Five challenges

Developing countries today are confronted by five inter-connected challenges. The first is, of course, persistent poverty and underdevelopment. We have become used to a world divided: a small part affluent and prosperous, and the larger part deprived, under stress, and dependent. This division has persisted so long that it appears to many as the natural order of things. This is not to deny that many differences between peoples or cultures might be natural; however, the dependency and deprivation engendered by the huge and persistent differences in the incomes of entire nations are neither natural nor sustainable. Notwithstanding the global consensus over the urgency of the development challenge, resources and support for the development agenda have remained below par. The end of this global cleavage appears still too far in the future, although the recent high rates of growth in China and India among others have created grounds for optimism.

Even this guarded optimism is under pressure today, most notably from climate impacts, which are projected to fall disproportionately on developing countries and on the poorest and most vulnerable populations of these countries. These impacts can derail the development momentum directly. They will also require a diversion of investment resources into protective and adaptive activities, with estimates ranging from 10 to 100 billion dollars annually.

The third challenge to development comes from climate policies chosen by industrialized countries. If these policies are not chosen carefully, they can affect development and poverty eradication just as powerfully as climate change itself. Although global climate agreements have consistently been based on principles of equity and burden sharing, the emerging policy responses in industrialized countries are driven not by global considerations but mainly by domestic ones.

Finally, the environmental crisis could well portend the end of the era of unlimited economic growth in the world economy. If global economic output becomes static, it could well undermine the consensus that has allowed poor communities and poor countries to seek to improve their lot through economic growth. The world could well revert back to open conflict over resources, and therefore to oppressive political solutions to keep the poor in their place. This danger has always been present in the minds of the poor and the vulnerable.

Compare these threats to the situation faced by poor communities in countries undergoing structural adjustment therapy in the 1980s. These communities too were confronted with a multifaceted challenge, including not only their pre-existing poverty and vulnerability, but also the need to cope with the fallout from the global economic crisis, exacerbated by the policy choices made by their governments, and the erosion of national commitments to poverty eradication and social equity.

Indeed, in the 1980s, the preferred formula of the Washington Consensus was singularly deaf to the concerns of poor communities.

A new Washington Consensus

The danger is that the internal policy choices of industrialized countries could turn out to be similarly deaf to the needs of developing countries. This danger is already being expressed by several critics with regard to the policy instrument of choice, namely the creation and management of a carbon market.

In discussing climate policy, it is useful to distinguish between two different communities of expertise and action. The first, which we call the ‘climate community’, includes climate experts as well as economists, social scientists, and activists engaged in climate analysis and advocacy. The second group, which can be called the ‘policy community’, is the group of public officials and their advisors, who determine concrete policy actions in industrialized countries.

In the first group, climate change has from the outset been recognized as a global issue in need of a global consensus and a global strategy based on shared goals and values. While the second group has been influenced by these discussions, their discourse has acquired a life of its own, often at variance with the longer-term goals and values. One reason for the dissonance is that developing countries, which have not yet received the required external financial resources and technological support for initiating action, have contributed mainly to the deliberations of the first group but not to those of the second one. As a result, policy development has remained entirely in the industrialized world.

The resulting policy consensus differs in significant aspects from the emerging scientific consensus.

• Climate targets: Climate scientists have long advocated a stabilization threshold of 450 ppm of carbon dioxide (and increasingly of 350 ppm). Yet, the policy consensus has gravitated around less ambitious targets (e.g., 550 ppm in the Stern Review), presumably because they are viewed as more feasible. Further, while the climate scenarios suggest that the achievement of the 450 ppm target requires global emissions to be reduced by 80–90 percent by 2050, policy discussions have (only recently) begun to ask for a 50 percent reduction by this date.
• Role of the public sector: While the climate community has identified a broad range of policy options, the policy community has narrowed the list to those in which the role of the public sector would be highly circumscribed. There is little traction of proposals that call for public investment in alternate technologies. Every action by the state is viewed as being legitimate only insofar as it facilitates and supports a particular segment of the corporate world: energy utilities, oil companies, mining corporations, insurance companies, and so forth.
• Policy menu: There is a preference for a single elegant policy that can help achieve all of the targets in one go. This is at the base of the support for such market-based policies as cap and trade systems or even the more recent proposals for a global carbon tax. As in the 1980s, the danger is that such elegant solutions will divert attention from the needs of poor communities and countries.
• Financial needs: Although the climate community has taken great pains to estimate future financial needs for climate action in developing countries, the actual volumes of resources mobilized thus far comprise a minuscule fraction of this need. In contrast to estimates ranging up to 200 billions of dollars a year, current flows amount to less than US$5 billion over a decade. Similarly, while the climate community sees the need for outright subsidies and grant assistance, the development finance community operates mainly in the domain of loans and credit.
• Timeline: Much of the climate community urges immediate action because any delay would increase the probability of damaging impacts, especially on developing countries. The policy community has opted for a gradualist path in which action builds up slowly in response to economic and financial incentives.

Applying a developing country perspective to this policy consensus brings up a number of problems. In general, the delay in action poses higher risks to vulnerable groups and communities. The preference for market-based policies can sideline equity considerations, and the inadequate volume and form of financial support militates against rapid capacity development in poor countries.

Also, as several critics have noted, the consensus strategy is problematic because it favours powerful corporate interests without necessarily producing the desired changes in carbon emissions. Market-based policies are easier to administer within the institutional conditions of rich countries. This increases energy prices and therefore hampers the attempts to eradicate energy poverty, and as a result spills over into higher prices of food and other essentials, thus leading to further deprivation and misery in developing countries.

The eroding ethical framework

By far, the biggest failing of the emerging policy consensus is its divorce from the common ethical framework that was developed during global negotiations a decade and a half ago. This ethical framework comprises the following key ideas:

• The North is primarily responsible for climate change.
• The North has far greater technological, financial, and institutional capacity to address climate change.
• The South needs to continue to pursue sustainable economic development, has a right to do so, and should be enabled to do so through provision of finance and technology as needed.
• The North would be the first to take action and would also be responsible for providing financial and technical assistance to the South to enable it to take action as well.

Since 2007, all the elements of this ethical framework have been threatened. The media has increasingly focused on the fact that developing countries now contribute half of the aggregate global emissions and that China is vying with the US for the title of the single largest emitter. This is notwithstanding the fact that per capita emissions in developing countries (including China) are a fraction of those in industrialized countries. In other words, the message being repeated is that the South is equally culpable for climate change.

In particular, the concept of ‘major emitters’ (Box 1) has re-emerged in the climate discourse, sidelining the development agenda and obscuring the differences in obligations as well as capacity.On the second element of the framework, pressure has begun to be put on the larger and more rapidly growing developing countries (especially China and India) to accept binding climate commitments. This suggests implicitly if not explicitly that these countries have the economic or technical capacity to address climate change.

Third, a curious disparity has emerged between the strident and repeated calls for southern country commitments over emissions and the silence over issues of finance and technology. A decade and a half after the adoption of the UNFCCC, there is no consensus over the practical implications of the commitment to financial and technological assistance.

Furthermore, over time the ethical framework has shifted subtly from one that placed the right to development at the centre towards one that is oriented mainly towards the right to emissions. It has to be acknowledged that in 1992, the two did not appear to be in conflict. But that was because at that time there was greater optimism regarding the ability of developing countries to keep growing despite the climate threat. Today, it is clear that very little climate space is left for developing countries, and that all countries would have to cut their emissions drastically in order to respond to the climate challenge. The expectation that continued economic growth in developing countries would be possible because their emissions could continue to grow is no longer tenable. As developed countries adopt new technologies to shift to a carbon-free economic system, the right to emissions will become meaningless for developing countries without the right to access the same technologies. In this period the idea that the North would be the first to take action has also diluted. The United States has refused to adopt any commitments unless developing countries (especially China and India) also did so. Also, the opposition to climate action has shifted from the domain of climate science to that of neoclassical economics.

While the scientific opposition to climate action was lowbrow and widely dismissed by serious scientists, the oppositional view in the economics field is shared by some of the most reputable economists. They have tenure at top universities, are published in the most prestigious economics journals, have considerable clout within their profession, and are the authors of widely used economic models, including those used in climate analyses.

An important challenge to this line of argumentation was provided in the Stern Review (Stern, 2006). The Stern Review sought to demonstrate that (a) the costs of climate change far exceed those of mitigation and (b) the costs of mitigation are quite acceptable from a policy or political perspective. However, neoclassical economists criticized the Stern Review vehemently and almost unanimously, mainly on the grounds that its choice of discount rate was unwarranted.

Politics and the trust deficit

Climate change is a global threat. Facing this challenge effectively will require extensive and unprecedented global cooperation. The prospects of such cooperation are affected adversely by what has been referred to as a deficit of trust between rich and poor countries. This deficit refers to a failure to act on such consensus global agreements as the millennium declaration and the Millennium Development Goals, the Finance for Development, Agenda21 and the Kyoto Protocol. Overcoming this deficit will require concerted action by both rich and poor countries. Given that the perceived costs of climate change are rising rapidly while the costs of mitigation may begin to decline as action begins in earnest, the chances of cooperation could improve in the future.

It will require addressing three key issues: the priority of development, the reconstruction of the developmental state with responsibility for climate action, and the resurrection of the ethical framework upon which a sustainable global consensus could be based. Current trends are in the opposite direction. Climate policy has been developed largely in isolation from development policy and from the needs of developing countries. This is reminiscent of the 1980s when structural adjustment policy began to be developed in isolation from the needs and concerns of poor communities within developing countries.

Second, as the experience of the 1980s taught us, the structural adjustment agenda had an implicit ideological dimension, stemming from its unqualified faith in market-based policies, and this led to a by-product, namely the erosion of the developmental state. In the long term, countries that were able to defend and reconstruct the developmental state were more successful not only in overcoming the adjustment crisis, but also in establishing the basis for sustained economic growth and prosperity. The global climate discussions today show a similar ideological fixation for simple, market-based policies, and an opposition to state action. Besides being ineffective, this will also militate against the interests of developing countries. A key goal of global climate agreements must be to re-establish and strengthen the developmental state at national levels in developing countries and to identify a more proactive role for the public sector more generally.

Finally, the practice of climate policy has led to the erosion of the robust ethical framework that was agreed on at the advent of climate negotiations in the 1990s. It is imperative that the key elements of this ethical framework are resurrected and re-introduced into policy discussions in rich as well as poor countries.