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Kyoto to Copenhagen – Opportunities and Constraints for Developing Countries
carbon sequestration services to compete economically with other land- Even if developing nations want to participate in markets for carbon
use options. As countries enter contracts that bind them to selling the credits, many will find entry as suppliers in those markets difficult.
now marketable services their forests provide, they have an incentive to The exchange of carbon credits requires that the producing country
maintain and even expand existing forested land. Just as developing is able to verify that the reduction in emissions or the sequestration
countries can sell removal units, they can also host joint implementation of carbon is permanent. For years environmental groups have tried
projects that create ‘emission reduction units’ (ERUs).
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A joint to negotiate with South American countries to get them to preserve
implementation project is a capital project funded by another signatory their rainforests. Debt-for-nature swaps became popular in the
nation (presumably a developed nation that is committed to achieve 1990s as groups such as the World Wildlife Fund bought debt from
emission reductions) that results in productive capital in place that is these nations for pennies on the dollar and then offered to retire the
cleaner than the local laws require. The forces of globalisation have debt if the nations would guarantee the preservation of sections of
brought to our attention the incredible mobility of capital. Capital flows rainforest. Unfortunately, there was no way to ensure the long-term
to where it is most productive. The principle of diminishing marginal preservation of the set-asides, and the practice failed to realise its
productivity drives owners of capital to constantly examine opportunities full potential.
for new investments, and capital is generally most productive where it is
in scarce supply. Without a legal system that allows foreign interests – countries or
environmental groups – the assurance that agreements such as the
The opportunity to produce ERUs creates an incentive for investors to debt-for-nature swaps will be respected in perpetuity, there is little
look for places that have relatively little clean capital (or abatement incentive for parties to enter into such agreements. Therefore, to fully
capital such as smokestack scrubbers) where large gains in emission utilise the opportunity to supply emission reduction services,
reductions can occur with modest capital investments. For example, a countries will have to invest in their legal systems.
German company (or the government itself) might need to reduce its
carbon footprint to comply with its treaty obligations. Meanwhile, Countries benefit when they strengthen their legal system. They
the Indian government wants to build a new coal-burning power benefit from being able to sell carbon credits when they preserve their
plant. If the plant is built to satisfy Indian regulations, it may pollute forests or attract foreign capital. The citizens of the country also get to
heavily; if it is built to satisfy German regulations, it will pollute less. enjoy the benefits of the rule of law – the knowledge that they can
Therefore, if the German company builds the plant in India to expect certain rights and responsibilities. One fact upon which
German standards, the company can earn ERUs equal to the economists are in agreement is that economies need a strong legal
difference in standards. Such a transfer of technology would be foundation before they can expect to fully enjoy the benefits
attractive only if the value of the ERUs was sufficient to compensate of trade.
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the German firm for its efforts, but if both nations sign the
Protocol the possibility of the transfer exists. India gains a cleaner Costs
power plant and the German company gains ERUs. Although developing countries may benefit greatly by joining the
international efforts to reduce greenhouse gases, the benefits are not
Additional Benefits free. For example, the efforts to develop legal systems that stand up to
While the economic provisions of the Protocol provide opportunities international scrutiny are costly – not just financially but also politically.
that draw developing countries into the market for carbon credits, two Additionally, countries sacrifice some autonomy to participate in
fundamental benefits accrue to those countries in addition to international carbon markets. These two issues carry considerable
developing exportable commodities. First, countries that take weight when nations decide first whether they will sign the Protocol
advantage of the Protocol’s opportunity to supply carbon credits are and second whether they will ratify it.
likely to avoid some of the ‘dirty’ phases of development. Second, these
countries will have to shore up their legal systems to meet international First, the biggest adjustment a developing country is likely to face as
standards if they want to sell carbon credits on the global market. it offers removal units or ERCs for sale is modernising its legal
system. Without integrating its laws and enforcement structure into
As any economy develops it faces choices. The west developed by the global environment, a developing nation can hardly expect to
exploiting natural resources in such a way that many urban fully capitalise on its comparative advantage in reducing greenhouse
environments became significantly degraded. However, as many of the gases. This is particularly true for situations in which countries wish
economies in the west became wealthier, their citizens demanded to attract joint implementation programmes to produce ERCs. Any
cleaner production standards. This tendency to develop through a country looking to transfer technology abroad will expect some legal
period of relatively dirty production before adopting cleaner techniques protection of its expected future offsets for the life of the capital.
is known as the ‘Environmental Kuznets Curve’,
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but there is no law Such guarantees are hard to come by in countries without fully
that states that an economy must follow such a path to development. matured legal systems. Even though a developing country may
In fact, it makes little sense to assume such a path if cleaner benefit internally from a modernised legal system, such modernity
technologies and practices already exist. The Protocol offers an avenue will be arduous to accomplish and expensive. It must overcome
along which developing economies can attract the capital from historical, political and social forces.
developed countries and leapfrog polluting intensive technologies
altogether. Without the benefit of ERUs, such technology transfers are Second, a country gives up considerable autonomy when it commits to
unlikely because generally the cleaner technology is more expensive establishing carbon sinks. Once a country sets aside a forest, it must
than its dirtier counterparts. manage it for its carbon content rather than its extractive value. This
MODERN ENERGY REVIEW VOLUME 1
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