Global Policy Forum

Sanjay Suri

Business climate may change more than world climate when the Kyoto Protocol comes into effect by the year-end following ratification by Russia. Ratification by Russia, which is considered responsible for 17 percent of global emissions, would mean that the protocol would have been ratified by industrialised countries responsible between them for more than 55 percent of emission of greenhouse gases such as carbon dioxide and methane. Emission of these gases from industries and vehicles is believed to lead to global warming and consequently to climate change. Russian ratification would in effect turn a code of conduct into international law binding on the countries that ratify the treaty.

This will have a direct effect on industries in these countries. The Kyoto protocol sets quotas for emissions and targets for reduction. Industries in signatory countries will have to factor in the costs of meeting targets in two different ways: through introduction of new technology to reduce emissions, and through an emissions trading scheme. Under emissions trading, a company that is emitting more than its quota can 'buy' quota to emit more from another company that is emitting less than its allocated quota. The buying company is therefore paying to increase its quota to pollute. This will be the preferred path for a company when this kind of 'purchase' costs less than introduction of new technology to cut emissions.

On the other side, this can become a source of additional income for a company that is emitting less than its quota. The sum total of emissions would remain the same in a transaction of this kind; the pollution would come from one chimney or exhaust rather than another. The deal makes therefore a bigger difference to the companies doing the dealing than to the atmosphere. But the trading will take place within a broader aim to cut emissions. That aim is a rather modest one: in the period 2008-2012 the countries that ratify the protocol amongst a group of 38 industrialised countries must reduce emissions to at least 5 percent below 1990 levels. The 38 include the United States, Russia, the EU countries, Japan, Australia and Canada. The United States and Australia are among industrialised countries that have not ratified the protocol.

There is little agreement among scientists how far a 5 percent reduction in relation to 1990 levels between 2008-2012 will make a difference to climate. Rajendra Pachauri, chairman of the Intergovernmental Panel on Climate Change (IPCC) told a conference on renewable energy in Bonn June this year that the difference the Kyoto protocol could make would be at best modest. Other scientists say that 60 percent cuts are required just to maintain carbon dioxide proportions at twice the pre-industrial revolution levels. Such estimates raise awkward questions about what a Kyoto commitment can achieve to curb the projected rise in global warming.

The IPCC projects a temperature rise between 1990 and 2100 of between 1.4 and 5.8 degrees C on global average. That is projected at two to ten times the observed warming in the 20th century. Warming at this speed is unprecedented in at least the last 10,000 years, says the third assessment report of the IPCC produced in 2001. The fourth assessment report is due in 2007. As the Kyoto protocol stands, a 5 percent reduction in a limited number of countries over a limited period (2008-2012) is expected to do little by itself to curb warming and do anything like beginning to arrest climate change.

The provision of relocating emissions by trading them compromises even this small target. That is all quite apart from persistent questions from many scientists whether emissions have an effect on the climate at all. The industrialised countries that ratify the Kyoto protocol have each been given their individual emission targets. These were worked out in Kyoto after intense negotiations. Government officials fought to stretch quotas for their countries as far as possible. Several countries secured very large quotas. Each of the industrialised countries that ratifies the protocol has an assigned amount of emissions.

How much disagreement this can generate became evident earlier this year from submissions by Germany and France. Each submitted claims of massive amounts of emissions at base level. Reduction from such levels would be a song for industries in those countries. One way or the other these quotas are more likely at least in the immediate future to affect the emissions trade than the atmosphere.