Friday, August 24, 2012

India's "coalgate": another reason to re-think the architecture of the Kyoto Protocol?

I am following the developments in India regarding the allocation of coal to private companies and electricity boards with great interest. According to newsreports, the Comptroller and Auditor General's (CAG) report on the issue apparently concludes that government allocation of coal between 2004 and 2009 at non-market prices resulted in losses upto USD 33 billion to the Indian government. That is no small amount for a developing country such as India. As an op-ed in the Wall Street Journal claims, it is possible that the report fails to consider the context in arriving at its final figures. Equally, there are claims that the CAG's report may have grossly undervalued the loss of government revenue [see here for a newsreport on the matter]. Some in the government point out that the aim of the allocations was to promote coal mining and boost the power sector.

However, the politics and legal implications of the alleged corrupt practices aside, India's "coalgate" presents an important lesson as countries consider negotiating a new climate treaty that would include India and China. That is, what do such "scams" mean for establishing a carbon price and an emissions trading system? Can the possibility of mishaps in allocating "emissions" rights be precluded in countries where the market system is evolving and corruption apparently runs unabated? Who will actually benefit from such schemes? Simply, are developing countries such as India ready to embrace and implement a complex market mechanism for carbon? Or should we be re-thinking the architecture of the Kyoto Protocol?

Let me clarify, the question is not whether we need international cooperation on climate change. It is indispensable for effectively addressing the problem. The question is whether all countries are equally equipped to implement effective complex market mechanisms.


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