At a conference on the oil industry and the environment held last year in Vietnam, Thai environmentalist Pisit na Patalung came up with an intriguing comment: "Nature usually has a purpose in doing things, so what is its purpose in keeping all this oil underground,' he asked. 'How are we disrupting the natural system by taking it out?"
The engineers and businessmen at the conference didn't quite know what to make about such a simple, yet profound, question. They hummed and hawed and maybe even snickered a little bit. But a climate expert could have answered him immediately: deposits of fossil fuels such as oil, coal and gas -- which are actually the remains of ancient life forms -- help store carbon.
By digging them up and burning them off, humans have inadvertently sent huge quantities of greenhouse gases --the bulk of which are carbon-based -- into the atmosphere, where scientists say they last for more than a century and may cause a rise in global temperatures. The challenge is therefore clear: to prevent climate change, we must find ways to reduce greenhouse gas (GHG) emissions and store more carbon.
How can it be done? At the climate change summit in Kyoto earlier this month, representatives from 160 countries agreed to a promising approach: give carbon an economic value and let people, countries and companies trade in it. After all, buying and selling is what people seem to do best, so why not tap the power of the market to solve a problem which industrial development itself has created? A similar system for limiting emissions of sulphur dioxide has been shown to work in the US.
The agreement in principle to set up a GHG emissions trading system may eventually stand as the most important achievement of the Kyoto Protocol. Basically, a market will be created in which the rights to emit greenhouse gases will be bought and sold. The binding limits on GHG emissions agreed to by developed countries in Kyoto will help set the price for those rights.
If the concept is difficult to grasp, try thinking of it as a market for a new resource: carbon may one day be traded in much the same way oil is now. The major difference with other commodity markets is that the value of carbon will be derived from the ability to store it (or prevent it from being released into the atmosphere), rather than using it.
The agreement has only been made in principle, however, and only after overcoming a great deal of opposition. The rules of the trading system still have to be worked out at meetings that will take place over the coming year, and if the market ends up being skewed or monopolized, it could make the whole protocol founder.
Different mechanisms
To add to the confusion, under the Kyoto Protocol there are many different kinds of mechanisms through which carbon could be traded. Under the most basic form of emissions trading, one country which finds it difficult to lower its GHG emissions to meet its target, could pay another party to reduce its own emissions by a suitable amount instead. In Kyoto, the European Union was originally opposed to such dealing, but backed down after it was pointed out that it intends to do exactly the same thing among its own member states.
Joint Implementation (JI) is another type of trading system. Under this approach, a company or country would actually help carry out a project to reduce GHG emissions or store carbon in another country, and receive "carbon credits' in return. Basically, a JI project would use money and technology from a developed country, but would be carried out in developing countries, where costs are usually cheaper.
Then there is the Clean Development Mechanism. Originally proposed by Brazil as a way to funnel fines paid by developed countries into GHG reduction projects in the developing world, under the Kyoto Protocol it has evolved into a more general means to finance climate-friendly development.
The World Bank has taken this approach a step further by proposing a Global Carbon Initiative through which parties could buy and sell carbon much like any other commodity market.
Everyone seemed to support the Clean Development Mechanism in Kyoto, but the G-77 group of developing countries refused to implement JI for credit until after its pilot phase runs out in the year 2000. The Kyoto Protocol does allow JI among developed countries.
What's more, the Kyoto agreement almost collapsed when the G-77, led by China and Brazil, refused to allow emissions tradingg even among developed countries. Agreement was only reached, at the very last minute.
Great suspicion
Why the opposition? Several reasons were given. The G-77 claimed that trading would weaken the protocol because some developed countries would be able to exceed their own emission limits, even though the overall target of 5.2 per cent below 1990 levels would have to be met. There was also a general suspicion among developing countries that they would be a exploited by a trading system once they joined into it, according to a South African delegate.
But there may have been baser motives involved. One NGO source claimed that the G-77, particularly Brazil, want to gain monopolistic control over the carbon trade through the Clean Development Mechanism, which it could then use to siphon off large "administrative expenses". Other sources, meanwhile, suggested that China and its allies were simply flexing their political muscle.
If emissions trading was the most important issue in Kyoto, the most intriguing was the question of commitments by developing countries themselves. The US insisted on their 'meaningful participation", but few knew just what this meant.
Then, on Friday, Dec 5, New Zealand (presumably at the US's urging) submitted a proposal calling on developing countries to commit to a time frame by which they, too, would accept binding GHG emission limits. The G-77, including Thailand, responded in outrage. The Berlin Mandate established in 1995 excluded developing countries from any new commitments until after the Kyoto meeting, they pointed out.
US Vice-President Al Gore flew in with a compromise the following Monday: If the developing countries accepted Article 10 -- under which they would eventually agree to binding emission limits -- they would not have to specify when they would join up. Many countries, including Thailand and the Philippines, supported this arrangement, but in the end China and India rejected it.
This came as a bitter blow to the US, where climate change is expected to become a major political issue in the coming years. Without Article 10, the Clinton administration says it won't even try to get the Kyoto Protocol ratified by a hostile Senate.
Difficult to ratify
Truth be told, however, the US probably wouldn't have ratified the protocol even with Article 10. At a press conference on the final day of negotiations, a group of US congressmen admitted as much. They seemed confident the article would be included in the final protocol, but still said they would recommend postponing ratification. Senator John Kerry, a supporter of the treaty, explained, "I think it's going to be very difficult to ratify without more participation from key developing countries".
Opponents in the Senate and elsewhere fear that if the US agrees to binding emission limits without countries such as China and India at least saying when they will do the same, the US would lose all leverage over them in the future. So the compromise offered by the US would not have solved its conflict with developing countries; it would simply have postponed matters until after Kyoto. Article 10 would have only been a symbol, something American supporters could have taken back to wave in front of the skeptics on Capitol Hill. In the end, they didn't even get that.
This leaves the Kyoto Protocol in a precarious position, since it would become virtually worthless if the US does not follow through on its commitment. There is nevertheless hope for the treaty. Even though America is not likely to ratify the protocol anytime soon, it could still try to meet its emissions target. The US must reduce its GHG emissions by seven per cent below 1990 levels, but not until the years 2008-2012. In the meantime, several promising events could unfold.
The US and other developed countries may find that meeting their emission targets is much easier than the industrial doomsayers have forecast. Indeed, this has generally been the case with past environmental legislation, which can benefit industries by forcing them to improve their efficiency and spurring the invention of new technologies.
There is also a very good chance that some developing countries will sign up for binding emission targets, thus easing the fears of the US. Why would countries like Thailand agree voluntarily to limit their GHG emissions? Not only would it help prevent climate change, but it could give them access to a thriving trade in carbon, which could bring in a lot of investment.
Efficient technology
Think of it. Developing countries are not being asked to reduce their emissions, but rather to set a cap on future emissions. By doing so, they could sell off their carbon emissions as credits. And if they do it properly -- for instance, by entering into JI projects through which they gained energy efficiency technology -- this needn't halt their development.
Some developing countries like Mexico and Argentina have already expressed interest in joining up," said one environmentalist. "They see which way this is going."
Of course, a lot more negotiating needs to be ironed out, and many pitfalls remain. Rules on compliance and emissions trading still need to be settled, and there is a danger that some firms may try to promote hydroelectric dams, fast-growing tree plantations and even nuclear power plants as JI projects -- setting up a confrontation between local and global environmental concerns.
All of which suggests that the Kyoto conference was not a conclusion, but merely the beginning of a process which could leave us with a whole new world.
JAMES FAHN is The Nation's environment editor.