Shared Responsibility for Climate Change: Who Should Fund the Solutions?
Who is responsible for the carbon dioxide and greenhouse gases in the atmosphere that are causing our planet to warm? It is important to know, as only then can the problem be analyzed, and a solution be found to stop this carnage.
For now, it seems to be a wicked problem to solve. In its attempt to address climate change, the Paris Agreement has carefully included the phrase ‘common but differentiated responsibilities’ to align various countries in the mission towards ensuring that the global temperature rise is kept below 2°C, relative to pre-industrial levels. While all countries are responsible for reducing their greenhouse (read CO2) emissions, the extent, timing, and methods adopted may vary based on their own choosing. What this means is that each country will decide for itself how much CO2 emissions it will reduce and when – referred to as Nationally Determined Contributions or NDCs. While this makes the Paris Agreement weak-kneed, as it is not legally binding, it was essential to get all nations on the same platform in order to get the agreement signed.
Why was this compromise made? Because it was impossible to fix and allocate responsibility for CO2 emissions amongst nations in a legitimate manner and the agreement would have gotten into a stalemate and never got signed. The 2023 COP 28 United Nations (UN) Climate Change Conference will provide an opportunity for countries to reassess their NDCs and perhaps assign responsibility.
How do you assign responsibility for greenhouse emissions? Should countries be held responsible based on their current level of emissions? In this case, China would top the list, followed by the USA and then India. Or should the responsibility be based on the historical cumulative stock of CO2 emitted by various countries, ever since the industrial revolution began? In this case, USA would top the list followed by China, the former USSR, and then Germany.
Now if one takes emissions due to land use change into consideration as well, Brazil catapults amongst the top polluters – owing to the devastation in the Amazon region. Similar is the case with Indonesia. But every country has a different size and population, so what if the emissions are calculated on a per capita basis? In such a case, Qatar would top the list – a tiny country whose CO2 footprint may be lower than that of China by a factor of one hundred and fifty. Why should the emissions responsibility not be based on the size of a country’s GDP? This would throw up a completely different rank order. Hopefully, one gets a glimpse of how difficult it may be to quantify and fix responsibility for CO2emissions amongst nations.
To complicate things further, it may not be countries but companies that should be held responsible for pulling fossil fuels from the ground and putting CO2 in the atmosphere. These companies traverse national borders. They could be exploring oil fields in one country, operating offshore rigs off the coast of another country, refining the oil in a completely different country, and selling it worldwide. It is reported that just around 90 global oil, coal, and cement companies have contributed close to 60% of CO2 equivalents in the atmosphere. Should these companies be asked to pay for their sins?
There is also the argument that no one ever compelled people to buy a car or use coal for heating and gas for cooking. These decisions are generally made of one’s own free will. Yes, the market and society may influence people, but cannot force them. Should all consumers then not be held responsible for adding CO2 to the atmosphere? This blame game can be never-ending.
Some countries, societies, and markets perhaps understood the power of fossil fuel energy early on and used their technical prowess to develop solutions around it. These solutions then helped these entities in their economic, social, or military growth. Along the way, they nonchalantly spewed CO2 into the air, which has since been warming and threatening our planet.
Meanwhile, more than 50% of the people living in developing countries lack adequate energy access. Now, when those developing countries are coming of age and building up their infrastructure and industry, the developed countries are telling them not to pollute any further. Technically these latter countries have a point but morally, certainly not. You cannot deny a better lifestyle to those at whose cost you have improved yours!
How does one get out of this rigmarole? It is well understood that no one should be emitting any more CO2 into the air as it will harm everyone. CO2 emissions need to be reduced and yet we need to provide a better lifestyle to people who have been left behind. How does one do it? Who should fund it?
The Paris Agreement has not been effective in compelling developed countries to fulfill their promise of contributing the annual $100 billion to the Green Climate Fund to assist the developing world coping with their climate change expenses, which was already short of what is needed. Time is running out, especially if developing countries start spewing out CO2 the same way as developed countries have done. We need a different mechanism to fund climate mitigation efforts in the developing world, as otherwise their growth will cast gloom for the whole world.
Nature has been created equally for everyone, which implies everyone should have an equal share in it. One way to resolve this issue of who has created the climate problem and who should pay for it may lie in working out the annual average global per capita CO2 emitted as of today. Let’s say it comes to X kilograms per capita. Developed countries whose per capita CO2 emissions are above this average should pay for the difference into a common capital pool from where money can get allocated to countries whose per capita CO2 emissions are less than this average of X. Developing countries who are below the global average would use the money only to fund their renewable power and other climate mitigation efforts. These countries would be paid based on the difference between their national per capita CO2 emissions and the global average of X, at a pre-determined price for CO2, multiplied by their population. The price for CO2 can be worked in a manner that suffices to help developing countries build their necessary infrastructure, but also be structured to ensure countries do not have a perverse incentive to grow their populations and receive additional funds.
There are other fundraising opportunities that can abet the above corpus. For example, energy-producing countries have announced their intent to extract double the amount of fossil fuels that would be needed to control climate warming. See the Wall Street Journal article, "Nations Keep Upping Fossil-Fuel Production Despite Climate Pledge" (Niiler, 2023). This presents a challenge but also an opportunity to raise funds. As the UN Secretary-General Antonio Guterres stated during the General Assembly in 2022, a windfall tax should be placed on fossil fuel companies and that money should be redirected to assist developing countries harmed by the climate crisis.
Developed countries are facilitating private-public partnerships and then financing these entities under the fiduciary responsibilities of a functioning board to help accelerate climate action. For example, the Danish Climate Partnerships demonstrate the potential of public-private collaboration in advancing climate action, providing a model for sector-specific engagement and co-creation, resulting in over 400 recommendations for reducing CO2 emissions and supporting a just green transition. There are also examples of developed countries promoting impact investment and venture funds to support private companies in certain sectors in developing countries. The Renewable Energy for Rural Areas (RERA) program, launched by Germany, funds private sector companies in developing countries to develop decentralized renewable energy projects. The Asian Clean Energy Fund, instituted by Japan’s Ministry of Economy, Trade and Industry (METI), collaborates with private sector companies in Asia to develop clean energy projects.
All these funding structures have the potential to set a CO2 reduction cycle by motivating the developed world to reduce their own emissions so that the annual global average X comes down and they do not have to pay any more for their excesses, while the developing countries will be able to afford a better lifestyle for their people without further polluting the planet.
Once this comprehensive funding mechanism is created and close to achieving a balance, with all countries’ CO2emissions hovering around the average, the system can be levered into a cap-and-trade-like mechanism, wherein the global average X can be artificially lowered to kick-start further competition amongst countries to lower their emissions. Some will reduce their emissions to avoid paying and others to earn off it.
Throughout history, a widely held belief has been that offenders should face consequences for their actions, and individuals should provide assistance to those aggrieved. Therefore, carbon polluters must be held accountable, and resources should be provided to those willing to reduce their emissions. Only then will we be able to save our planet.
The question is who will facilitate and administer this mechanism? Will it be the UN, the Paris Agreement, the World Bank, or the International Monetary Fund (IMF) or should a new organization be established? Unfortunately, time is not on our side. Scientists tell us that as per the carbon budget, we just have nine to ten years left if we were to keep the global temperature rise below 1.5°C relative to the industrial revolution.
Speed is of the essence and hence it may be prudent to find an existing pool of capital and an organization with influence to kick-start this mechanism. The IMF’s Special Drawing Rights (SDRs) facility, a reserve financial asset to help countries in financial need, could be tasked to handle this. There is around US$400 billion approximately lying unused in this corpus, which could be used as a start-up corpus. The SDR funds are kept reserved for member countries but have not been very frequently used. Would this not be a good use of funds lying idle? IMF also has the required influence and organizational setup to handle such a task. Worth consideration. Of course, the details, constraints, consensus, and terms need to be worked out.
About the Author:
Rajan Mehta recently completed his Advanced Leadership Initiative (ALI) fellowship in 2022 from Harvard University, where he focused on Climate Change and the Circular Economy. He has been a serial tech entrepreneur and earlier worked with companies like Motorola and Nortel. He has just set up Climate Action Labs as a foundation to work on industrial and societal transformation towards reducing global warming. He can be reached through https://www.linkedin.com/in/rajan-mehta-5590b713/ or at rm@climateactionlabs.org.