The good that can come from Paris

IN RECENT years, the increasingly severe impact of climate change has focused minds on the need to manage global warming. Yet, at the same time, weaknesses in the global economy have demanded policymakers' attention: the US unemployment rate still stands above 5 per cent; the European debt crisis has yet to be resolved; and China is experiencing a slowdown in economic growth. The competing priorities beg the question: "What can we expect from the Paris Accord?" This is of great significance since this round of negotiations is supposed to produce the first ever universal and legally binding agreement on combating climate change.

However, as in past multilateral treaties (eg the Kyoto Protocol, the Copenhagen Accord, the Bonn meeting, the Durban meeting), there will be many complex challenges arising from the differences in the stages of development across countries. Developed countries may have stronger preference for a higher quality of life that includes a better environment while many developing nations still struggle to provide higher standards of living in economic terms. For the latter group, income and employment come first. Moreover, developed and developing nations alike would rather lie low and have others bear the brunt of emissions reduction while enjoying the benefits of averted climate change.

The concept of inter-generational equity poses another challenge to decision-making. Decisions made today affect future generations. While protecting the environment clearly bequeaths future generations with a better living environment, there is also the argument that slowing down economic growth in order to reduce global warming would mean that our future generations would have lower per capita gross domestic product (GDP). This gives rise to the question concerning the future generations' demands for material and non-material goods - How do we know that future generations prefer more non-material goods to material goods?

The uncertainty in climate change science and the potential for technological solutions to emerge are yet more challenges. Cooperation to reduce emissions is more likely if a clear tipping point to catastrophe can be identified. However, climate science does not offer that precision. Additionally, the possibility of innovation to save the day (akin to how the Green Revolution prevented Malthusian predictions from coming true) reduces the incentive to make a firm decision now.

A further challenge lies in the belief that we need not do anything as the market would naturally solve the problem - market forces of demand and supply tell us that when resources become more scarce, prices will go up and both consumers and producers will search for alternatives or substitutes. So as the environmental resources run out, more environmentally friendly production and consumption would naturally become the norm.

THE PARIS ACCORD

In light of the constraints and challenges, are we to expect nothing to come from the negotiations? There are good reasons for us to think not. The recently concluded Climate Vulnerable Forum held in Bonn, Germany, showed that even less developed countries (LDCs) had taken action to prevent climate change. Additionally, a recently completed global survey showed that at least the majority of people were concerned about climate change. That at least some governments have taken steps to address their people's concerns about climate change is encouraging.

What, then, should we expect to be parts of the accord? Going by numerous climate change conferences, we now know that a forced schedule of carbon emission reduction is well nigh impossible because of differences in priorities across countries. Instead, we should reasonably aim for and expect an accord that encourages varied mechanisms to achieve a global hard target for the maximum allowable increase in temperature. Naturally, means to ensure compliance should also be built in.

In terms of mechanisms, for starters, the efforts of developing countries in managing the environment should be rewarded and encouraged. This could be through subsidies to developing countries for "producing environmental goods" (eg, fewer carbon emissions via more energy-efficient production methods). This is especially important for China and India which are huge countries with large populations and can have significant impact on the environment. Instead of criticising them for their dirty industries and pollution problems, we should encourage and praise them for their efforts in combating environmental problems. A more recent UK study showed that China's carbon emission is expected to fall in five years' time, reflecting the country's determination in controlling air pollution.

Other channels for international cooperation should also be encouraged. One area that should be looked into is that of improving intellectual property protection in developing nations. This will incentivise research and development (R&D) into new technologies and means of reducing cost in the existing use of renewable energy (eg increasing storage capacity of renewable energy, such as solar and wind) as well as encourage the flow of such R&D from developed to developing countries.

Of course, hopes of a global carbon tax or global tradable permits system remains. While each has its merits and demerits in managing carbon emissions, a global carbon tax seems to be a more viable option. It is more straightforward and less open to abuse and manoeuvring than a tradable permits system. And, since both the government and society are used to taxes, it should be easier to implement and understand than the more complicated tradable permits system. Furthermore, in small countries, as well as in countries with similar marginal abatement cost in industries, the tradable permits system will not work because there will be a greater difficulty in establishing a market. In sum, a tradable permits system for both producers and consumers, based on measured carbon footprint, is wishful thinking. A global carbon tax should be the option adopted. The difficulty of obtaining buy-in may be overcome by a gradual implementation as opposed to a full-cost carbon tax. Lessons on how to do so may be learnt from Singapore's implementation of the Goods and Services Tax (GST).

Apart from the mechanisms described above, a hard target in terms of a maximum allowable increase in temperature would be commendable. The target recommended by the Climate Vulnerable Forum to not minimise the threat to human life was 1.5 degrees Celsius, half a degree lower than the current two degrees Celsius goal.

CLEAR TARGET

With a clear target and mechanisms to achieve the target, the final issue then, is that of ensuring compliance. In this area, William Nordhaus, a Yale University professor, suggests putting game theory to practice. A Climate Club could be formed, where members have to adopt mechanisms to reduce carbon emissions and non-members are "punished" by having a 4 per cent tariff imposed on all the imports to countries within the Climate Club. This would create a strong incentive for nations to join the club and reduce their carbon emissions. Retaliation and protection fears and how to fit in with World Trade Organization rules - the implementation details need to be worked out as this is certainly not an easy task.

In conclusion, while the amount of work required has convinced some economists that we ought not to expect anything from the Paris negotiations, we see sufficient ground support for tackling climate change. We also learn enough from previous rounds of negotiations to not be dismal scientists despite being students of a dismal science. We believe that the Paris Accord will adopt a hard target, provide for varied mechanisms to achieve that target, and means of ensuring compliance. When that happens, Singapore will have a part to play in showing the world, especially as an urban metropolis, what can be done to reduce carbon emissions (eg, conversion to liquefied natural gas, a less carbon-intensive fuel; and achieving a 60 per cent recycling rate) and build capacity in those areas.