The Low-Carbon Diet - Foreign Affairs

How the Market Can Curb Climate Change

September/October 2009
Joel Kurtzman

JOEL KURTZMAN is a Senior Fellow at the Milken Institute and Executive Director of its SAVE program on alternative energy, climate change, and energy security. He is a co-author of Global Edge: Using the Opacity Index to Manage the Risks of Cross-Border Business.

The global economic crisis has battered the free market's reputation, but the market nevertheless remains a powerful tool both for allocating capital and for effecting social change. Nowhere is this truer than with the challenge of confronting and reversing climate change. Of all the market-based tools available for addressing this problem, the most potent are cap-and-trade systems for greenhouse gas emissions.

In their most basic form, cap-and-trade systems work by making it expensive to emit greenhouse gases. As a result, the owners of an emissions source are motivated to replace it with something less damaging to the environment. If they are unable to, the trading provisions allow them to purchase permits to continue emitting until they are ready to invest in new technology. Over time, as the amount of carbon allowed into the atmosphere is reduced, the price of a permit is expected to increase.

In existing cap-and-trade mechanisms, such as the European Union's Greenhouse Gas Emission Trading Scheme, governments cap the total amount of emissions allowed, and the amount of emissions permitted declines over time. Organizations such as utilities, factories, cement plants, municipalities, steel mills, and waste sites are given or sold permits that allow them to emit a certain portion of the relevant region's total greenhouse gases. If an organization emits less than its allotment, it can sell the unused permits to entities that plan on exceeding their limits. Under cap-and-trade systems, companies can trade permits with one another through brokers or in organized local or global markets.

The American Clean Energy and Security Act of 2009, the 1,201-page bill introduced by Henry Waxman (D-Calif.) and Edward Markey (D-Mass.) and passed by the U.S. House of Representatives on June 28, is an ambitious attempt by Congress to play catch-up after having failed to approve the Kyoto Protocol -- which was ratified by 183 parties, including all the developed countries except the United States, in 1998. The bill adds further amendments to the Clean Air Act of 1970 and grants new authority to the Environmental Protection Agency (EPA), the Commodity Futures Trading Commission, and the Federal Energy Regulatory Commission, the last being the nation's main energy and electricity regulator. The bill also creates a registry of greenhouse gas emissions and systematizes what are now mostly haphazard efforts to offset emissions, such as planting trees, transforming animal waste into methane gas for energy use, and capturing methane as it escapes from landfills.

Most important, the bill seeks to reduce greenhouse gas emissions over time by creating carbon markets. The goal is to gradually reduce U.S. greenhouse gas emissions to 17 percent of 2005 levels by 2050, beginning with a modest three percent reduction by 2012. The bill would require reductions in emissions from most stationary sources of greenhouse gases, including power plants, producers and importers of industrial gas and fuel, and many other sources of carbon dioxide, such as steel mills and cement plants. It would also raise mileage standards and lower permissible emission levels for vehicles. Crucially, the bill puts its faith in the market and its ability to lower the cost of reducing emissions through the trading of permits. Although it seems revolutionary, this is not a new idea. For decades, markets have been used successfully as mechanisms for curbing different types of pollution.

ACID TEST

The conceptual framework for cap-and-trade systems was laid out in the 1960s and 1970s by two economists, Ellison Burton and William Sanjour, who worked for the U.S. National Air Pollution Control Administration, which was eventually folded into the EPA. Beginning in 1967, they sought to develop decentralized programs to limit emissions of sulfur dioxide -- a pollutant emanating from the smokestacks of coal-fired power plants that caused acid rain -- and to limit them in the most inexpensive and efficient way possible.

Burton and Sanjour built computer models to simulate how market forces could be used to coordinate abatement activities by using penalties and -- more important -- incentives and rewards. From their perspective, the penalties and incentives had to be large enough to persuade emitters of sulfur dioxide to invest in changing their practices. Burton and Sanjour realized that the complexity of the problem was beyond the ability of any command-and-control model to solve because sulfur dioxide was emitted from tens of thousand of sources operated by thousands of different utility companies doing business under dozens of regulatory jurisdictions across the United States. Their approach proved to be remarkably successful.

Then, in the 1980s, the cap-and-trade model was employed successfully to eliminate the use of leaded gasoline in cars across the United States. When lead, a performance additive for internal-combustion engines, was found to cause neurological and cognitive disabilities in children, the EPA introduced a trading program to accelerate the phasing out of leaded fuels. The system the EPA deployed in 1982 put an overall cap on the production of leaded fuels but allowed refiners to buy or sell permits among themselves to produce those fuels, as long as they did not exceed the overall cap. At the time, the program was criticized as callous by some environmentalists, who believed it ignored the health risks to children and would allow corporations to profit even though leaded fuels were continuing to cause illness.

But the success of the program soon silenced its critics. It allowed refiners that had invested in new processes and plants for making unleaded fuel to sell their unused permits to refiners that had yet to make the change. As a result, capital flowed from leaded gasoline makers to unleaded refiners, acting as a tax on one and an incentive for the other. From a market-design perspective, the program created what economists call "strong positive feedback loops." By 1987, a mere five years after the program began, nearly all leaded gasoline had been eliminated in the United States, and other countries were copying the program. The lead-abatement program turned out to be cheaper and more efficient than anyone had predicted.

A similar approach was used to confront an even larger environmental problem: acid rain. By the 1980s, acid rain -- the problem Burton and Sanjour had first studied -- was causing enormous harm to the environment and seemed intractable. Sulfur dioxide and nitrogen oxide released into the atmosphere from coal-burning power plants and other factories was combining with water vapor to form acid rain, mist, and snow. This acidic precipitation fell into lakes and streams, killing fish, algae, and other forms of aquatic life. It also damaged crops, stripped the paint off cars, scarred archaeological landmarks, and was even implicated in certain types of cancer.

In 1979, the United Nations passed the Convention on Long-Range Transboundary Air Pollution, which marked the beginning of an international effort to reduce emissions of sulfur and nitrogen oxides. But it was not until the U.S. Congress passed the Clean Air Act Amendments of 1990 that the United States saw any meaningful reduction. The amendments enabled the EPA to place a national cap on emissions of sulfur and nitrogen oxides while allowing polluters to trade permits among themselves. Using 1980 emissions levels as the baseline, the program aimed to cut emissions of sulfur dioxide in half by 2010. In 2007, three years ahead of schedule, the agency's cap-and-trade program achieved its reduction targets. The cost to emitters, which the Congressional Budget Office had estimated would be $6 billion a year, came instead to about $1.1-$1.8 billion a year, largely because the program enabled emitters to choose their own solutions to the problem, rather than relying on a narrow range of mandated technologies and approaches. Thanks to this program, acid rain is no longer a first-order environmental challenge. And it can serve as an instructive model for policymakers seeking to combat climate change by creating a carbon market.

CAPPING CARBON

Although leaded fuels and acid rain were big issues in their day, they are small-scale problems compared to climate change. At its worst, acid rain harmed marine habitats and cropland, primarily in North America and Europe. But climate change affects the entire planet.

Climate change is not just an environmental problem; it is a humanitarian and health problem with multiple dimensions. Scientists warn that sea levels will rise, rainfall patterns will be altered, storm patterns will change, and the locations of deserts, cropland, and forests will shift. As a result, famine and disease could spread, leading to increases in migration from environmentally devastated countries to Europe and the United States.

But there is another issue that makes tackling climate change more difficult than removing lead from fuels or stopping acid rain: emissions of greenhouse gases are a byproduct of economic growth. Leaded fuel was the key to only a single industry, and the processes leading to acid rain were central to just one or two sectors of the economy. Unlike these pollutants, emissions of carbon dioxide are fundamental to almost every aspect of the global economy. Leaded gasoline had a relatively cheap substitute (unleaded gas), and emissions of sulfur and nitrogen oxides have relatively straightforward technological fixes. By contrast, the fossil fuels that produce greenhouse gases are not so easy to replace.

To add to the complications, today's emerging economies -- Brazil, China, India, and Russia, among others -- are following the same carbon-intensive path to prosperity first taken by Europe and the United States over a century ago. Coal, oil, natural gas, and wood -- all of which contribute to carbon dioxide emissions -- remain the world's predominant sources of energy. Despite recent investments in alternative fuels, solar, wind, hydroelectric, geothermal, and nuclear power still only account for a small share of the world's energy supply. Moreover, trillions of dollars have been invested in finding, developing, refining, transporting, marketing, selling, and using fossil fuels. A large portion of these costs will be difficult, if not impossible, to recover if fossil fuels are phased out. For example, pipelines and storage facilities designed to transport oil and gasoline cannot be used for ethanol because of ethanol's corrosive effects; oil production facilities will not be needed at today's scale if next-generation cars are fueled by biofuels and natural gas or powered by electricity; and many coal-fired power plants will become obsolete once solar and wind energy become dominant. In short, changing the way the world produces energy in order to avoid the worst perils of climate change will be costly and complicated.

Rarely do industries -- even those that pollute the most -- willingly go out of business. Furthermore, until venture capitalists and other investors are certain that the economy is really transforming itself and that governments are committed to the transformation, few companies will gain access to sufficient capital to make the kind of large-scale investments necessary to change the terms of the world's energy-emissions equation. The transition from leaded to unleaded fuels cost refineries millions of dollars, and adding sulfur dioxide scrubbers to utilities' power plants cost them tens of millions, but a medium-sized solar- or wind-turbine installation could cost hundreds of millions, if not billions. And to complete the transition to new energy-production technologies, thousands of installations will be needed, along with infrastructure investments in projects such as enhancing the electricity-distribution grid. For policymakers, this presents a particular set of challenges. Weaning the global economy from carbon dependency and building an energy-efficient future will not be easy.

NO TAXATION WITHOUT MITIGATION

Cap-and-trade markets for greenhouse gases, such as the Chicago Climate Exchange (CCX), already exist in the United States, and a number of large companies and institutions have already joined the exchange to trade the right to emit carbon. These include Safeway; the Ford Motor Company; several universities; some smaller municipalities, such as Oakland and Berkeley, California; and several state and county governments. Although membership is voluntary, each entity signs a legally binding contract that requires it to reduce its emissions. In a few cases, companies have already made money as a result of their abatement processes, whereas others have had to pay in. Those that have profited joined the exchange because they knew that organizations that exceeded their contractually bound emissions targets would have to buy credits from those emitting less than their limit; polluters have participated in order to show their green credentials and to respond to consumer demand for cleaner energy.

In Europe, where adherence to the Kyoto Protocol is mandatory, the Greenhouse Gas Emission Trading Scheme has been operating since 2005 and allows the trading of emissions from stationary sources, such as electric utilities. The program is expected to trade permits for about 3.8 billion tons of carbon in 2009, according to Point Carbon, an independent research firm. The exchange covers approximately 10,500 sites, which emit about 40 percent of the region's greenhouse gases. Australia also has a market for carbon dioxide, and others are being formed in Canada and New Zealand. California, too, is likely to adopt a cap-and-trade system as a result of its own legislation, although a federal program could eventually take its place.

In 2008, the Milken Institute helped the Chinese city of Tianjin develop a plan for a greenhouse gas trading system linked to the CCX. A Chinese system using the CCX's trading technology could form the basis of a truly global market for greenhouse gases, with standardized contracts, auditing methods, and goals. Indeed, other cities in China are also interested in developing markets for carbon, and traders there and elsewhere have shown interest in investing in those markets. If China and the United States, the world's two largest emitters of greenhouse gases, joined with Europe and the world's other major emitters to form a global market for carbon, it is conceivable that carbon could become one of the world's most traded products. Such a globally linked carbon market could transfer billions of dollars a year to quickly fund new emissions-abatement projects. Tianjin's agreement with the CCX represents an early first step and a hopeful sign that China and the United States could join forces to address the problem of climate change.

Despite these promising examples, critics of cap-and-trade systems argue that imposing taxes on fossil fuels and on emissions of greenhouse gases, such as carbon dioxide, methane, ozone, and chlorofluorocarbons, is the better policy because it is simpler to enact, more difficult to corrupt, and easier to enforce. Although it is true, for example, that raising the price of cigarettes through higher taxes has helped curb smoking, increased taxation only addresses one side of the issue -- restricting one type of behavior but not promoting another.

Of course, proponents of taxes argue that by making something more expensive, taxes will force enterprising individuals or organizations to seek alternatives. Although this might be true, taxes produce change in a slow, measured, and bureaucratic way. This occurs because taxation must be phased in and administered by the government; moreover, tax policy is always at the mercy of shifting political winds. When it comes to climate change, however, speed and certainty are important.

Cap-and-trade systems accelerate the process of emissions reduction by using incentives. Combining incentives with penalties helped rapidly remove lead from gasoline and reduce acid rain. It is doubtful that taxes alone would have been able to achieve these results, because no individual actor or organization would have received any tangible reward for changing its behavior.

Furthermore, because taxes raise prices, and because emissions of carbon touch almost all aspects of the economy, taxes would increase costs for a broad spectrum of industries, potentially slowing down the economy. With market-based mechanisms, however, capital is transferred directly from one organization to another: one part of the economy is penalized, but another is rewarded. Whereas taxes tend to act as a brake on the economy, cap-and-trade programs simply slow old sectors of the economy while jump-starting growth in new ones. As that happens, the promise of green industries and green jobs starts to become a reality.

Cap-and-trade programs function as a carrot and a stick. They add costs and difficulties to environmentally damaging processes, such as producing leaded gasoline or emitting sulfur and nitrogen oxides, and by allowing the trading of pollution permits, they transform those costs into incentives that reward emitters for changing their behavior. Fees charged for producing the wrong kind of gasoline went toward helping others produce the right kind. Money paid by slow-to-change producers of acid rain offset some of the costs of installing sulfur dioxide scrubbers in the smokestacks of utilities willing to change. In each of these successful examples, individual operators had to decide where to invest money. No government agency determined which smokestacks were to be fitted with scrubbers, which were to be replaced, and which were to be torn down. The government ran the programs and set the rules, but individual firms made the investments.

Similarly, using cap-and-trade systems as a policy tool for addressing climate change would allow a country's tens of thousands of carbon emitters to decide for themselves how to meet their region's overall emissions goals. It would also enable the emitters themselves to select which technologies to employ to reduce pollution, freeing the government from the responsibility of choosing winners and losers.

Under the cap-and-trade system approved by the U.S. House, most of the emissions permits -- about 85 percent -- would be allocated freely at first, and the remainder would be auctioned off. U.S. policymakers must be careful not to repeat the errors of those in Europe, where emissions credits were initially given out too freely because regulators overestimated the region's total emissions of carbon. This caused the price of permits to collapse to near zero soon after the program went into effect, in 2005. Over time, however, the price of carbon recovered, and it now hovers around $13 per ton. As prices increased, European emissions declined. And although some of Europe's reductions were the result of the global economic slowdown, the cap-and-trade system was responsible for a substantial portion of the cuts.

For the United States, the key to making a cap-and-trade system work lies in correctly estimating the number of permits that need to be issued and then allowing emitters to trade them like any other commodity. Once this is accomplished, significant amounts of capital from private sources would likely be invested in efforts to fight climate change.

By making pollution-abatement programs profitable for investors, the system would create financial incentives for investing in clean energy. Rather than financing climate-change measures itself, the government would simply set the rules and let the market take over.

THE FOREST FOR THE TREES

Besides creating a framework for selling and trading permits, the House bill includes provisions for offsets. Offsets are activities undertaken, directly or indirectly, by an emitter to counteract the environmental damage caused by releasing greenhouse gases. The Clean Energy and Security Act recognizes that although countries have borders, the world's atmosphere does not. As a result, one ton of carbon released by an oil refinery in New Jersey, for example, could be offset by a reforestation program in the Brazilian Amazon -- so long as it conformed to the rules laid out in the legislation and was subject to random audits. Offsets include programs that replace conventional energy with renewable sources, such as hydroelectric, wind, or solar power. They also include programs that turn animal waste into fuel.

Offsets are another way for companies and governments to counterbalance their emissions. One program involves emitters paying to plant trees or even entire forests, depending on the amount of carbon that needs to be offset. Because climate change is a global issue, tree planting can take place wherever it will do the most good, such as in the tropics, where some trees can grow very quickly and remove carbon from the atmosphere at an annual rate of about one-third of a ton per tree -- significantly faster than trees planted in temperate climates. Offsets must involve new projects, not projects already under way, and their impact on the environment must be verified. Most of the world's carbon exchanges -- as well as some brokers and nonprofit organizations -- already trade or sell offsets.

In some cases, offsets accomplish multiple goals. For example, animal waste, which is a major problem for the world's dairies, poultry farms, and cattle ranges, is often simply left on the ground or raked into uncovered lagoons. But as it decomposes, animal waste emits methane gas, which is about 20 times as damaging to the environment as carbon dioxide. Methane emissions from animal waste are a global problem, and uncovered waste is also a threat to public health. Offsets purchased by U.S. and European emitters of carbon dioxide have transferred capital to nonprofit organizations that have reduced methane emissions from animal waste in remote villages in Africa and India by using simple measures to trap the methane. Some of these programs have used captured methane to generate power and run farm equipment and are now being used on a larger scale in Europe and the United States. By cleaning up the waste, these programs have made conditions more sanitary for rural workers and farm dwellers. Some dairies in the United States and elsewhere have begun highlighting their animal-waste practices as part of their marketing. In addition, health regulations in certain countries make converting animal waste into energy more profitable than paying to dispose of it. Although some of these programs would no doubt be carried out based on their own merits, cap-and-trade systems serve as accelerators for programs that make sense but would not otherwise be top priorities.

MARKET MAGIC

Climate change comes at a time when a number of technologies, such as wind power, geothermal energy, and certain types of solar energy, have matured to the point where they can produce abundant supplies of clean energy -- albeit not as cheaply as traditional energy sources, such as coal. The missing ingredient for combating climate change is access to capital -- a problem that cap-and-trade systems address head-on. Until permits are traded and the price of carbon is set, price uncertainty will cloud the market. Over time, however, as the number of permits falls at regular intervals, the price of carbon will likely rise. The cost for emitters will increase in inverse proportion to that for organizations investing in abatement. As industries and investors begin to see carbon winners and carbon losers emerge, behaviors will begin to change.

Even though the government will have a role in allocating some of the capital collected from the sale of permits, market forces will allow businesses to select those technologies that work best for them. If the income received by the government from the initial sale of permits is allocated to offset programs rather than being used to subsidize specific technologies, the market can work without creating the type of distortions that arise when policymakers attempt to choose winners and losers themselves.

Cap-and-trade systems do not need a lot of moving parts: they can be reduced to six basic elements. First, cap-and-trade systems need firmly set long-term emissions caps that place an unambiguous limit on the amount of carbon dioxide permitted to be released into the atmosphere over the long haul.

Second, permits must be allocated to emitters. Ideally, the initial permits should be free, so that the proceeds from trading go directly from major emitters to those cleaning up their acts, something that the oversight and auditing provisions of the American Clean Energy and Security Act of 2009 will ensure. The next best option is for the government to auction permits; as long as the government allocates the correct number of permits, based on the overall capped amount of emissions, the market will set a price. Because the costs of cleaning up the atmosphere and changing the way humans produce energy are so large, it is imperative that all proceeds from cap-and-trade systems be invested in programs that reduce pollution or in related offset programs. If emitters do not invest that money to curb emissions, they will find themselves penalized as carbon prices increase and their emissions costs rise accordingly.

Third, cap-and-trade programs should include offset provisions that provide emitters with alternative ways of removing carbon from the atmosphere. If a government auctions or sells permits, the revenue should be used to finance offsets, such as forestation projects, to avoid distorting the market by favoring one technology or initiative over another. Given the size of the emissions problem, there will be no shortage of offset programs from which to choose.

Fourth, emitters should be allowed to "bank" their permits so they can use them in the future. They should also be allowed to borrow permits against more expensive future allocations. Fifth, all emissions activities must be professionally audited to ensure that a ton of carbon really is a ton of carbon. Accounting firms, consultants, and nonprofit organizations can perform the audit function. They can do it through random checks, just as financial audits of large firms are conducted, or through technological means, such as by using permanently installed technology to monitor emissions. And finally, regulators and others must refrain from setting a minimum or maximum price for emissions and must allow the market to set its own.

It has been projected, based on EPA estimates of the future value of carbon, that the value of emissions permits as proposed in the House energy bill will be roughly $60 billion a year in 2012 and will increase to $113 billion in 2025. If sums this large were transferred annually from polluters to those undertaking alternative-energy, conservation, and emissions-abatement programs, these cash flows could help transform the economy into one that is more environmentally benign.

The market is a powerful force for allocating capital and creating wealth. And at a time when climate change threatens the globe, it can also be a powerful force for social change. With so much at stake for the environment, cap-and-trade legislation cannot wait.

The Other Climate Changers - Foreign Affairs

Why Black Carbon and Ozone Also Matter

September/October 2009
Jessica Seddon Wallack and Veerabhadran Ramanathan
JESSICA SEDDON WALLACK is Director of the Center for Development Finance at the Institute for Financial Management and Research, in Chennai, India. VEERABHADRAN RAMANATHAN is Distinguished Professor of Climate and Atmospheric Sciences at the Scripps Institute of Oceanography at the University of California, San Diego; Distinguished Visiting Fellow at the Energy and Resources Institute, in New Delhi; and a recipient of the 2009 Tyler Prize for Environmental Achievement.

At last, world leaders have recognized that climate change is a threat. And to slow or reverse it, they are launching initiatives to reduce greenhouse gases, especially carbon dioxide, the gas responsible for about half of global warming to date. Significantly reducing emissions of carbon dioxide is essential, as they will likely become an even greater cause of global warming by the end of this century. But it is a daunting task: carbon dioxide remains in the atmosphere for centuries, and it is difficult to get governments to agree on reducing emissions because whereas the benefits of doing so are shared globally, the costs are borne by individual countries. As a result, no government is moving fast enough to offset the impact of past and present emissions. Even if current emissions were cut in half by 2050 -- one of the targets discussed at the 2008 UN Climate Change Conference -- by then, humans' total contribution to the level of carbon dioxide in the atmosphere would still have increased by a third since the beginning of this century.

Meanwhile, little attention has been given to a low-risk, cost-effective, and high-reward option: reducing emissions of light-absorbing carbon particles (known as "black carbon") and of the gases that form ozone. Together, these pollutants' warming effect is around 40-70 percent of that of carbon dioxide. Limiting their presence in the atmosphere is an easier, cheaper, and more politically feasible proposition than the most popular proposals for slowing climate change -- and it would have a more immediate effect.

Time is running out. Humans have already warmed the planet by more than 0.5 degrees Celsius since the nineteenth century and produced enough greenhouse gases to make it a total of 2.4 degrees Celsius warmer by the end of this century. If the levels of carbon dioxide and nitrous oxide in the atmosphere continue to increase at current rates and if the climate proves more sensitive to greenhouse gases than predicted, the earth's temperature could rise by as much as five degrees before the century ends.

A temperature change of two to five degrees would have profound environmental and geopolitical effects. It would almost certainly melt all the Arctic summer sea ice. As a result, the Arctic Ocean would absorb more sunlight, which, in turn, would further amplify the warming. Such a rise could eliminate the Himalayan and Tibetan glaciers, which feed the major water systems of some of the poorest regions of the world. It would also accelerate the melting of the Greenland and Antarctic ice sheets, raising the sea level worldwide and provoking large-scale emigration from low-lying coastal regions. Cycles of droughts and floods triggered by global warming would spell disaster for agriculture-dependent economies.

Some of global warming's environmental effects would be irreversible; some of its societal impacts, unmanageable. Given these consequences, policymakers worldwide seeking to slow climate change must weigh options beyond just reducing carbon dioxide, especially those that would produce rapid results. Cutting black carbon and ozone is one such strategy.

POWERFUL POLLUTANTS

The warming effect of carbon dioxide has been known since at least the 1900s, and that of ozone since the 1970s, but the importance of black carbon was discovered only recently. During the past decade, scientists have used sophisticated instruments on drones, aircraft, ships, and satellites to track black carbon and ozone from their sources to remote locations thousands of miles away and measure and model how much atmospheric heating they cause.

Black carbon, a widespread form of particulate air pollution, is what makes sooty smoke look blackish or brownish. It is a byproduct of incomplete, inefficient combustion -- a sign of energy waste as much as energy use. Vehicles and ships fueled by diesel and cars with poorly maintained engines release it. So do forest fires and households and factories that use wood, dung, crop waste, or coal for cooking, heating, or other energy needs.

Black carbon alters the environment in two ways. In the sky, the suspended particles absorb sunlight, warming up the atmosphere and in turn the earth itself. On the earth's surface, deposits of black carbon on snowpacks and ice absorb sunlight, thereby heating the earth and melting glaciers. The Arctic sea ice and the Himalayan and Tibetan glaciers, for example, are melting as much as a result of black carbon as they are as a result of the global warming caused by carbon dioxide. The warming effect of black carbon is equal to about 20-50 percent of the effect of carbon dioxide, making it the second- or third-largest contributor to global warming. No one knows exactly how much warming it causes, but even the most conservative estimates indicate a nontrivial impact. And its large contribution to the melting of glaciers and sea ice, one of the most alarming near-term manifestations of climate change, is well documented.

The ozone in the lower level of the atmosphere is another major contributor to global warming that deserves attention. (This is different from the ozone in the stratosphere, which shields life on earth from the sun's ultraviolet rays.) A potent greenhouse gas, its warming effect is equal to about 20 percent of that of carbon dioxide. Unlike black carbon, which exists as particles, ozone is a gas. Ozone in the atmosphere is not emitted directly but formed from other gases, "ozone precursors," such as carbon monoxide (from the burning of fossil fuels or biomass), nitrogen oxides (from lightning, soil, and the burning of fossil fuels), methane (from agriculture, cattle, gas leaks, and the burning of wood), and other hydrocarbons (from the burning of organic materials and fossil fuels, among other sources).

Most important, black carbon and ozone stay in the atmosphere for a much shorter time than does carbon dioxide. Carbon dioxide remains in the atmosphere for centuries -- maybe even millennia -- before it is absorbed by oceans, plants, and algae. Even if all carbon dioxide emissions were miraculously halted today, it would take several centuries for the amount of carbon dioxide in the atmosphere to approach its preindustrial-era level. In contrast, black carbon stays in the atmosphere for only days to weeks before it is washed away by rain, and ozone (as well as some of its precursors) only stays for weeks to months before being broken down. Nonetheless, because both are widespread and continuously emitted, their atmospheric concentrations build up and cause serious damage to the environment.

Although reducing the emissions of other greenhouse gases, such as methane and halocarbons, could also produce immediate results, black carbon and ozone are the shortest-lived climate-altering pollutants, and they are relatively underrecognized in efforts to stem climate change. Reducing the emissions of these pollutants on earth would quickly lower their concentrations in the atmosphere and, in turn, reduce their impact on global warming.

AN EASIER EXTRA STEP

Another promising feature of black carbon and ozone precursor emissions is that they can be significantly limited at relatively low cost with technologies that already exist. Although the sources of black carbon and ozone precursors vary worldwide, most emissions can be reduced without necessarily limiting the underlying activity that generated them. This is because, unlike carbon dioxide, black carbon and ozone precursors are not essential byproducts of energy use.

The use of fossil fuels, particularly diesel, is responsible for about 35 percent of black carbon emissions worldwide. Technologies that filter out black carbon have already been invented: diesel particulate filters on cars and trucks, for example, can reduce black carbon emissions by 90 percent or more with a negligible reduction in fuel economy. A recent study by the Clean Air Task Force, a U.S. nonprofit environmental research organization, estimated that retrofitting one million semitrailer trucks with these filters would yield the same benefits for the climate over 20 years as permanently removing over 165,000 trucks or 5.7 million cars from the road.

The remaining 65 percent of black carbon emissions are associated with the burning of biomass -- through naturally occurring forest fires, man-made fires for clearing cropland, and the use of organic fuels for cooking, heating, and small-scale industry. Cleaner options for the man-made activities exist. The greenest options for households are stoves powered by the sun or by gas from organic waste, but updated designs for biomass-fueled stoves can also substantially cut the amount of black carbon and other pollutants emitted. Crop waste, dung, wood, coal, and charcoal are the cheapest, but also the least efficient and dirtiest, fuels, and so households tend to shift away from them as soon as other options become reliably available. Thus, the challenge in lowering black carbon emissions is not convincing people to sacrifice their lifestyles, as it is with convincing people to reduce their carbon dioxide emissions. The challenge is to make other options available.

Man-made ozone precursors are mostly emitted through industrial processes and fossil-fuel use, particularly in the transportation sector. These emissions can be reduced by making the combustion process more efficient (for example, through the use of fuel additives) or by removing these gases after combustion (for example, through the use of catalytic converters). Technologies that both minimize the formation of ozone precursors and filter or break down emissions are already widely used and are reducing ozone precursors in the developed world. The stricter enforcement of laws that forbid adulterating gasoline and diesel with cheaper, but dirtier, substitutes would also help.

Fully applying existing emissions-control technologies could cut black carbon emissions by about 50 percent. And that would be enough to offset the warming effects of one to two decades' worth of carbon dioxide emissions. Reducing the human-caused ozone in the lower atmosphere by about 50 percent, which could be possible through existing technologies, would offset about another decade's worth. Within weeks, the heating effect of black carbon would lessen; within months, so, too, would the greenhouse effect of ozone. Within ten years, the earth's overall warming trend would slow down, as would the retreat of sea ice and glaciers. The scientific argument for reducing emissions of black carbon and ozone precursors is clear.

A POLITICAL POSSIBILITY

Reducing emissions of black carbon and ozone precursors is also a politically promising project. It would yield significant benefits apart from slowing climate change, giving governments economic and developmental incentives to reduce them. Reducing ozone precursors, for its part, would have recognizable agricultural benefits. Ozone lowers crop yields by damaging plant cells and interfering with the production of chlorophyll, the pigment that enables plants to derive energy from sunlight. One recent study estimated that the associated economic loss (at 2000 world prices) ranged from $14 billion to $26 billion, three to five times as large as that attributed to global warming. For policymakers concerned about agricultural productivity and food security, these effects should resonate deeply.

In countries where a large portion of the population still depends on biomass fuels, reducing black carbon emissions from households would improve public health and economic productivity. Nearly 50 percent of the world's population, and up to 95 percent of the rural population in poor countries, relies on solid fuels, including biomass fuels and coal. The resulting indoor air pollution is linked to about a third of the fatal acute respiratory infections among children under five, or about seven percent of child deaths worldwide. Respiratory illnesses associated with the emissions from solid fuels are the fourth most important cause of excess mortality in developing countries (after malnutrition, unsafe sex, and waterborne diseases).

These health problems perpetuate poverty. Exposure to pollutants early in life harms children's lung development, and children who suffer from respiratory illnesses are less likely to attend school. Air pollution leaves the poor, who often earn a living from manual labor, especially worse off. Collectively, workers in India lose an estimated 1.6-2.0 billion days of work every year to the effects of indoor air pollution. Reducing black carbon emissions from households would thus promote economic growth and, particularly for rural women and children, improve public health.

Furthermore, both black carbon and ozone precursor emissions tend to have localized consequences, and governments are more likely to agree to emissions-reduction strategies that can deliver local benefits. With carbon dioxide and other long-lasting, far-spreading greenhouse gases, emissions anywhere contribute to global warming everywhere. But the effects of black carbon and ozone are more confined. When it first enters the atmosphere, black carbon spreads locally and then, within a week, dissipates more regionally before disappearing from the atmosphere entirely in the form of precipitation. Ozone precursors, too, are more regionally confined than carbon dioxide, although background levels of ozone are increasing around the globe.

Because the effects of black carbon and ozone are mostly regional, the benefits from reducing them would accrue in large part to the areas where reductions were achieved. The melting of the Himalayan and Tibetan glaciers is almost reason enough for countries in South and East Asia to take rapid action to eliminate black carbon emissions. So is the retreat of the Arctic sea ice for countries bordering the Arctic Ocean. Regional groupings are also more likely than larger collections of countries to have dense networks of the economic, cultural, and diplomatic ties that sustain difficult negotiations. Moreover, both black carbon and ozone can be contained through geographically targeted strategies because many of the sources of black carbon and ozone are largely fixed. And so even if one country in a region seeks to regulate emissions, that country's polluting activities are unlikely to move to another country with less stringent policies -- a common concern with agreements to reduce carbon dioxide emissions.

CLEANING UP

So what can be done to curb black carbon and ozone precursor emissions? A logical first step is for governments, international development agencies, and philanthropists to increase financial support for reduction efforts. Although some money for this is currently available, neither pollutant has emerged as a mainstream target for public or private funding. Simply recognizing black carbon and ozone as environmental problems on par with carbon dioxide would make policymakers more inclined to spend development funds and the "green" portions of stimulus packages on initiatives to tackle them. Developed countries could put their contributions toward customizing emissions-reduction technologies for the developing world and promoting their deployment -- an important gesture of goodwill that would kick-start change.

Regardless of the source of the funding, aid should support the deployment of clean-energy options for households and small industries in the developing world and of emissions-reduction technologies for transportation around the world. This could mean distributing solar lanterns and stoves that use local fuel sources more efficiently or paying for small enterprises to shift to cleaner technologies. The specific fixes for small-scale industry will vary by economic activity -- making brick kilns cleaner is different from making tea and spice driers more efficient -- but the number of possible customers for the new technologies offers some economies of scale. When it comes to transportation, policy options include subsidizing engine and filter upgrades, shifting to cleaner fuels, and removing the incentives, created by government subsidies that favor some fuels over others, for adulterating fuel and for using diesel.

Deploying technologies to reduce emissions from so many culturally embedded activities, from cooking to driving, will not be easy. Enforcing emissions controls on many small, mobile polluters is harder than regulating larger sources, such as power plants. And in customizing technologies, close attention will need to be paid to the varied needs of households and industry. But creating and enforcing regulations and subsidizing and disseminating energy-efficient technologies are challenges that have been met before. The "green revolution" -- the remarkable growth in agricultural productivity that occurred in the second half of the twentieth century -- introduced radical changes to small-scale farming. Other development initiatives have influenced fertility, gender equality, schooling, and other household decisions more sensitive than those about cooking and driving.

Moreover, the infrastructure for international financial and technological transfers already exists in the form of the World Bank, regional development banks, and UN programs that have supported development around the world for decades. The Global Environment Facility, a development and environmental fund that started as a World Bank program and is now the world's largest funder of environmental projects, is well suited to finance cleaner technologies.

Governments and international agencies should also finance technology that tracks air quality, which is generally undermonitored. In the major cities of most developing countries, the number of sensors has not kept up with the growth in population or economic activity. In rural areas, air pollution is not tracked at all. Improving the monitoring of air quality and disseminating the data would inform policymakers and environmental activists. And tracking individuals' emissions -- through indoor air-pollution monitors or devices attached to cars' tailpipes -- could help motivate people to curb their emissions. Experimental initiatives to measure individuals' carbon footprints and energy use have been shown to change people's behavior in some settings.

Aid alone will not be enough, however. International organizations must also help governments identify and act on opportunities that mitigate climate change and promote development. International development institutions, such as the UN Environment Program and the multilateral and regional development banks, could sponsor research, set up interministerial working groups, and establish standards for monitoring and reporting public expenditures. These initiatives would make it easier to identify possible areas of coordination among public health, agricultural, environmental, and antipoverty programs. In most countries, domestic institutions are not designed to encourage cooperation among different authorities. Pitching the reduction of black carbon and ozone precursor emissions as public health and agricultural policies could help such efforts compete for scarce funds; enabling the clearer calculation of the environmental benefits of development policies would make policymaking more informed. Much in the same way that international development organizations currently support good governance to improve infrastructure and services, they should also promote better environmental governance.

RESPONDING REGIONALLY

The current piecemeal approach to climate science -- in particular, the tendency to treat air pollution and climate change as separate issues -- has at times led to bad policy. The decision of many countries to promote diesel as a means to encourage fuel efficiency, for example, may have had the inadvertent effect of increasing black carbon emissions. And air-pollution laws designed to reduce the use of sulfate aerosols, which cause acid rain, have ironically led to more warming because sulfates also have a cooling effect. Had policymakers instead integrated efforts to reduce air pollution with those to slow global warming, they could have ensured that the reduction of sulfates was accompanied by an equivalent reduction in greenhouse gases.

A single global framework would be the ideal way to integrate various strategies for mitigating climate change. Bilateral or multilateral agreements are more feasible for getting started on reducing black carbon and ozone precursor emissions. These can strengthen governments' incentives to act by discouraging free-riding and by motivating governments to take into account the larger-scale impacts of their own emissions. Because the sources of black carbon and ozone vary from region to region, agreements to reduce them need to be tailored to suit regional conditions. In the Northern Hemisphere, for example, ozone precursors mostly come from industrial processes and transportation, whereas in the Southern Hemisphere, especially tropical regions, they mostly come from natural emissions (soils, plants, and forest fires). The sources of black carbon vary by region, too: in Europe and North America, transportation and industrial activity play a larger role than the burning of biomass, whereas the reverse is true in developing regions.

The impact of emissions on the climate is scientifically complex, and it depends on a number of factors that have not yet been adequately taken into account when devising climate models. The challenge, then, is to quickly create agreements that consider the complex links between human activities, emissions, and climate change and that can adjust over time as the scientific understanding of the problem evolves. Regional air-pollution agreements are easier to update than global agreements with many signatories. The UN Convention on Long-Range Transboundary Air Pollution (most of whose signatories are European or Central Asian states) and its subsequent pollutant-specific protocols provide a ready model for regional agreements on short-lived climate-changing pollutants. The specific provisions of these agreements are based on the costs of reductions, scientists' knowledge of the sources and distribution of air pollution, and the ability to measure reductions -- considerations that should also inform the regulation of black carbon and ozone precursor emissions. Moreover, these agreements commit countries to particular actions, not just specific outcomes. This is wise, given that emissions are difficult to monitor and quantify precisely.

Black carbon and ozone can also be built into existing bilateral discussions. The High-Level India-EU Dialogue, a working group of scientists and policymakers from Europe and India, is one such existing forum. In February 2009, it was already urging governments from Europe and India to work together to recognize and reduce the threat from black carbon. Participants proposed an interdisciplinary research project that would determine the effects of biomass-based cooking and heating on health and the climate and assess the obstacles to a large-scale deployment of cleaner stoves. Black carbon and ozone are also natural candidates for U.S.-Chinese cooperation on energy and climate change: China would reap public health and agricultural benefits from reducing emissions, and the United States would earn goodwill for helping China do so.

By building on existing air-pollution agreements, the risk of distracting climate-change negotiations from the substantial task of promoting the reduction of carbon dioxide emissions could be avoided. Putting black carbon and ozone on the table in high-level climate talks could backfire if developing nations thought that they would be tacitly admitting responsibility for global warming by committing to reducing emissions of black carbon and ozone precursors or believed that the issue was an effort by developed countries to divert attention from the need for them to reduce their carbon dioxide emissions. Therefore, efforts to reduce emissions of black carbon and ozone precursors should be presented not as substitutes for commitments to reducing carbon dioxide emissions but as ways to quickly achieve local environmental and economic benefits.

THE LOW-HANGING FRUIT

Historically, initiatives to slow global warming have focused on reducing the emissions of carbon dioxide and other greenhouse gases and largely ignored the role played by air pollution. This strategy makes sense for the long run, since carbon dioxide emissions are, and will continue to be, the most important factor in climate change. But in the short run, it alone will not be enough. Some scientists have proposed geoengineering -- manipulating the climate through the use of technology -- as a potential option of last resort, but the reduction of black carbon and ozone precursor emissions offers a less risky opportunity for achieving the same end.

Such an approach would quickly lower the level of black carbon and ozone in the atmosphere, offsetting the impact of decades of greenhouse gas emissions, decelerating the rush toward a dangerously warm planet, and giving efforts to reduce carbon dioxide emissions time to get off the ground. These pollutants are also tractable policy targets: they can be reduced through the use of existing technologies, institutions, and strategies, and doing so would lead to local improvements in air quality, agricultural output, and public health. In short, reducing black carbon and ozone precursor emissions is a low-risk, high-potential addition to the current arsenal of strategies to mitigate climate change.

At the current rate of global warming, the earth's temperature stands to careen out of control. Now is the time to look carefully at all the possible brakes that can be applied to slow climate change, hedge against near-term climate disasters, and buy time for technological innovations. Of the available strategies, focusing on reducing emissions of black carbon and ozone precursors is the low-hanging fruit: the costs are relatively low, the implementation is feasible, and the benefits would be numerous and immediate.

Copenhagen's Inconvenient Truth - Foreign Affairs

How to Salvage the Climate Conference

September/October 2009
Michael Levi
MICHAEL A. LEVI is David M. Rubenstein Senior Fellow for Energy and the Environment at the Council on Foreign Relations.

This December, diplomats from nearly 200 countries will gather in Copenhagen to negotiate a successor to the 1997 Kyoto Protocol, which for the first time bound wealthy countries to specific cuts in greenhouse gas emissions. Most of these emissions come from burning fossil fuels -- coal, oil, and natural gas -- for energy, from deforestation, and from the agricultural sector. They must be cut deeply in the coming decades if the world is to control the risks of dangerous climate change.

Most of those devoted to slashing the world's greenhouse gas emissions have placed enormous weight on the Copenhagen conference. Speaking earlier this year about the conference, UN Secretary-General Ban Ki-moon was emphatic: "We must harness the necessary political will to seal the deal on an ambitious new climate agreement in December here in Copenhagen. . . . If we get it wrong we face catastrophic damage to people, to the planet."

Hopes are higher than ever for a breakthrough climate deal. For the past eight years, many argued that developing nations reluctant to commit to a new global climate-change deal -- particularly China and India -- were simply hiding behind the United States, whose enthusiastic engagement was all that was needed for a breakthrough. Now the long-awaited shift in U.S. policy has arrived. The Obama administration is taking ambitious steps to limit carbon dioxide emissions at home, and Congress is considering important cap-and-trade and clean-energy legislation. The road to a global treaty that contains the climate problem now appears to be clear.

But it is not so simple. The odds of signing a comprehensive treaty in December are vanishingly small. And even reaching such a deal the following year would be an extraordinary challenge, given the domestic political constraints in Washington and in other capitals that make such an agreement difficult to negotiate and ratify. The many government officials and activists seeking to solve the climate problem therefore need to fundamentally rethink their strategy and expectations for the Copenhagen conference.

Many U.S. lawmakers want absolute near-term emissions caps from China and India, but those countries will not sign up for anything of the sort for at least another decade. And before they consider a deal of any kind, Chinese and Indian negotiators are demanding that developed countries commit to cutting their greenhouse gas emissions by over 40 percent from 1990 levels by 2020, but none of the world's wealthiest countries will even come close to meeting this goal. Meanwhile, China, together with other developing countries, is also asking the wealthy nations to commit as much as one percent of their collective GDP -- more than $300 billion annually -- to a fund that would help the rest of the world reduce its emissions and adapt to climate change. But Western politicians will not be willing to send anything near this amount of money to their economic competitors in order to secure a deal.

Some of these disagreements stem from negotiating bluster, but there is little sign that anyone is ready to make big compromises. And the high demands of any comprehensive global agreement are only half the problem. Even a blockbuster deal in which every country signed up to binding emissions caps would come nowhere close to guaranteeing success, since the world has few useful options for enforcing commitments to slash emissions short of punitive trade sanctions or similarly unpalatable penalties. The core of the global effort to cut emissions will not come from a single global treaty; it will have to be built from the bottom up -- through ambitious national policies and creative international cooperation focused on specific opportunities to cut emissions.

The aim of a deal at Copenhagen should be to reinforce developed countries' emissions cuts and link developing countries' actions on climate change to objectives in other areas -- such as economic growth, security, and air quality -- that leaders of those countries already care about. If, instead, negotiators focus on fighting against various governments' most entrenched positions, they may leave the world with nothing at all.

MOVING TARGETS

The goal of climate diplomacy should be a safe planet rather than a treaty for its own sake. There is an emerging consensus among negotiators that the world's governments should aim to cut emissions in half, ideally from 1990 levels, by 2050. This basic goal, endorsed by the G-8 (the group of highly industrialized states) at its 2008 summit, should frame U.S. calculations.

This target needs to be divvied up fairly between wealthy and developing nations. Even if rich countries managed to reduce their emissions to zero and all other nations held theirs steady, the world would still miss its 2050 target. With great effort, today's rich countries might be able to cut their emissions to 80 percent of 1990 levels by midcentury -- a goal endorsed by the G-8 at its 2009 summit -- but even that will be very hard. Developing countries, in some cases with Western financial or technological support, will need to make up the substantial difference.

To many governments, midcentury goals may seem far away, a perception that encourages them to delay cutting emissions and place their bets instead on the development of breakthrough technologies, which many claim will slash emissions at little cost. Others insist that the developed world can move first and wait a decade or two for developing countries to follow. Yet given the glacial pace at which global energy systems change, 2050 might as well be tomorrow. Most of the buildings, power plants, and industrial facilities built in the next decade will probably still be around several decades hence. Cutting emissions in 2050 thus requires changing global infrastructure investments today. Moreover, most innovation in energy technology will not happen in an inventor's garage. Most of the necessary innovation and cost cutting will come only as engineers and firms deploy clean-energy systems on a large scale and learn real-world lessons about which technologies and business models work. It will not be possible to make cheap emissions cuts in 2050 unless the world makes large-scale changes in investment patterns now. These decisions have clear near-term economic, and hence political, implications.

The European Union, Japan, and the United States have each proposed cutting their emissions by about 15 percent from 2005 levels by 2020, although each defines its objectives differently. These objectives are unlikely to change significantly, and although some are weaker than they should be, they provide a realistic starting point for action. Yet similar goals for the world's other big emitters -- Brazil, China, India, Indonesia, and Russia -- would be unreasonable. China, India, and Indonesia have per capita GDPs that are less than a tenth that of the United States; Brazil and Russia are richer but still lag far behind the United States. As these countries develop and bring people out of poverty, their emissions will naturally rise -- and they should not be penalized for economic growth.

That said, failure to get these countries' emissions under control would be disastrous -- and a missed opportunity. China and India are making massive infrastructure investments that could be steered in a cleaner direction. Russia is more developed, but with one of the world's most inefficient economies, it, too, has room to cut emissions. Insufficient action in China, India, and Russia would also make it impossible to sustain domestic political support for U.S. efforts.

The goal for these three countries should be to deliver cuts in emissions intensity -- emissions per unit of GDP -- roughly equivalent to those the United States and Europe hope to achieve, aided where appropriate by Western financial and technological help. Under such a plan, emissions growth in China, India, and Russia would slow sharply. And if their economies develop along the lines that many project, their emissions would actually start to drop around 2025 -- a staggering turnaround that would help put the world on a safer environmental path.

By focusing on intensity rather than total emissions, the United States would assuage worries -- especially in China -- that climate diplomacy is a Western plot to constrain developing countries' growth. The current Chinese five-year plan, together with a range of technical analyses, provides some hope that this might be a realistic bargain. Chinese efforts have aimed to cut energy intensity by 20 percent between 2006 and 2010, although Beijing will probably not meet its goal; mandates for greater use of renewable energy bring these ambitions into the same range as the U.S. and European goals for the future.

Recent McKinsey & Company studies have identified cost-effective measures, primarily in power generation and consumption, transportation, and heavy industry, that could make similar cuts possible in both China and India through 2020, and the level of inefficiency in Russia suggests that it could also pursue such cuts.

The other top-ranking developing-country emitters, Brazil and Indonesia, are different because their emissions come mostly from deforestation, which is less closely tied to economic growth. (Deforestation releases carbon dioxide stored in vegetation and in the soil.) Brazil has offered to cut its rate of deforestation by 70 percent in the next ten years, provided it receives enough compensation, and Indonesia has suggested that it could actually halt deforestation with the right help, yet neither has identified exactly how much assistance it will need from the world's richer countries. Crafting the right package of support will take time, but the world should accept these goals as ambitious and focus on finding ways to realize them.

OUT WITH THE OLD

Americans accustomed to thinking about climate diplomacy within the framework of the Kyoto Protocol may assume that the obvious next step is to translate reduction goals into emissions caps, put them in a treaty, and establish a system for global carbon trading. But this would be problematic for three reasons.

First, negotiators from developing countries would insist on much less stringent caps than whatever they thought they could meet. Higher caps would give them a cushion by maximizing the odds of their remaining in compliance even if their domestic policies for cutting emissions failed. Likewise, these loose caps would protect them if their economies shifted in unexpected ways that increased their emissions, as happened in China in the early part of this decade and could happen in India in the future. Inflated targets could also let developing countries collect large sums of money in exchange for little effort, if they were allowed to sell surplus emissions permits in a global cap-and-trade system. But potentially enormous financial flows from wealthy countries to poorer ones would make the system politically toxic in the West.

Second, even if a developing country met its agreed emissions cap, other nations would, in the near term, have little way of verifying this, since most developing countries, including China and India, lack the capacity to robustly monitor their entire economies' emissions. This would be doubly problematic if developing countries were allowed to sell excess emissions permits as part of a global cap-and-trade system, since errors in calculating emissions could lead to a situation in which wealthier countries transferred massive amounts of money to poorer ones that appeared to have cut their emissions more deeply than they actually had.

And finally, even if the problems of excessively high caps and poor verification could be solved, simple caps would have little value on their own. Canada is a case in point. Ottawa will soon exceed its Kyoto limit by about 30 percent, yet it will face no penalty for doing so because the Kyoto parties never agreed on any meaningful punishments. The United States and others have essentially no way to hold countries such as China and India to emissions caps short of using punitive trade sanctions or other blunt instruments that would make a mess of broader U.S. foreign policy. Obsessing narrowly in Copenhagen over legally binding near-term caps for developing countries is therefore a waste of time.

The solution to all three problems is to focus on specific policies and measures that would control emissions in the biggest developing countries and on providing assistance and incentives to increase the odds that those efforts will succeed. Such bottom-up initiatives could include, among other things, requiring efficient technology in heavy industry, subsidizing renewable energy, investing in clean-coal technology, improving the monitoring and enforcement of building codes, and implementing economic development plans that provide alternatives to deforestation.

These measures would not be any less binding than emissions caps in practice. Moreover, if designed properly -- and if they add up to deep enough cuts in each country's emissions -- they would be far more likely to work. Actual emissions cuts happen because of policies, not promises, and the simple fact that governments could directly control these policies would increase the likelihood of success. Monitoring compliance would also be easier, since policies, unlike emissions targets, must be codified in law and reflected in specific changes on the ground. Developing countries could focus much of their near-term efforts on specific measures that dovetail with other objectives -- such as reducing oil imports or cutting air pollution -- making them more attractive and hence more likely to be implemented. Moreover, they could be linked to incentives from the outside, such as subsidized sales of efficient U.S. technology, which could be more effective and politically palatable than the simple but blunt financial incentives of a global cap-and-trade system.

GREEN CHINA, GREENER BRAZIL

Developing economies may be technically able to make the sorts of near-term emissions cuts the world needs, but they are not going to pursue them effectively unless they get the right assistance from the world's wealthier nations. The United States, the EU, and Japan need to understand why countries make the energy policy decisions they do, see how those choices can be aligned with the emissions cuts the world needs, and then ask what they can do to help make sure those policies are actually implemented.

China, the world's largest emitter, provides a useful case study. Beijing is already taking significant steps to cut emissions -- much more than most Americans appreciate. It has ambitious fuel-economy standards for its cars and trucks, fairly advanced codes for energy efficiency in its buildings, significant investments by its power companies in ultra-efficient conventional coal power and in wind power generation, and economic incentives for investments in renewable energy and for cutting industrial emissions. Unfortunately, these measures are not enough to deliver the emissions cuts the world needs over the coming decade, and the Chinese central government often lacks the ability to enforce the rules that are already on the books.

Still, Beijing's current policies and its long-term goals offer some hope for progress. China's dependence on cheap coal and oil may make the goal of rapid economic growth clash with that of controlling emissions, but it is not always a zero-sum game. For example, more efficient power plants, cars, and industrial facilities can help boost economic growth by saving money on resource costs over time.

In other cases, the potential economic payoff may come in the form of new technology that can be marketed to the world. Wind power, for example, is more expensive than coal. However, it may eventually give China an economic advantage if Beijing's policies increase demand for domestically produced wind turbines and help build an industry that can then export clean-energy technologies to other countries.

For Beijing, securing energy supplies, like economic growth, is a double-edged sword. It makes reliance on dirty domestic coal attractive, yet at the same time it spurs investment in renewable sources of energy, which will help China diversify its supplies as it reduces its emissions. It also explains why Chinese leaders find efforts such as fuel-economy standards, which directly target oil use -- and hence imports -- more attractive than broad emissions caps.

Shifting China onto a cleaner path will require Beijing to identify specific ways in which it can make deep emissions-intensity cuts. That could include better enforcement of building codes, mandating the use of efficient technology in factories, new subsidies for renewable energy, or a provisional commitment to use carbon capture and sequestration (CCS) technology on new coal plants by 2020. The United States and other wealthy countries should then offer to help China in whatever ways they usefully can. When it comes to building codes, Washington could help develop Beijing's monitoring and enforcement capacity; to aid heavy industry, international development banks could help provide loan financing for overhauls when Chinese capital markets do not; carbon-trading systems tailored to specific sectors could help Chinese firms sell carbon credits to wealthier countries if they exceed aggressive targets for cutting emissions intensity; wind power could be expanded by encouraging China to improve its protection of intellectual property, which would attract investment from international firms; and to help slash emissions from coal, the U.S. and Chinese governments could fund private demonstrations of CCS technology and share the resulting intellectual property so that Chinese firms could ultimately compete with those in the rest of the world.

Other bargains could help India reduce its emissions, too. India emits only about 30 percent as much carbon dioxide as China does, so shortfalls in India's emissions cuts would be easier to bear. That is fortunate, because India may ultimately present the greater challenge. India is much poorer than China, and New Delhi lacks Beijing's massive capital reserves. This means that wealthy countries will have to provide more financial assistance to help India develop in a cleaner way. U.S.-Indian technological cooperation, rather than helping clean up heavy industry, could focus on India's vibrant information technology sector to build smart electric grids, which cut energy demand. Cooperation on clean coal, meanwhile, could focus on tailoring power plants to India's low-quality coal reserves. Over a third of India's citizens lack access to electricity, in contrast to only a small fraction in China. As a result, investment in distributed power generation holds greater appeal in New Delhi.

Brazil presents a different sort of challenge altogether. Its energy system is one of the cleanest in the world, primarily because of its heavy reliance on hydroelectric power and biomass energy, but its emissions from deforestation vault it above India in the world's emissions rankings. Simply demanding that Brazil massively curb deforestation, even in exchange for money, will not solve the problem. The details will matter enormously.
Many forces drive Amazonian deforestation in Brazil: sometimes forests are cut for the value of their timber, but more often cattle ranchers cut down trees to expand their pastureland and hence their revenues. Land titles are often ambiguous, driving people to clear territory in order to claim it. After exhausting it, they resort to cutting down even more forests.

An essential step will be passing and enforcing legislation that clarifies land ownership and restricts deforestation. Outside help might be useful in designing regulations or acquiring the equipment to monitor violations. Although such legal changes will slow deforestation, they will not solve the problem; there is still too great an economic incentive for people to continue clearing forests and for the government to continue allowing it.

The solution will require the Brazilian government -- with the help of financial assistance from wealthier countries -- to pay ranchers, loggers, and others to stop cutting down trees. If those forests are later destroyed, however, that money will have gone to waste. Therefore, before any scheme to avoid deforestation can be effectively funded, Brazil will need to create a plan that provides alternative opportunities for those who are today cutting down forests. That might mean, for example, helping ranchers use land more efficiently, so that they could expand their incomes without encroaching on the forests. Similar steps would also help address the "leakage" problem, which occurs when efforts to protect forests in one place simply shift deforestation elsewhere. In contrast, if a broader scheme helps increase beef production on unforested lands, for example, no new incentives for deforestation will be created. This is not a particularly elegant solution to global warming, but it is the sort of policy that might actually work.

The emissions problem, of course, goes beyond the biggest emitters, and the United States and other wealthy countries should not ignore other opportunities for cheap emissions cuts. Some of these, especially in the least developed countries, might come from carbon-trading schemes or climate funds that pay for individual projects or programs that cut emissions. Others will arise when development agencies make fighting climate change a priority when disbursing foreign assistance. The U.S. Agency for International Development, for example, should ensure that its efforts to improve agricultural productivity in the developing world are linked to steps to make agriculture more climate-friendly.

An approach to dealing with climate change based on hundreds, if not thousands, of individual policies and measures may be messy, but the complexity of the problem requires it. Many who pine for a simpler solution are either ignoring the real challenges of international action or romanticizing the multilateral regimes that have dealt with other problems on this scale. But the genesis of other major international regimes, such as those dealing with nuclear weapons and global trade, illustrate that large global problems rarely have simple solutions.

REGIME CHANGE

Signed by its first participants in 1968, the Nuclear Nonproliferation Treaty (NPT) appears to be a model of simplicity: states with nuclear weapons agreed to eventually disarm, those without nuclear weapons pledged not to acquire them, and all states maintained a right to pursue civilian nuclear energy for peaceful purposes. But the actual nuclear nonproliferation regime is far more complex. Countless bilateral and regional relationships, each of which requires careful management, are used to shape states' security decisions. The Nuclear Suppliers Group, a loose multilateral cartel, tries to control sales of nuclear technology. The core institution of the regime, the International Atomic Energy Agency, which inspects civilian nuclear programs, actually predates the NPT. And as proliferation has transformed from a problem that governments could directly control into one involving private and nonstate actors, the regime has had to add various new appendages, such as the Nunn-Lugar Cooperative Threat Reduction Program and the informal Proliferation Security Initiative.

Likewise, global trade agreements have been built piece by piece. The first round of the General Agreement on Tariffs and Trade, in 1947, involved only 22 countries; the global regime has since grown gradually, alongside a range of bilateral and regional trade accords. These trade agreements have often been secured through broader deals that extend beyond economic issues and have sometimes been supported by "aid for trade" arrangements that build countries' basic capacities so that they can export goods. Moreover, trade agreements are far from simple. The agreements that created the World Trade Organization in 1995 total 550 pages, and the documents outlining each member state's commitments extend many pages beyond that. (China's accession protocol, for example, runs to 103 pages -- not including the extensive schedules detailing tariff and quota obligations on everything from hams to styrofoam.)

As with the regimes for nonproliferation and trade, an effective climate regime will require attention to technical detail and depend on contributions from a host of bilateral relationships and multilateral institutions. The United States will need to make protecting the climate an integral part of its bilateral dealings, particularly with the world's biggest emitters, just as it once made arms control an essential part of its Cold War relationships and today includes trade as a routine part of bilateral policy discussions. And since progress will require including climate concerns alongside those regarding economic development and energy security, the issue will necessarily become an increasingly important part of the work that institutions such as the World Bank and the International Energy Agency do. That does not mean Washington should put climate change above all else -- indeed, the priorities of promoting national security and economic growth will often supersede the issue of climate change, just as nuclear nonproliferation and trade have sometimes been overshadowed by other objectives.

An appropriate forum will be needed to realize concrete emissions-cutting policies in the major emitting countries. The Bush administration's Major Economies Meeting on Energy Security and Climate Change brought together a small group of the biggest emitters for the first time, but these talks focused strictly on facilitating the UN negotiations. Its successor, the Obama administration's Major Economies Forum on Energy and Climate, has wisely aimed to expand the discussions' terrain to technological cooperation, too. After Copenhagen, this forum should undergo a third transformation and become one in which countries regularly pledge to undertake a range of actions to cut emissions, coordinate those actions among themselves, and review whether the various efforts are being implemented and are working.

Washington's goal in Copenhagen should be an agreement that strengthens the foundation for emissions-cutting actions elsewhere -- unilaterally and through international cooperation -- just as the foundational deals of the nonproliferation and trade regimes continue to support a host of institutions and efforts. If, instead, Copenhagen is seen as a major failure, it will sap the momentum of those fighting climate change and expose the United States to excessive blame. Realistic expectations and the right negotiating strategy are essential.

CONFIDENCE BUILDING

The negotiations leading up to Copenhagen have proceeded along five tracks: mitigation, adaptation, finance, technology, and creating a vision for long-term cooperative action. Mitigation focuses on near-term commitments to cutting emissions; adaptation, on efforts to deal with unavoidable climate change; finance, on schemes to pay for emissions cuts; technology, on frameworks for advancing and distributing low-carbon technology; and creating a long-term vision, on developing a simple framework that ties all this together. The United States needs something serious to offer on each front. It should also have a strong proposal for a scheme to measure, report, and verify countries' actions, another integral part of the negotiations.

Adaptation offers hope for progress because it can be separated, at least partially, from thornier elements of the negotiations. As part of an agreement, the United States should offer to devote several billion dollars annually over the next decade to help the least developed countries adapt to climate change. This would represent a relatively small increase in total U.S. development aid -- which totaled $26 billion in 2008 -- and could be targeted at areas that could yield multiple payoffs beyond mitigating climate change, such as improved health services (which will be needed since climate change will alter disease patterns). Some small part of that aid could flow through a UN-managed fund, but to be effective, most of it would need to move through bilateral channels and other well-established multilateral organizations in which U.S. policymakers already enjoy leverage and that have demonstrated their ability to spend money responsibly and efficiently. Such an offer would win Washington friends in many poorer developing countries, which could help build pressure on China and other major emitters to negotiate constructively.

Agreement on a long-term vision is the next-easiest target. The United States should press countries to agree that the world must cut its overall emissions in half by 2050, affirm that today's developed countries will need to cut their emissions by 80 percent by then to reach that goal, and recognize that the balance of the emissions cuts will need to come from the developing world, aided in part by outside support. The last element will be the toughest because developing countries have been loath to accept any obligations without specific commitments of financial and technical assistance -- indeed, the world's major economies tried but failed to agree on this formula at the G-8 meeting in July. It is nevertheless important to set a formal long-term goal, as it would provide a solid benchmark against which the success of targeted policies and measures could be judged.

Perhaps the biggest prize that might realistically be won in Copenhagen (or soon after) is an agreement on measurement, reporting, and verification (MRV). These may seem like technicalities, but they are actually central to the success of any climate-change measures. One of the greatest barriers to unilateral emissions cuts, particularly in the United States, is the suspicion that other countries are not going to do their part. But if a country, such as India, does take steps to deeply reduce its emissions, whether through a UN deal or on its own, having both a process and an institution responsible for verifying those cuts will be essential. Such verification will help make it more politically feasible to undertake similar emissions-cutting actions elsewhere, including in the United States.

A solid MRV scheme would also help link the actions of developing countries to support from wealthier nations. Any assistance from rich countries for emissions-cutting activities in countries such as India will need to be contingent on the actual implementation of these projects. Conversely, the implementation of those emissions cuts will depend on recipients' confidence that the support promised to them will actually be delivered. By providing transparency for both sides, an MRV scheme would appeal to both developing countries in need of assistance and the wealthier nations supplying it.

Reaching an effective agreement on MRV will be difficult. The U.S. government, which tends to resist any form of international scrutiny, would have to submit itself to the same verification measures as other countries. Moreover, if a deal on MRV is seen as a substitute for a broader international agreement on climate change, many major countries will balk. But a properly framed MRV scheme, combined with a registry of pledges on emissions-cutting activities and agreement on a long-term vision, could be the core of a useful near-term international agreement. An ambitious MRV deal cannot focus simply on emissions caps and carbon trading, as Kyoto did, because then the world would judge whether countries were pulling their weight by those criteria alone. A much more expansive scheme, one that measures and verifies all commitments -- including targeted policies and assistance through non-UN channels -- would encourage states to invest in a much wider range of mitigation and adaptation efforts.

THE COHA ROUND

An ambitious and legally binding deal on the other fronts -- mitigation, finance, and technology -- would be invaluable because it would increase confidence on all sides, which would, in turn, encourage further emissions-reduction efforts. But such a deal will be much harder to achieve and may be too far a reach right now. Negotiators should instead keep their expectations in check, aim for political agreement at Copenhagen on the form that a legal treaty on these fronts would ultimately take, and launch negotiations to fill in the difficult details later. If the major governments do eventually reach a comprehensive legal agreement, it may not happen for several years. This delay should not stop the Copenhagen delegates from striking intermediate deals and implementing their own national policies to put the world on the path to a safer climate.

When it comes to mitigation, the United States should put forward provisional 2020 and 2030 targets for its own emissions cuts as a concrete offer in these discussions. (The 2030 targets it is currently contemplating are aggressive and could blunt criticism that its 2020 targets are too weak.) Washington should also be clear that it will not sign a deal codifying any targets until it receives sufficient commitments to major emissions-cutting initiatives, such as schemes for avoiding deforestation or boosting low-carbon energy, from the biggest developing countries. Anything significantly more from the United States or less from Brazil, China, and India will make ratification in the U.S. Senate impossible.

Gaining concessions from developing countries' governments and support from European allies will require Washington to make credible financial offers as well. Such financial support will likely need to rise over time to more than $10 billion each year -- a large number, but only about three percent of what Washington spends on imported oil. The United States should push the biggest and wealthiest developing-country emitters to agree that they will need to take significant actions on their own before they can expect financial help from Washington. This sort of "matching" approach, which makes clear that everyone is investing effort, is the only one that has a chance of being accepted politically in the United States.

Furthermore, the U.S. government should argue that the Clean Development Mechanism -- a program established under the Kyoto Protocol that currently funds voluntary emissions-cutting projects through carbon trading -- must be streamlined, focused on the least developed countries, and expanded to include deforestation. Washington should also make sure that other financial support for emissions cuts, even if channeled bilaterally or through institutions such as the World Bank, has the same legitimacy in the eyes of world governments as money delivered through carbon trading or UN funds -- something that China, India, and others have resisted.

When it comes to technology, the United States is likely to invest far more in research, development, and demonstration projects than most other countries. But several developing countries will press for a deal in which rich countries share intellectual property related to clean technologies. This matters most for Brazil, China, and India, for whom the chance to become clean-technology leaders is a critical incentive for action. An agreement on intellectual property is more likely to be reached outside the UN negotiations than within them because of the idiosyncrasies involved in dealing with each country. The United States should assure poorer countries that intellectual-property rights will not drive up the cost of disseminating technology to the point where it is prohibitive. It should also offer to share a substantial part of whatever intellectual property its public investments in technology create in exchange for an agreement that other intellectual property will be protected.

The best Copenhagen can do on mitigation, finance, and technology is to establish a longer-term bargaining process in which the goal is getting the major developing countries to agree to specific emissions-cutting measures and getting wealthy countries to agree to provide assistance to poorer ones while also cutting their own emissions. This "Copenhagen Round" would be much more like an extended trade negotiation than like a typical environmental-treaty process. It may take many years before this results in a meaningful, legally binding agreement -- and even that outcome is far from assured.

Indeed, many forget that the last climate deal took over eight years to finish. The world agreed on a lengthy legal text in Kyoto in 1997, but the content was still sketchy; it was not until 2001 that the final details were hammered out in Marrakech, and it took a series of side deals to bring the treaty into force in 2005. Serious pre-Copenhagen negotiations are less than a year old, and ambitions are much higher this time around. Eight years is too long to wait for action -- but a bit of patience would be wise.

This makes it even more important for the United States to ensure that deals on adaptation, a long-term vision, and verification are not held hostage to what may be a very long stalemate. Washington should aim to have a deal on those fronts outlined in principle at Copenhagen and ironed out over the next year, even as work continues on the other parts of the agenda. Most important, the United States should make sure that aggressive bottom-up efforts to actually start cutting emissions, such as a U.S. cap-and-trade system and a sophisticated Brazilian effort to curb deforestation, do not wait for agreement on a comprehensive global deal. That is where the real action is, and there is no time to waste.

Politics is indeed unfair - Manila Times

Philippine presidents come into office via two routes. The first is winning the office after the requisite apprenticeship. Presidents who assumed office under this route started by building up resumes (the bona fides to be president), the necessary linkages and a formidable funding base. Finally, all of these preprations are capped by developing a sense of gravitas or political heft. And the swagger of a winner.

There are two recent presidents who came to office via this safe path—Fidel V. Ramos, who cultivated a Steady Eddie image, and Joseph Estrada, who became president after serving as mayor, senator and vice president. In terms of professional work and academic training, Ramos was the more prepared one. But he did not have Estrada’s more formidable plus—charisma.

In contrast, former President Cory Aquino returned home after her husband’s assassination in 1983 “to bury Ninoy.” Politics consumed her life but it was not something she sought and relished. She was the steadiest support base to her husband, true, but one largely uninvolved in the mechanics and application of politics.

So when she returned home in 1983, the most she thought she would do was to help unite the political opposition to Marcos, help break the regime and help in the restoration of Philippine democracy. No one thought that the silent but palpable courage she demonstrated during those tense days after Ninoy’s murder would move the usually chauvinistic leaders of the political opposition to ask her to be their leader.
The intersection and confluence of several events changed her standing overnight: from the widow who bore so much of the tragic events in her life with strength to the leader of the opposition, and later, candidate in the snap presidential election of February 1986.

So this is the second one-great and extra-ordinary events pushing one with neither ambition nor preparation into the presidency. The 2010 presidential election is developing into another 1986.

A few months back, Senator Benigno “Noynoy” Aquino 3rd was the most enthusiastic supporter of then LP presidential candidate Mar Roxas. There was hardly a public occasion attended by the two that ended without Noynoy endorsing Roxas. Noy-noy was determined to be Mar’s most vocal supporter, cajoling the entire Liberal Party leadership to line up behind Roxas.

Then came the death of her mother, a well-loved former president. Her funeral stirred a lot of memories, aroused the slumbering sense of public duty among those who opted to stay out of politics and its dirty innards. The fond and teary recollection of the days her mother was president and was mother to the country so defied the ningas kugon burst of sympathy, and was potent enough to move the attention to her only son, who, by then, was neither a candidate or even a known presidential material. Suddenly, there was this glimmer of Noynoy as a possible president.

The attention did linger. And lasted. Suddenly, out of nowhere, there was this push to make Noynoy the presidential candidate of the party. Other big events followed in succession and the climax came with the decision of Roxas to give up his presidential bid in favor of his most vocal supporter.

To the critics, it was a political soap opera. Maybe, but it was definitely a political blockbuster. A recent survey of Luzon voters showed Noynoy Aquino getting one out of every two voting preferences cast. Even the phony surveys staged by other presidential hopefuls to stop what appears to be a pro-Noynoy juggernaut revealed Aquino’s competitiveness.

As if the rise of Noynoy were not enough, the Lakas-CMD—the ruling party—has named a Gibo-Ronnie tandem as its preferred team. Defense Secretary Gilbert Teodoro and DILG Secretary Ronnie V. Puno used to be outside of the ruling party’s radar screen. It was either Noli or Bayani.

All over the landscape, fresh names with neither the plan nor the long preparation to compete in the presidential polls, have eclipsed those who have prepared long and hard. The usual names have either been rendered irrelevant or have flamed out.
Now, it is all about Noynoy and Gibo.

It is not fair, according to critics: second cousins from the same province occupying the primest political space. And from the same region (Central Luzon) that has so far contributed five Philippine presidents.
But as we said before, life and politics are essentially unfair.

mvrong@yahoo.com

EurasiaNet - Afghanistan: Balkh Governor Trumpets Security Warning for Northern Afghanistan

Aunohita Mojumdar: 9/23/09

When Afghan President Hamid Karzai appointed General Atta Mohammad Noor as governor of the northern province of Balkh in 2004, the move seemed motivated by a presidential desire to curb the influence of Abdul Rashid Dostum, then the most powerful warlord in Northern Afghanistan.

Now, the situation in the North is reversed: Dostum, as seen during the Afghan presidential election campaign, has developed into a Karzai proxy, while Atta is generally viewed as a force to be reckoned with in the North. Atta also has emerged as an outspoken critic of the Karzai administration. Underscoring the distance between the two, the Balkh governor is an unabashed backer of Karzai's main presidential rival, Abdullah Abdullah. [For background see the Eurasia Insight archive].

Atta's political shift doesn't just reflect altered personal preferences, it is symbolic of some unsettling changes that have taken place in Northern Afghanistan of late, many of which have escaped the international community's attention.

By far the most significant development has been the deterioration of security conditions. For years Northern Afghanistan was considered to be the safest, most stable part of the country. And under Atta - who is widely viewed as an able, if autocratic administrator -- the province began enjoying some benefits of low-level economic development, becoming one of the first provinces in Afghanistan to eradicate poppy cultivation. [For background see the Eurasia Insight archive].

In recent months, however, the tenuous gains achieved in Balkh have come under threat. While Balkh itself remains relatively peaceful, violence is on the rise in surrounding areas, especially in Kunduz Province. [For background see the Eurasia Insight archive].

In an interview with EurasiaNet at his office in Mazar-e-Sharif, Atta asserted that the central government has been slow to respond to growing threat. "I have been warning the central government and the international community for the past three years" he said. "There is insecurity in Kunduz, especially Chahar Dara, and in Baghlan. For three years I have been telling the government about the Taliban there but they don't listen. It has spread to Bala Murghab [a district in Badghis province] and in Faryab. It is now a big problem for security. The government did not do anything."

Atta alleged that his domestic political opponents, especially supporters of the group Hizb e Islami, have been collaborating with the Taliban, making weapons available to the Islamic militants with the intention of weakening the governor's hold in Balkh. "In Chahar Bolak, Chimtal and Sholgara they have provided weapons" Atta alleged. While some independent security experts say they have not found evidence that could substantiate Atta's claim, they all agree that the security situation in the North has deteriorated due to a combination of factors. Much of the recent violence in the North, some experts contend, is linked to revenge for past grievances. Specifically, Pashtuns who suffered reprisals at the hands of Tajik, Uzbek and other ethnically oriented militias following to 2001 collapse of Taliban rule are now seeking retribution.

Insurgents with the reconstituted Taliban, which over the past year has grown increasingly bold in carrying out operations inside Afghanistan, are finding that aggrieved members of the Pashtun community in the North are receptive to the militants' message. Unlike in the South, where the anti-government insurgency is pitting Pashtun against Pashtun, the violence in the North is largely between Pashtuns and Tajiks, the predominant ethnic group in the region. Experts believe this inter-ethnic element makes the brewing violence in the North extremely destabilizing. "Local grievances [can] spiral upward indefinitely," said one analyst, who spoke on condition of anonymity.

Non-Pashtun groups in the North are now growing increasingly disenchanted with the Afghan government's and international community's tendency to devote a disproportionate share of attention and resources to southern areas. Atta bemoaned the lack of investment in his province. Other local political leaders likewise caution that continued inattention could cause serious strategic consequences.

"The government should make some arrangement for economic help for the youth to prevent them from joining the anti-government groups," said Nasruddin Mohseni, a senior leader of Hizb e Wahadat e Islami, the party of the minority Shi'a Hazara community. Mohseni's party supported Karzai in the election, mainly because party supremo, Karim Khalili, is a vice president. Even so, Mohseni described Atta as a "good governor."

The violence in the North is likely to escalate in the coming months as the region's strategic importance for US and NATO forces grows. Pentagon planners are transforming the region into a major transport artery for the delivery of military supplies, shipped to Afghanistan via Central Asia. This so-called Northern Distribution Network has already attracted the attention of the Taliban. [For background see the Eurasia Insight archive]. It seems likely that the supply line will come under intensifying attacks in the coming months, just as the main existing re-supply route via Pakistan has been subjected to repeated ambushes. One of the major transit arteries into Northern Afghanistan passes through Balkh Province, where a narrow gorge in the Kholm District could become a Taliban target.

As he confronts uncertainty in his own region, Atta is keeping his options open with Karzai. Of late, he has softened his criticism of the president on a personal level, even as he continues to lambaste administration policies. "I respect him," Atta said, referring to Karzai. "But there are weaknesses all around him, in his team. They have been unsuccessful in preventing corruption, they could not fight opium. ?They could not get the necessary support from the international community."

Senior figures in Afghanistan's security establishment are said to be working on bringing about a rapprochement between Atta and Karzai. The ability of Northern Afghanistan to handle the upsurge in Taliban violence would be greatly enhanced if Atta and Karzai could terminate their feud. "No one burns bridges in Afghanistan" said a Western diplomat wryly. "It will depend on what is on offer."

Editor's Note: Aunohita Mojumdar is an Indian freelance journalist based in Kabul. She has reported on the South Asian region for the past 18 years.

National oil companies control 80 percent of the world’s oil. But they’re not all alike - Foreign Policy

Image via Wikipedia

by Valerie Marcel

"Big oil," as Daniel Yergin notes, isn't what it used to be. Forget the "seven sisters" -- those huge companies that dominated the oil business in the 20th century. Today, at least 80 percent of oil reserves are in government hands, and three quarters of the 20 biggest oil companies are owned by states, many of them struggling to meet the needs of their populations.

With the global economic downturn walloping companies large and small, it's worth asking: What happens to all that state-owned oil? After all, national oil companies, those state-owned petroleum giants that just last year were enjoying $100-plus-a-barrel oil, aren't immune from the recession. Their revenues have slipped as oil prices tumbled. Today many of them are hurting, and the big question is whether they are equipped to invest in the downturn. Lack of investment in the lean years could provoke a price spike -- or worse, a supply shortfall -- when demand picks up.

Not all national oil companies are the same, however. Operating costs vary wildly between the easy-to-drill onshore fields in Saudi Arabia and the expensive ones lying deep, deep off the coast of Brazil. Access to finance is another crucial, though little understood, part of this picture.

There are basically two types of national oil companies: those with ready access to capital and those without. In good times, the first group operates more like the publicly traded private oil companies -- like the Shells and ExxonMobils of the world. They sell the crude oil they produce and retain earnings after paying their government and shareholders the royalties, tax on profits, and dividends owed. This group includes Saudi Aramco, the Kuwait Petroleum Corporation, the Abu Dhabi National Oil Company, Algeria's Sonatrach, China's CNOOC, Brazil's Petrobras, Malaysia's Petronas, and Angola's Sonangol. Many of them are able to finance their own projects from retained earnings, without resorting to loans or investors (as are most of the private oil majors).

In bad times such as the present, this system isn't free of trouble. These cash-rich national oil companies remain instruments of the state and can be forced to transfer more revenues to the government in times of falling oil prices and dwindling state coffers. They may also have to increase their contribution to national welfare programs. If they have been able to accumulate cash reserves in times of plenty, they will be more insulated from the market downturn. But if the government becomes too needy or too greedy, the companies have to turn to other financing vehicles, such as issuing bonds to outside investors to raise capital. Some national oil companies, such as Petrobras and Norway's StatoilHydro, are more protected from government needs and interference because they are partially listed on stock markets. They raise capital that way and also enjoy better access to loan and credit markets due to their higher standards of corporate governance and transparency.

But for national oil companies without ready access to capital, such as the National Iranian Oil Company, Mexico's Pemex, and the Nigerian National Petroleum Corporation, tough economic times can be much harder. They essentially function like government ministries and are susceptible to budget cuts. They sell the crude oil produced for the state and the revenues go straight to the treasury, while the companies receive back only their costs and sometimes a fee for each barrel sold. To pay for new drilling rigs and other capital expenditures, they must compete with other pressing government priorities, such as education and healthcare.

Over the years, these national oil companies have had to devise creative mechanisms to fund their most capital-intensive projects when oil prices fall. Some of them are financially adroit and have tapped into a variety of mechanisms to access finance independently from the state: loan markets, bonds, Islamic bonds, and oil futures, for example. Some have also set up foreign companies that generate revenue independently from national constraints. They have also turned to foreign investors and some $50 billion in oil-for-loan agreements with Chinese national oil companies. (The Chinese companies invest in those countries in exchange for a guaranteed future supply of oil from those projects.)

But the oil industry might be changing with these leaner times. As both types of state oil companies are forced to get more creative in finding ways to access capital, they will have to improve their standards of corporate governance and disclose more information on their operations. If they don't, outsiders will be less willing to invest, particularly in countries with perceived political risk, such as Nigeria and Venezuela. And that could mean less oil -- and higher price -- for everyone.