Who Pays for the Clean-Up?

Why in News?

• Historically, the primary responsibility for climate change been with the advanced economies, and their process of industrialisation.
• The contribution of the poorer countries (the Global South) was negligible.

 

The Historical Responsibility

• A bulk of the accumulated greenhouse gas emissions, the reason for global warming, have come from a group of about 40 rich and industrialised countries, usually referred to as Annex I countries in the 1992 UNFCCC.
• This historical responsibility has been the basis for the differentiated burden-sharing on developed and developing countries in the climate change framework.

 

The Paris Agreement and the Mechanism of Climate Finance

• The Paris Agreement
  • The Paris Agreement is the successor of the "Kyoto Protocol."
  • The agreement asked countries to set voluntary emission targets but required the richer countries to make financial transfers to the developing economies. It set a floor of $100 billion per year for these transfers.
  • This was supposed to be over and above 0.7 percent of their national income which was the overseas development aid.
• Climate Finance
  • Climate finance refers to local, national, or transnational financing.
  • The UNFCCC, the Kyoto Protocol and the Paris Agreement call for financial assistance from Parties with more financial resources to those that are less endowed and more vulnerable.
  • This recognises that the contribution of countries to climate change and their capacity to prevent it and cope with its consequences vary enormously.
  • Climate finance is needed for mitigation, because large-scale investments are required to significantly reduce emissions.
  • Climate finance is equally important for adaptation, as significant financial resources are needed to adapt to the adverse effects and reduce the impacts of a changing climate.

 

Current Progress/ Issues with Climate Finance

• In 2020, $83 billion was paid into the climate finance fund to be transferred to the countries of the Global South, of which less than $25 billion was in the form of grants.
• In the definition of climate finance, commercial loans should not be counted. This means that the industrialised countries have not walked the talk.
• Countries of the Global South were already under stress, servicing their external debt, worsened by the pandemic. To pile climate change borrowing on top of it is unacceptable.

 

What steps have been taken to fix the issue of Climate Finance?

• New Global Financing Pact: The French President has convened a summit to provide finance for tackling climate change (and poverty alleviation) in the Global South.
• CBAM: EU's New Policy to Curb Carbon Emissions
  • Recently, the European Union (EU) has put forward a proposal, called the Carbon Border Adjustment Mechanism (CBAM).
  • This involves imposing tariffs on imports from other countries that are seen to be using carbon-intensive methods of production.
  • The CBAM is expected to achieve three objectives:
    • Reduce EU’s emissions.
    • For the EU not to lose competitiveness in carbon-intensive goods.
    • To make the targeted countries reduce the carbon intensity of their exports.
  • This mechanism, starting in 2026, will cover products such as cement, steel, aluminium, oil refinery, paper, glass, chemicals, and electricity generation.
  • The countries most affected will be Russia, Ukraine, Turkey, India, and China.

 

Issues with CBAM

• Discriminatory Law: The CBAM only considers ‘explicit’ carbon prices, not ‘implicit’ costs (non-price-based costs) borne by products originating in certain countries.
  • Accordingly, it arbitrarily or unjustifiably discriminates between countries where the same environmental conditions exist.
• Impact on Developing Countries: Without adequate assistance for newer technologies and finance, it would amount to levying taxes on developing countries.
• Problem of Measurement: It is a complex process to evaluate the exact carbon footprint of a product especially when measuring indirect emissions from production processes.
• Reflects Protectionism Nature: CBAM undermines the global principle of free trade. In its current form it is a tool for protectionist trade practices.
• Equity considerations: While the objective of CBAM is to incentivise carbon intensity reduction, the burden of adjustment falls primarily on countries, especially the global south, that have a lack of resources and technology.
• Unfair Advantage to Rich Countries: It is designed to help rich countries avoid paying for creating the climate problem.

 

What does the international law say about CBAM?

• The CBAM is a unilateral move, against the spirit of multilateralism. Therefore, this tax is in violation of WTO rules.
• The problems of measurement mean that it could be used for protectionism.
• It targets production processes (not the product itself) that the WTO does not approve of.
• To use the existing rules, a consensus or, at least a majority among members is required.
• A reform of the WTO is unlikely, but bypassing it would lead to retaliations and trade wars.

 

Why is CBAM unfair to Global South?

• Since the burning of carbon anywhere in the world affects climate change exactly in the same way.
• So, in the absence of a global price for carbon to redress global “externality,” who gets to keep the tax revenue is important
• In the case of the CBAM, it is the tariff-imposing EU that will keep the revenue.
• It will be used to retire its outstanding debt at the expense of poor countries.

 

Way Forward

• Robust Mechanism of Climate Finance:
  • Rich countries must abide by their pledges to deliver sufficient climate funding to poor and developing countries.
  • It is important to grant financial transfers to help Global South initiatives at climate change adaptation and mitigation.
• Technology Transfer and Capacity Building: Developed countries should help developing and poor nations in building infrastructure and provide clean technology to accelerate the process of adapting climate change goals.
• Global Carbon Price Mechanism Rather than Unilateral Actions: To achieve carbon emission goals, it’s important for all countries to agree on a Global Price Mechanism which is not discriminatory.

 

Conclusion

• Climate change is a global phenomenon. It affects all countries equally. Therefore, the world does not need unilateral mechanisms, rather a collective fight supported by rich nations.
• The developing countries did not create the problem, and have limited means to pay for a “clean up.”

 

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Q1) What is The Kyoto Protocol? 

The Kyoto Protocol was adopted on 11 December 1997. Owing to a complex ratification process, it entered into force on 16 February 2005. Currently, there are 192 Parties to the Kyoto Protocol. In short, the Kyoto Protocol operationalises the United Nations Framework Convention on Climate Change by committing industrialised countries and economies in transition to limit and reduce greenhouse gases (GHG) emissions in accordance with agreed individual targets. 

 

Q2) Which emissions have to be reported under CBAM?

Three greenhouse gases must be reported under CBAM; Carbon dioxide (CO2), nitrous oxide (N2O) and perfluorocarbons (PFCs). Both direct and indirect emissions of these greenhouse gases for the listed goods in Annex I and only direct emissions of these greenhouse gases for the listed goods in Annex IA must be reported.

 

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Source: The Indian Express