Will BRICS Carbon Traders Bail Out the Bankers’ Climate Strategy? Part I

This is part I of a two-part series.

Patrick Bond

The hope for our collective survival in the face of a likely climate catastrophe has been vested in a combination of multilateral emissions rearrangements and national regulation. But the premise behind the core strategy—the 1997 Kyoto Protocol—must be debated. Assuming a degree of state subsidization and increasingly stringent caps on greenhouse gas (GHG) emissions, Kyoto posited that market-centric strategies such as emissions trading schemes and offsets can allocate costs and benefits appropriately so as to shift the burden of mitigation and carbon sequestration most efficiently. Current advocates of emissions trading still insist that this strategy will be effective once the largest new emitters in the Brazil-Russia-India-China-South Africa (BRICS) bloc are integrated in world carbon markets.

As climate crisis looms ever larger on the horizon, the demise of the Kyoto Protocol’s binding emissions-cuts commitments on wealthier countries will in the near future compel from them a renewed effort to promote market-incentivized reductions. In spite of widely-acknowledged market failure in the emissions trade, especially in Europe, several “emerging markets,” especially the BRICS, have begun the process of setting up or expanding their carbon trading and offset strategies now that (since 2012) they no longer qualify for Clean Development Mechanism (CDM) credits. The Kyoto Protocol had made provision for low-income countries to receive CDM funds for emissions reductions in specific projects, but the system was subject to repeated abuse.

Yet attempts to resurrect market strategies will become more visible as the next global-scale climate treaty takes shape in December 2015 at the Paris summit of the United Nations Framework Convention on Climate Change (UNFCCC). Most notably, that 21st Conference of the Parties (COP21) is anticipated to remove the critical “Common but Differentiated Responsibility” clause that traditionally separated national units of analysis by per capita wealth.

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China and India in the World Economy

C.P. Chandrasekhar and Jayati Ghosh

Indian media – as well as several official representatives of the government – are full of excitement at the possibility that in the coming year India’s rate of growth of economic activity might actually be higher than that of China. It is not just that the extremely rapid growth of the giant Asian neighbour is slowing down substantially, but also that India’s GDP growth is projected to be higher than before, and the CSO’s latest revisions to the GDP estimates suggest that the recent deceleration was less sharp than generally perceived.

Chart 1: China overtook India in terms of share of world GDP only from 1979 onwards

ChandrasekharGhosh China India 1

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China’s Green Jobs—Cause for Celebration?

Sara Hsu

A recent report from the New Climate Institute finds that one million “green” jobs could be created in China, the United States, and the European Union by 2030 if these nations comply with their current pledges to reduce global warming. While the U.S. and Europe have functioning environmental regulation schemes, China’s environmental regulations are often unenforced. Given China’s struggle with basic environmental protection, can the nation really be on its way to creating thousands of “green” jobs?

The answer is yes, and in some ways China is ahead of the U.S. and Europe in this respect.  China had 1.7 million people employed in the renewable energy sector in 2012, according to the International Renewable Energy Agency (IRENA).  Many of these jobs are in the production of solar panels and wind turbines. Promotion of the “green” energy sector has been spurred in large part by the Renewable Energy Law of 2005, which requires the state to give priority to the utilization of renewable energy throughout China.  This means that power companies are required to purchase energy from the renewable sector.

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Why did Commodity Prices Move Together?

Manisha Pradhananga, Guest Blogger

Remember the 2008-11 food price spike? It led to food riots in many parts of the world and increased the number of malnourished people by 80 million worldwide (USDA 2009). What many people don’t know about the price spike is that besides the rise in magnitude, it was distinctive for the breadth of commodities affected. Prices of a wide range of commodities including agricultural (wheat, corn, soybeans, cocoa, coffee), energy (crude oil, gasoline), and metals (copper, aluminum), all rose and fell together during this period.

Pradhananga 1

Source: IFS, commodity prices. Normalized by demeaning and dividing by standard deviation of each series

It is not unusual for prices of related commodities to move together; if two commodities are either complements or substitutes in production or consumption, then a demand or supply shock in one commodity market may be transmitted to the other. For example, prices of certain industrial metals may move together if they are jointly used to produce alloys. Similarly, prices of grains such as corn, wheat, rice, and barley may move together if they are substitutes in consumption. However, commodity-specific shocks cannot explain co-movement of unrelated commodities, like the one observed in 2008-11 (Gilbert 2010, Frankel and Rose 2009). Many of the factors that were initially given as explanations for the price spike—such as drought, or the use of corn and oil-seeds to produce biofuels—are thus unable to explain this rise in comovement between commodity prices. Only factors that can affect many commodity markets simultaneously can be considered as explanations. In a recent paper, I focus on one of these factors, financialization of the commodities futures market, and explore the links between financialization and comovement.

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