Expert Speak Terra Nova
Published on Dec 26, 2023

Financial transfers from Global North are band-aids. What is absent is resource mobilisation to incentivise the South to move away from fossil fuel dependence.

Beyond the rhetoric at Dubai COP28

Rhetoric was rife at the opening of COP28 with the Secretary General of the United Nations, António Guterres, calling for an end to the burning of fossil fuels. “Not reduce, Not abate, Phase out” he recommended. This urgency found no salience finally in the first global stock, attended by nearly 200 countries and 85,000 participants, with 55,000 documents tabled.

The final report of the first stocktake exhorts “a tripling of renewable capacity by 2030” a target already embedded in India’s NDCs post-Glasgow and a “doubling of energy efficiency” from 2 percent to 4 percent per year by 2030. The latter points to the urgency for accelerated electrification of transport—an adjunct to the renewable energy growth story. It urges “transitioning away from fossil fuels in energy systems” by 2050—this is unexceptionable. The sticking point remains the affordability of abandoning existing fossil fuel assets and investing in yet-to-mature and scale-up clean energy alternatives.

The continuing ifs and buts about the future partly reflect the shallow strategy crafted during COP21 in Paris in 2015, of preferring an end-of-meeting consensus, over the forging of procedural substance.

Realism at last

Realism is injected, however, in the recognition that “transitional fuels can play a role in facilitating the energy transition while ensuring energy security.” Natural gas and coal both fall in this category. Nevertheless, to carry forward and retain the COP26-generated fervour against coal, there is a separate, albeit muted, call for “accelerating efforts towards the phase-down of unabated coal power”.

This patchwork of noble sentiments also pleads for “accelerating zero- and low-emission technologies …including removal technologies such as carbon capture and utilization and storage, particularly in hard-to-abate sectors.” This opens a door for carbon-intensive transition fuels, like coal, if their tailpipe emissions are curbed once carbon sequestering metrics become standard and the financial viability of these tailpipe carbon capture technologies improves via scaling up.

A job only half-done in Paris.

The continuing ifs and buts about the future partly reflect the shallow strategy crafted during COP21 in Paris in 2015, of preferring an end-of-meeting consensus, over the forging of procedural substance. Paris took the easy way out from negotiating contentious differential transition metrics for countries by allowing self-determined metrics. This was a notionally equitable approach since it continued the laissez-faire regime which had allowed advanced countries to denude the global carbon budget by misusing their first-mover advantage. Unsurprisingly, the results during 2015-2020 are less than satisfactory. Regulatory ambiguity inevitably dulls investment. The final stocktake report notes that “policies implemented by the end of 2020 are projected to result in higher global greenhouse gas emissions than those implied by the nationally determined contributions, indicating an implementation gap”.

The bottom line

Any future agreement steering the globe towards climate action must recognise the following three boundary conditions:

(a) Post the economic instability arising from the Ukraine conflict, all economies will baulk at trading-in energy security for lower carbon emissions by substituting domestic fossil fuels with imported gas or now, new technology like battery energy storage systems (BESS) where the supporting minerals are imported via closely held supply chains.

(b) No developing country can adopt emission mitigation targets which increase the operational cost of producing energy and simultaneously impose a dual financial burden of stranding cheap but “dirty” energy assets unless accompanied by financial transfers to pay for the transition.

(c) No developing country can divert domestic public finance to energy transition from their existing use case unless there is a greater profit or a non-financial incentive for doing so. Concessional financial transfers will drive the pace of the transition. This is where the advanced economies remain wanting.

Financial transfers from the advanced to developing economies focusing on “loss and damage” are bandaids for the most vulnerable developing economies to alleviate their suffering. What remains absent is resource mobilisation sufficient to incentivise developing economies to move away from fossil fuel dependence.

An inefficient and callous border tax.

To make matters worse, the European Union (EU) intends to tax the import of carbon-intensive goods from 2026 via the Carbon Border Mechanism. This adds insult to injury. This tax wall is based on two assumptions. (a) First, the superiority of the EU's carbon market, which will determine the tax rate—never mind that a carbon market in the exporting country reflects a lower carbon price. (b) Second, it assumes (erroneously, except in the case of most other advanced economies) that the timeline of the exporter’s liability to decarbonise is symmetric with that of the EU—thereby negating the very concept of differentiated responsibilities.

Financial transfers from the advanced to developing economies focusing on “loss and damage” are bandaids for the most vulnerable developing economies to alleviate their suffering.

As early as 1,900 per capita emissions of CO2 were 3.8 tons in the EU and 8.9 tons in the US versus the global average of 1.2 tons. Both have been overusing the carbon space available to them based on population for the last 120-odd years. Exporters, like India, have never exceeded the global average and hopefully never will. Why then should Indian exports to the EU attract a border tax, designed to pay for the costs of decarbonising EU production?

This is classic double jeopardy. India’s share in historical CO2 emissions since 1790 is 3.4 percent less than a quarter of our population share of 16 percent. Nevertheless, India will be expected to pay to shift away from domestic carbon-intensive energy sources, even though we are well within our population-weighted carbon budget, and on top of that, pay for the EU to decarbonize its own industry, even though the EU is overweight on its share of historical emissions at 16.7 percent versus a population share of just 6 percent.

The CBM negates the basis of “differentiated responsibility.”

The EU should have exempted developing countries from the CBM since most are well below their equitable carbon budgets (the proxy metric being per capita emissions below the global average). Alternatively, it could even have proposed an interim formula. Instead of extracting a border tax on developing country exports, the notional value of the tax exempted could have been accounted for as a redemption of the debt, owed by the EU to all those who have underutilized their carbon budget, and thereby allowed the EU to occupy that space. A notional annual rental value can be conceived as payable by the EU related to the cost of carbon assumed in the tax rate. This would have prevented developing countries’ exports from becoming uncompetitive. But it would also have deprived the EU of additional tax revenue from which to fund its own decarbonisation.

The nature of usage rights in the Troposphere.

The origin of this economic callousness lies in successive COPs ignoring the fundamental need to define a code for the usage of the Troposphere where the carbon emissions are located. Advanced economies have accepted a generic liability for historical injustice by committing to pay for loss and damage and that is comforting. But the principle behind this payment remains unsatisfactory—a high moral ground adopted by the rich to help the needy. This is disingenuous.

All countries have collective usage rights in the troposphere. In the absence of an external body regulating access to the commons, self-policing is also sensible. However, it must be backed by measures to monitor, report, and penalise overuse. We have the monitoring mechanisms already but have avoided defining the scope of penalties for overuse. We cannot escape defining usage rights with the boundary constraints of the carrying capacity of the Troposphere for carbon. Once this is done, any country exceeding their equitable share of the global carbon budget becomes automatically liable to pay for this ingress to those injured by such trespass. Only then can order be restored.

The three decades plus period of the energy transition requires actions on two fronts by UNFCCC. First, fire-fighting efforts to reduce the current and future greenhouse gas emissions, which the COP framework is already engaged with. Second, the development of a global framework of usage rights such that overuse of the Troposphere commons immediately attracts severe penalties. A “truth and reconciliation” process can establish the nature of responsibilities such overuse attracts—financial payments, technology transfers or concessional project development guarantees. Only if this is done, can genuine collaboration replace global rancour. Let us not forget that collaboration during the energy transition is the single biggest long-term opportunity, now available, for rebuilding a global compact.

Sanjeev Ahluwalia is an Advisor at the Observer Research Foundation.

The views expressed above belong to the author(s). ORF research and analyses now available on Telegram! Click here to access our curated content — blogs, longforms and interviews.


Sanjeev Ahluwalia

Sanjeev Ahluwalia

Sanjeev S. Ahluwalia has core skills in institutional analysis, energy and economic regulation and public financial management backed by eight years of project management experience ...

Read More +