Peter Kuria[1] October 2009

The mechanisms of the Kyoto Protocol have managed to create carbon markets which according to the World Bank[2], and industry leaders will be worth billions of dollars and grow to be one of the largest markets in the future.

Bart Chilton, a Commodity Futures Trading Commission (CFTC) commissioner, and chairman of its Energy and Environmental Markets Advisory Committee, estimates that the carbon markets could be worth $2 trillion in transaction value when the cap and trade is legislated in the US. The Carbon Markets and Investors Association (CMIA)[3], an international trade association representing energy companies that finance, build, and support emission reduction projects, estimated the sector was worth US $ 126 billion in 2008. This figure is collaborated by a World Bank report on the Trends of the Carbon Markets[4]^..

On the other hand, different research reports and models from the IPCC, and institutions like the World Bank warn that the cumulative impacts of climate change could and are adversely affecting millions globally. The poor and the least equipped to deal with the stresses in society are expected to bear the brunt from these impacts.

In a report Shaping Climate-Resilient Development: A Framework for Decision-Making published in September 2009[5], Lord Nicholas Stern states that climate risk to the world’s economies and its people is real and present, and its impact on people’s lives and livelihoods will worsen rapidly if action is not taken now.  The report also states that adaptation is not free, and in some instances, will require deep investment in infrastructure development. The cost for adaptation in developing countries is estimated to be between US $75-100 billion[6] per year over the next 40 years.

The Time-Glass approach to Wealth and Poverty creation in Climate Change

The core of the Kyoto Protocol mechanisms is a requirement that countries limit or reduce their greenhouse gas emissions. Developing nations are worried about the cost of making changes, and whether reducing carbon emissions might hinder their growth, developed nations don’t want to slow their economies or change the lifestyles of their citizens. On this basis, the framework for achieving the Kyoto goals is driven primarily by markets and politics; where monetary or financial gains are central to all the strategic decisions made.

Most argue that it is good to have an international legally binding instrument, which the Kyoto Protocol positively delivered.  However, the Kyoto mechanisms also created an artificial divide between the high and low carbon economies. This served to promote the argument for carbon off-sets and the clean development mechanism.  The “time-glass approach” of shifting carbon from one economy to another without necessarily cutting back on emissions has created  major implementation difficulties[7].

“Kyoto boosted options through which rich nations can continue to raise the global emissions by for example trans-locating polluting industries to the Global South. These industries contribute to the growing emissions in the South and sustain the consumerism lifestyle of the West. In some instances the industries can be cast as an emissions reduction under the technology transfer framework” according to Ville Veikko-Hirvellä, from the Rising Tide.

Presently, the mechanisms are crafted to reward and provide financial incentives to those who show commitment to dealing with the drivers of climate change; however the reward system has not demonstrated a remarkable contribution towards reducing or cutting back on the emissions from source[8] or at the offset level. They have however generated a new market for the trading of carbon as a virtual commodity[9].

The design of the Kyoto mechanisms, lay emphasis on the developed world (carbon economies) to reduce their emissions.  The design excluded the Global South as unique drivers of change with potential for diverse contributions to the process.    At the same time, the accrued “financial and economic” benefits from the mechanisms were specifically crafted to benefit those from the developed world.  In the process, the Global South acquired a passive role as  “off-setters” or receivers of technology especially under the Clean Development Mechanism (CDM)[10].

The CDM on the other hand is considered a high risk venture by the proponents and opponents in equal measure.  The proponents have cited risks linked to leakages from carbon storage and permanence in the sinks.  The opponents see complexities of the problems emanating from the simplistic approach to the CDM.  Opponents specifically point out how CDM projects have ignored the legal questions of land and resource ownership and specifically human rights.  For example under CDM, hundreds of people have lost their land or become displaced in order to pave way for projects aimed at providing a carbon sink or work as offsets[11] for polluting industries.

Evidence is emerging on the flawed architecture of the current Kyoto mechanisms which in turn affect their effectiveness in dealing with climate change. There are cases being documented with the most prominent ones being from India, Indonesia, Kenya, China and specifically Uganda[12] where people have been evicted to create a “CDM compliant” zone.

The Kyoto mechanisms have created a process of entrenching inequity where, on one hand they are generating riches for individuals and industry players from the West, while on the other, increasing vulnerability and creating poverty on a massive scale in the Global South.

While the Kyoto mechanisms have provided a platform for wealth creation, it is questionable how  this wealth is contributing to the mitigation of climate change or to the adaptability of the vulnerable members of the society.  The mechanisms have transformed carbon to a  speculative commodity for tackling climate change without actually delivering any “change”.  For example, the emerging global carbon market has created service industries such as EcoSecurities[13] whose turnover for 2008 was over € 69 million.  “It is unclear how such wealth has translated or contributed towards climate change mitigation or adaptability..! The wealth generated from the carbon market is “not justified wealth” according to Larry Lohmann[14] from the Corner House, UK.

On the other hand, the loss of livelihoods, shelter, lives, and biodiversity continues to escalate upwards.  In Bangladesh 68 million have been directly affected by the impacts of climate change over the last 10 years, while in Kenya in 2009, 10 million people were estimated to be dependent on food aid after successive droughts[15]. On a global scale it is estimated that annually, 325 million people are affected by frequent weather-related disasters.  There are no definitive figures on the financial costs to this vast population, but it is evident they face misery and will continue to do so unless clear and workable solutions to the crisis are put in place.

If New Orleans and Hurricane Katrina are used as examples (although from a totally different environmental context), the estimated damage was well over $ 100 billion.  This draws attention to the potential cost of climate change on built environment. It also showed that the impacts of climate change are not restricted to the Global South.  The West is equally vulnerable and probably at a higher financial cost.   The crisis also revealed the limitations to responding to a crisis of a large scale, the hidden vulnerable society within society, and the power of nature.

The undeclared assets for the poor, the baseline for resilience

The real cost and impact on human from climate change is difficult to assess with great accuracy because it results from a complex interplay of social, economic, political and ecological factors. Also, the current climate prediction models have primarily focused on future scenarios, yet climate change related impacts are already happening today in countries such as Kenya, Vietnam and Bangladesh[16] and have been happening over many years with increasing frequency and unpredictability.

The full implication of climate change on economies globally is barely appreciated. The Economics of Ecosystems and Biodiversity (TEEB)[17] report a study commissioned by EU attempted to quantify the value of biodiversity.  The study put the annual cost of forest loss at between $2 trillion and $5 trillion.  The loss in value of these natural assets translates to a loss to the poor.  These are the “undeclared assets” for the poor.   Climate change, is negatively affecting the value of this asset base.  The poor are therefore not only facing impoverishment from a skewed commodities market, but also from the degradation of their “undeclared assets” from the impacts of climate change.

In effect, huge profits are being manufactured while at the same time creating poverty.  The Kyoto Protocol architecture[18], has made it possible for people, companies and institutions to generate wealth.   Yet, little has been achieved on the ground in terms of addressing the causes of or impacts from climate change.  This speculative approach to dealing with climate change should be faced with caution. The financial crisis and global economic downturn of 2008/09 should have taught us a lesson, nothing is built on nothing as was shown by the subprime housing crisis.  At a global scale Carbon is emerging as yet another speculative product built under the same subprime phenomenon,  what does its future hold especially to the traditional brick and mortar traders?

Meanwhile, whether the world signs a new Climate Treaty or not come Copenhagen 2009, we will still be faced with the same questions of whether it will deliver where its predecessor failed.  Currently, the strong focus on profiteering while ignoring the larger social and environmental costs makes the Kyoto mechanisms bad for the poor people and not “fit for purpose”.  The resolution of this contradiction of costs versus opportunities will remain central to defining a  permanent solution to the climate crisis and the design of a Post-Kyoto Climate treaty.