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close this bookThe Global Greenhouse Regime. Who Pays? (UNU, 1993, 382 p.)
close this folderPart IV Conclusion
close this folder14 Constructing a global greenhouse regime
View the document(introduction...)
View the documentConditionality and additionality
View the documentTechnology transfer
View the documentMulti-pronged approach
View the documentImplementation procedures
View the documentRegional building blocks
View the documentNorth-'South' conflicts
View the documentConclusion
View the documentNotes and references

Regional building blocks

A global greenhouse regime will take a decade or more to construct. Regional efforts will likely be the building blocks on which a global regime will be built.

In this section, I examine the potential of regional approaches for funding the incremental costs of developing countries. I follow this with a review of the hopeful trend toward sub-regional cooperation on climate change scientific research.

Regional greenhouse trade initiatives

Given the limited past experience with transfer schemes based on carbon taxes, traceable permits, or the sale of abatement services, it is unlikely that they will successfully commence quickly. It is more likely that these schemes will be tested first in national and regional experiments. In this section, l examine the potential for such a scheme in the Asian Pacific region.

In many situations, regional cooperation may be more cost-effective than national initiatives in abating greenhouse emissions due to expansion of available resources of technology and information, economies of scale achieved through trade, and reduction in information and administrative costs. There is no doubt that immense scope exists in the Asia Pacific region for improving energy efficiency and reducing greenhouse emissions. One Asian Development Bank survey (based on 160 energy audits in Thailand, the Philippines, and South Korea) found that energy savings were economically justified in most industry groups.

In Thailand, energy savings of 12-13 per cent were found to be justified except for chemicals and non-metallic products where the potential was much higher. In the Philippines, energy savings of 18 per cent in industry were identified plus another 16 per cent potential by substituting natural gas and biomass for oil. And in Korea, energy savings were found to be 5.5 per cent with big potential in kilns and furnaces and additional potential for cogeneration and district heating.

In Table 14.1, I show the cumulative projected emissions, required reductions, and incremental abatement cost (calculated at the high marginal cost schedule) for four major industrial and three major developing countries in Asia Pacific in 1995, 1995-200415, and 1995-2024/5 as calculated in Chapter 5. The industrial countries have about forty per cent more projected cumulative emissions over the scenario's thirty year period, but are responsible for about three times as much required reduction as the developing countries. Because the industrial countries quickly move to the higher echelons of marginal abatement cost, they also spend much more on abatement than the developing countries over the same period. These figures indicate that markets in traceable permits and abatement services could emerge quickly in the Asia Pacific region as the industrial and developing countries appear to have complementary capabilities and needs that could reduce the cost of abatement in the North while transferring substantial resources to the South.

In Indonesia, for example, the institutional capability to sell abatement services sought by overseas firms or utilities already exists. KONEBA, a quasi-private firm established by firms in the fertilizer sector backed by a World Bank loan, is marketing shared energy savings contracts with firms in the large industrial and commercial sector. KONEBA is also seeking energy efficiency contracts in Sri Lanka, the Philippines, and Malaysia.

Table 14.1 Asia-Pacific regional carbon abatement services trade potential

  1995 1995-2004 1995-2025
A CO2ff projected emissions, efficiency adjusted scenario (MTC)
Industrial Asia/Pacific      
USA 1447 14814 47060
Canada 154 1581 5022
Japan 344 3503 10983
Australia 70 710 2176
Subtotal 2015 20607 65241
Developing Asia Pacific      
China 748 7877 27084
India 294 3163 11652
Indonesia 60 644 2304
Subtotal 1102 11683 41040
Ratio Dev./lnd. 0.55 0.57 0.63
B Required reduction, efficiency adjusted scenario (MTC)
Industrial Asia/Pacific      
USA 92 4278 26684
Canada 10 456 2847
Japan 21 1002 6206
Australia 4 200 1222
Subtotal 127 5936 36960
Developing Asia Pacific      
China 19 1014 8003
India 8 447 3655
Indonesia 2 88 705
Subtotal 29 1548 12363
Ratio Dev./lnd. 0.23 0.26 0.33
C Incremental cost, efficiency adjusted scenario (Million $)
Industrial Asia/Pacific      
USA 4576 396324 18773438
Canada 488 42293 52040
Japan 1075 92382 29345
Australia 215 18260 26684
Subtotal 6354 549259 18881506
Developing Asia Pacific      
China 956 52366 748062
India 415 24282 350828
Indonesia 82 4663 66961
Subtotal 1453 81310 1165851
Ratio Dev./lnd. 0.23 0.15 0.06

Millions of current dollars, not present valued
Part C uses incremental cost calculated with the Nordhaus marginal cost curve

In China, key industries such as iron and steel, aluminum, brick-making, glass and ammonia are very energy inefficient, as are buildings and cooking stoves. One analyst estimates that a 30 per cent reduction in projected energy use can be achieved by 2025. Major increases in energy efficiency will require replacement rather than retrofit of existing and obsolete equipment. Yet China lacks foreign exchange, has unreliable supplies of more efficient fuels such as diesel, operates at small scales of production due to poor transport infrastructure and decentralized economic activity, and accords a low priority to maintenance and repair of equipment that are crucial to energy efficient operations. China has an especially irrational energy price structure that, as the World Bank puts it, appears to be used 'primarily to generate and distribute revenues rather than to influence supply and demand.' China also requires externally funded projects to generate foreign exchange to repay the loans. Projects that increase energy efficiency do so indirectly if they reduce oil use allowing increased oil exports, but crediting the energy efficiency project with the foreign exchange earning will require China to adjust its internal procedures.

These practical obstacles imply that emission abatement programmes in China will have to cast a very wide net in order to address the real constraints on improving energy efficiency and shifting from coal to natural gas. Fortunately, China is one developing country that gives a high priority to energy efficiency. The Energy Conservation Company of the State Energy Investment Corporation spends about $300 million per year to provide project matching funds and technical advice through 156 energy management centres with 5,000 employees at the state and regional levels.

Yet China has limited ability to substitute natural gas for coal. Nuclear power and hydroelectricity are both site-constrained. China already invests about 10 per cent of total public investment in the energy sector into efficiency. The Asian Development Bank is preparing a major loan project to follow up its technical assistance project on energy efficiency in China (funded by Japan and matched by the UN Development Programme).

Projects could be undertaken through existing bilateral and multilateral channels to reorient traditional lending practices. China, for example, purchased cast-off Japanese factories to make highly inefficient appliances such as refrigerators in China - equipment that will require many extra power plants that will cost China much more than it would have to buy factories to make efficient appliances. A compact fluorescent lamp factory provides energy at about one tenth the cost of a new power plant - yet donors find it much easier to package and fund gigawatt size power plants than they do energy efficiency projects.

Greenhouse initiatives at a regional level must be sensitive above all to local conditions. The islands of Asia Pacific, for example, have very different energy economies and needs to those of the big Asian states. The islands are greatly dependent on oil for commercial energy although some also use substantial quantities of fuelwood. One cost-effective and culturally appropriate measure in many of the island microstates will be to engage in coastal reforestation and agro-forestry projects based on indigenous plants of high cultural utility to Pacific islanders.

Regional efforts are also needed to enhance the flow of technology transfer. Regional trade liberalization, for example, may stimulate competition that increases the transfer of energy efficient technology. In Thailand, for example, local refrigerator manufacturers have been locked into using inefficient and obsolete compressors made by a Thai-Australian joint venture that licensed technology from a US firm by high duties and bans on imported compressors. When another firm finally received permission to make a decade-old Japanese compressor, the Thai-Australian joint venture introduced a more recent US compressor. Increased competition thereby improved compressor efficiency in Thailand by 15-20 per cent.

Public and private initiatives to explore the potential for firms and utilities to undertake abatement projects in developing countries of Asia and the Pacific are needed urgently to demonstrate the viability of such activities. A state level utility in Australia, for example, could approach a counterpart in Asia, and then propose to part-fund an abatement project which would be credited to Australia's own national abatement in the Climate Change Convention. The project partners could seek third party private financing, and approach the World Bank/UNDP Global Environment Facility for support. Innovative financing mechanisms such as the Australian utility buying discounted private debt owned by a country like the Philippines could be used to finance the domestic costs of the abatement project.

The Asian Development Bank would act as honest broker, identifying the potential projects, preparing the loan documents, arranging for private cofinancing, and monitoring and evaluating performance. The maxim 'first in, first served' will play powerfully in emerging markets for traceable permits and abatement services.

Potential for sub-regional collaboration

Regional approaches may be attractive and productive for reasons other than the minimizing of cost. Because greenhouse gases are universal on the one hand, and because adjoining countries share common features and interests on the other, a regional programme on climate change may both facilitate the implementation of the Convention and foster regional cooperation. In Northeast Asia, for example, a regional environmental consultative forum is likely to be established in 1993. Initial steps to create this forum became possible in mid-1990 when the Cold War began to thaw rapidly. It will likely encompass climate change issues as well as regional oceans management, resource management, environmental technology research and development, standards, and so on.

Of course, the six nations of Northeast Asia already cooperate on some environmental issues, but mostly on a bilateral basis. The South Korean Forestry Research Institute, for example, is establishing formal cooperative arrangements with its Chinese counterpart in the Chinese Academy of Sciences. The North Korean Academy of Sciences has long cooperated with Chinese institutes. And the Mongolian Academy of Sciences has conducted collaborative research with the Chinese Academy on grasslands ecology and desertification. None of these efforts cover the whole sub-region, however.

The UN Development Programme is the only existing sub-regional cooperative framework that includes all the regional states. It has subregional programmes on transboundary acid rain, clean coal technology, new and renewable sources of energy, and the development of the Tumen River area, all of which are salient to the greenhouse gas issue. But these activities are still at an early stage of development and offer little that contributes directly to regional activity on the greenhouse gas issue.

A sub-regional climate change programme could address a variety of greenhouse related issues. Acid rain fallout, for example, affects carbon emissions/sinks. Acid rain from coal burning is transported from Manchuria and North Korea onto Japan and South Korea; and from Russia onto Mongolia. Methane emissions from the production and use of coal is another possible research priority in Mongolia, and North and South Korea. China has substantial experience in methane monitoring from coal mining and from rice paddy fields, and could provide expertise and share surplus equipment with other countries in the region.

Perhaps the most inclusive, urgent, and long term of all the tasks relates to the need to conduct regional climate modelling in Northeast Asia. All the developing countries in the region lack the basic capability to generate scenarios of climate change impact on which to base adaptation studies and national response strategies which parties to the Convention are obliged to produce. At this time, global circulation models offer poor resolution for Northeast Asia, let alone for a single country. Nations in the region are reduced to relying on qualitative scenarios of climate change with consequent uncertainty as to the range of possible costs and benefits of climate change to which they must respond.

A regional effort to develop a regional climate model is therefore an urgent priority. Such project would nest a regional model within existing global circulation models rather than attempting the extremely costly exercise of building a new global model for use within the region from scratch. The choice of regional climate modelling parameters, the data requirements to validate the model, the interpretation of the model's results, etc. are all items that require a regional rather than a national approach.

The United Nations Development Programme could convene a regional scientific collaboration along these lines that would:

1 create a regional scientific advisory board for this activity;
2 identify a regional network of collaborating institutional and scientific participants
3 convene a planning session to identify the appropriate scientific approach to the various tasks;
4 develop a detailed budget for the work for both short and long term work.

Such joint work could lay the groundwork for a regional climate centre, as has been proposed by the Academy of Sciences in Beijing. A regional climate change centre in Latin America, and a regional scientific network on climate change scientific cooperation in Southeast Asia - both of which are in advanced planning stages - provide two models from other regions that could be drawn upon in Northeast Asia.

Thus far, I have analysed the arrangements for building confidence in the greenhouse regime and the major difficulties pertaining to resource and technology transfer for greenhouse-related activities. In the next section, I explore the extent to which the North-South conflict may affect the ability of parties to the Convention to negotiate meaningful protocols. The North-South stand-off has been institutionalized since 1964 when the UN Conference on Trade and Development (UNCTAD) was established. Is it really possible to erect a global greenhouse regime in spite of North-South antagonism as to the nature of aid, the terms of trade, and technology transfer? To what extent does a global environmental issue such as climate change portend the emergence of a new organizing principle of interstate relations on a par with geopolitical and geoeconomic concerns? Is geoecology on the international agenda?