A Marshall Plan for greenhouse gases

Updated: Nov 28 2006, 08:31am hrs
The heat-trapping gases that are a by-product of economic activity pose tough policy challenges for the worlds leading economies. Finance and environment ministers are concerned with what seems an intractable problem: how to reduce greenhouse gases without sacrificing economic growth. But closer inspection reveals that challenge to be an opportunity.

Consider India and China. Both want to maintain robust economic growth. But that necessarily means greater energy use and rapidly rising emissions. Meanwhile, the results of the Kyoto Protocols mandatory GHG reduction targets have had little effect on emission growth in many developed countries. As the Associated Press reported last month, the worlds big industrialised nations are struggling to meet the (GHG) reductions they committed to in the embattled Kyoto pact. These nations are finding severe cuts difficult in the face of concerns over lost jobs and lowered productivity. Europe is veering off course, AP concluded, Japan is still far from its target and Canada has given up. European Environmental Agency data predicts that 13 of the 15 original EU member states will fail to meet their 2010 Kyoto targets.

One sensible, and politically achievable, way forward is the Asia-Pacific Partnership (APP) on Clean Develop-ment and Climate. This initiative of six partnersthe US, China, India, Japan, Korea and Australiaaccounts for almost half the global population and over half of man-made GHG emissions.

The APP seeks to identify policies and deploy technologies that promote air quality and economic growth and reduce poverty. The partnerships task forces are focused on practical steps to promote energy efficiency and pollution reduction in coal mining, steel, aluminium and cement production, clean fossil energy, power generation and transmission, renewable energy and distributed generation and buildings and appliances.

The APP partners are aware that developing nations will account for the greatest growth in emissions over the next two generations. As such, sensible efforts to reduce future emissions will focus on the transfer of current and new clean technology to the developing world through commercial transactions between firms. Such steps will realise economic growth with the smallest possible adverse environmental impact. Two of the partners, China and India, have relatively high emissions intensity; their GHG emissions per dollar of economic output are much higher than in the US, Europe, Australia, Japan or Korea. This is true for other developing countries as well, where emissions per dollar of GDP are far higher than in developed countries.

Continued strong growth and improved living standards for its 1.1 billion people is a top priority for India. Another goal is energy efficiency and a cleaner environment. The new APP on Clean Development and Climate can accelerate Indias progress in achieving both these goals. India, with its highly educated professional and technical class, has the potential to make major contributions in its role as co-chair of both the coal mining and steel task forces.

However, facilitating the adoption of the newest technologies will require initiative and vision from government officials. Promoting a favourable investment climate is a key requirement. The Indian government has already taken far-sighted steps to do that, but more could be done to minimise corruption and regulatory burdens, establish effective rule of law, recognise intellectual property rights and permit capital to flow freely. Progress in these areas will bolster the climate for critical foreign direct investment.

A recent study released by the International Council for Capital Formation suggests that the poor state of Indias infrastructure, especially for transport and power generation, is a major negative factor in the investment climate. Both transport and power generation and transmission are largely closed to foreign investment. In recent years, Indias FDI has averaged only about 3% of gross fixed capital formation, a rate far below the developing country average of about 12%.

Given the rise in global energy prices, reducing the energy intensity of the Indian economy would help cut production costs, improve competitiveness, enhance environmental quality and reduce the growth of global GHG emissions. As such, businesses and firms from the US, Europe, Japan, Korea and Australia already present in India and familiar with the legal, political, cultural and economic terrain have a significant role to play.

The APP, by encouraging technology transfer and developing more efficient ways of producing and consuming energy, can enhance world economic growth and environmental quality. This is a win-win situation rarely possible in public diplomacy.

The writer is MD, International Council for Capital Formation, Brussels