Who pays for the clean-up
Context:
- Climate change has historically been mostly attributed to the industrialization process in the rich economies. The poorer countries of the Global South made a negligible contribution.
The following commitments were made under the United Nations Framework Convention on Climate Change in the past:
- The Kyoto Protocol under the United Nations Framework Convention on Climate Change recognised the “common but differentiated responsibilities” in the fight against climate change.
- The Paris Agreement, which replaced the Kyoto Protocol, demanded that richer nations provide money to developing economies so that they could deal (i.e., cut emissions and adapt to the negative effects of climate change) with the problem. It also asked countries to set voluntary emission targets.
- It established a base sum of $100 billion annually for these disbursements. This was anticipated to be in addition to the international development assistance, which made up 0.7% of their country’s GDP.
It is not appropriate to include commercial loans in climate funding:
- Commercial loans should not be regarded as climate financing. Countries in the Global South already have to manage their external debt, which is made worse by the epidemic.
- It is unwise to increase debt in order to combat climate change. Less than $25 billion of the $83 billion invested in the climate financing fund in 2020 was delivered to the Global South as grants. The rich countries are nonetheless responsible for their financial obligations.
- The “New Global Financing Pact” summit will be held in Paris, France, on June 22 and 23. This intends to provide financial support for the Global South’s initiatives to fight climate change and reduce poverty. I won’t hold my breath waiting for it to be resolved given the recent history of empty promises regarding the flow of money to the Global South.
The Carbon Border Adjustment Mechanism (CBAM) has greatly decreased greenhouse gas emissions (GHGs):
- The European Union (EU) recently proposed the Carbon Border Adjustment Mechanism (CBAM). The US, Canada, and Japan are preparing comparable policies.
- It comprises imposing levies on imports from other countries that are deemed to use production methods that are carbon-intensive.
CBAM criticisms and the significance of it:
- According to some, the EU’s stringent environmental rules force businesses that produce pollution to move their operations to countries with laxer environmental regulations.
- In countries where carbon is more expensive, there will be a “carbon leakage” in certain sectors.
- However, if the EU imposed a tax on the import of these goods, domestically produced goods that are subject to a higher carbon price would once again be competitively comparable.
- The CBAM is expected to achieve three objectives.
- decrease emissions in the EU, initially;
- There should be no compromise in the EU’s ability to compete in carbon-intensive goods.
- Third, to compel the targeted countries to reduce their carbon exports.
- This system will be implemented starting in 2026 and will cover products including cement, steel, aluminium, paper, glass, chemicals, oil refinery, and energy production.
- The countries most affected will be Russia, Ukraine, Turkey, India, and China (while the UK is not a member of the EU, it has rules similar to those of the EU). There are just three “pricing carbon” systems among the twelve exporters to the EU.
In terms of international law, what does the application of CBAM mean?
- The GATT and WTO have promoted free trade to prevent the world from reverting to the anarchy of the interwar period.
- The CBAM is a unilateral move that violates the spirit of multilateralism. Due to measurement problems, it might be utilised for protectionist purposes. Instead of the product itself, it targets production practises that the WTO deems unacceptable.
- The WTO’s policy is essentially legalistic and provides very little room for economic considerations. Case-by-case resolution of environmental disputes has historically been the WTO’s practise.
- Its dispute settlement process is currently deadlocked due to a paucity of judges.
- Applying the current rules requires consent from all members, or at the very least a majority. A WTO change may not happen, but delaying one would lead to trade wars and retribution.
Fair CBAM implementation for the global economy and the Global South:
- The analytical framework for addressing climate change is built on putting a price on carbon emissions.
- Given that carbon combustion has a similar effect on climate change everywhere in the world, we need a global carbon tax to address this global “externality”.
- This would work well if there were a world government. It is vital to decide who gets to keep the tax income in its absence. For instance, if the oil producers are allowed to keep it, the outcomes resemble an increase in oil prices a la OPEC, where the producers get paid the higher prices.
- The EU, which imposes tariffs in this case, will keep the money used to settle the outstanding debt of the CBA.
- The “free riders” are also to be punished by this system. Someone who relies on others’ efforts while not making their own despite having the means to do so is known as a free rider.
Conclusion:
- Even if CBAM is successful in overcoming the measurement difficulties and WTO incompatibility, it only concentrates on the emissions present in a limited fraction of traded goods.
- It is anticipated that it won’t significantly affect climate change. Despite praise for the plan’s ability to simultaneously solve trade and climate issues, there are certain obstacles, such as the measuring difficulty. It aims to help wealthier countries escape having to pay for contributing to the global crisis.
