The Warsaw Climate Deal

Negotiations at the Warsaw Climate Change Conference have culminated in a compromise deal that commits the parties to a new international mechanism to deal with losses and damages linked to climate change.

Under this arrangement, rich nations are to pay compensation for the consequences of global warming to poorer countries suffering from the worst impact of extreme weather. However, the vague wording falls short of the detailed commitments and additional funding that many developing countries are seeking.

Several striking parallels exist between global warming and the 2008 global financial crisis. The excesses that have driven much of the rapid expansion in global financial markets over the past 30 years have been equaled by an apparent determination to consume ever-growing amounts of carbon-emitting fossil fuels, which is causing global warming. In both cases, regulations have proved woefully inadequate. And in each case, developing countries are most likely to suffer, be it due to job losses or the adverse effects of climate change.

Much is happening in Asia on climate change mitigation. Compared to other regions, Asia has the highest rate of policy innovations and voluntary commitments to cut carbon emissions. Many Asian countries have begun incorporating low-carbon growth components in their national development plans to attain a better balance between the environment, the economy, and social welfare.

One reason for this shift to a low-carbon, green-growth paradigm is the increasing awareness among countries of the vulnerability to a warming world. A warming of 2°C could lead to losses in high-income countries and a global loss of about 1 percent to 2 percent of gross domestic product (GDP), but Asia’s middle- and low-income countries could lose as much as 6 percent of GDP.

The second reason is a growing sense of global responsibility by some countries. China is not only the world’s largest producer of greenhouse gas emissions, it sees itself as one of the world’s leading powers, and therefore is working with other regional economies such as Japan, South Korea, and India to tackle global problems such as economic crises, maritime safety, nuclear proliferation, and climate change.

A third reason for the shift is energy security. Although China and India have large coal reserves, they are also big importers of high-carbon fuels. Concerns about excessive dependency on imported fossil fuels sharpened when oil prices skyrocketed. The push by China and India into renewables, such as solar, wind, and nuclear, has been driven by a need to diversify energy resources.

The fourth reason is economic. The Kyoto Protocol gave developing countries an incentive to “green” their production activities. China has received US$2 billion and India about US$1 billion through the Clean Development Mechanisms in the Kyoto Protocol to improve resource efficiency and renewable energy capacity.

The leadership of a number of emerging countries argues that economic growth and environment sustainability are compatible. Local pollution may help to explain the shift in outlook. With cities growing ever more crowded, residents are fuming about rising air pollution. Policies to cut CO2 by shifting to renewable energy can help clean the air of Asia’s polluted cities. More interesting is the idea that shifting to low-carbon energy could be a source of economic growth rather than a constraint to it. Countries are looking for new growth industries and low-carbon infrastructure has potential to become one. No country dominates this market and thus represents a major business opportunity for Asia. The region could become the world’s largest market for renewable energy, clean coal, biofuels, carbon exchanges, and “green” technology.

Global warming can end through actions by countries of Asia. The lead players are China, India, Indonesia, Japan, and South Korea. China is the world’s largest carbon emitter, contributing nearly 25 percent of global emissions. India, Indonesia, Japan, and South Korea accounted for nearly 80 percent of the global increase in carbon emissions in 2011.

If countries are to enjoy the benefits of this low-carbon, green-growth paradigm, then macroeconomic policies must stimulate demand while ensuring that debt-financed spending supports climate change mitigation activities that have high social returns. Filling the financing gap at the national level will require all the policy tools of tax reform, integration of carbon markets, and the creation of investment grade public policies to mobilize private capital.

Governments must accelerate the phasing out of fossil fuel subsidies, enact long-term carbon pricing signals, enable free trade in low-carbon goods and services, and expand investment in joint research and development.

Observers of Warsaw hope the new framework will ensure that detailed climate commitments are made by each of the world’s economies in early 2015, providing the basis for an international treaty that will be finalized at the Paris Summit in 2015. With the increasing complexities of Conference of the Parties summits, collective action by the countries of Asia would be in everyone’s political interest as it would add credibility to their pledges without sacrificing economic competitiveness, thus becoming a role model to dominate the long-running negotiations.

Venkatachalam Anbumozhi is a Capacity Building Specialist at the Asian Development Bank Institute in Tokyo. For further information on Asia’s climate change actions, please refer to Low-Carbon Green Growth in Asia: Policies and Practices, available at www.adbi.org/book/2013/06/28/5773.low.carbon.green.growth.asia.policies.practices/

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