, the challenge for economic reforms in India is inclusive growth.  Social unrest and protests similarly runs deep in resource-rich areas of central and eastern India, where rapid economic growth has been accompanied by rapidly growing inequality (HRW, World Report: 2012).

Prime Minister Narendra Modi swept to power with the biggest national election victory in three decades, promising to revitalize India’s economy, fix governance and push through reform legislation by executive decree.  However, economics for the common man is systematic.  The strategies and processes that create, break down, and recreate social coalitions in the party system require calculated tactical alliances (Swamy, 2012).   Institutions in the economic system must distribute rights and realize solutions.  When these transaction are taken into account, it turns out that the existence of firms, the structure of the financial system and even fundamental features of the legal system can be given a relatively simple explanation (see Coase, 1960).

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