Tuesday, December 1, 2009

What stance should S'pore take at Copenhagen?

Nov 30, 2009

By Euston Quah & Qiyan Ong

IN CASE you missed it, there's been more bad news from the climate scientists: The world is on the brink of an environmental calamity. That's the conclusion of the United Nations-sponsored Fourth Assessment Report of the Intergovernmental Panel on Climate Change (IPCC).

The good news is that this purportedly man-made apocalypse can be averted if carbon emissions by developed countries are drastically cut by 25-40 per cent below 1990 levels by 2020 and developing countries reduce their emissions too. As the report has been presented as representative of the main scientific consensus, its findings have been widely perceived to constitute the truth.

The Copenhagen Climate Change Conference next month seeks to reach a binding global climate pact among 192 nations. Coincidentally or not, the only 'politically correct' option seems to be 'cap and trade': a system where those who emit more than their permitted caps would have to buy the right to emit more from those who pollute less.

But that's just one side of the story. A study by another group of scientists known as the Nongovernmental International Panel on Climate Change (NIPCC) has concluded that the increase in man-made greenhouse gas concentrations in the atmosphere is not responsible for global warming. To make it more confusing, the NIPCC argues that 'a warmer world would be safer and healthier world for humans and wildlife alike'.

Although scientists have yet to reach a consensus on the issue, many are already urging cuts in carbon emissions. But the expense of switching to cleaner sources of energy would not be the only cost entailed in carbon cuts.

The battle against climate change can divert the world's attention from efforts to fight global hunger. In the recent food summit in Rome, world leaders failed to pledge funds for agricultural aid that the UN Food and Agriculture Organisation deemed necessary. An attempt to rally world leaders to commit themselves to eradicating hunger by 2025 has been unsuccessful.

The fact is the needs of the present generation have yet to be fulfilled and there are other equally deserving problems besides climate change that require attention. A drastic global climate change measure may affect the world's ability to grapple with these other problems. World leaders should adopt a balanced and pragmatic approach in combating climate change while alleviating poverty in the present generation.

The other major question is whether 'cap and trade' is the best option. A prerequisite for the system is that there must be sufficiently large differences in the marginal abatement cost - the cost of reducing a unit of pollution - across industries for trade to occur within a country. Thus, 'cap and trade' is not practical in small countries or countries with relatively uniform marginal abatement costs.

But trading across countries, although ideal, entails complex problems associated with sovereign rights since monitoring must be conducted across borders and uniform regulations must be enforced. It is also unclear how participating countries will share the revenue from auctioning the permits.

So what stand should Singapore take at the Copenhagen talks?

Limited in space and natural resources, Singapore cannot substitute fossil fuels with alternative energy sources such as wind or hydroelectric power. Furthermore, the current technologies of harnessing and storing solar power have yet to become economically viable.

To uphold its international reputation for environmental conservation, however, Singapore should do its part as a global citizen. In terms of controlling carbon emissions, it can contribute through continually revising its fuel mix composition to ensure energy efficiency. It can also use its experience in urban and environmental management practices to aid poor countries in these areas.

Carbon trading would be a premature resolution for Singapore as the marginal abatement cost is relatively uniform across local industries. Some suggest that with its mature capital market and sound financial management system, Singapore can position itself as the regional carbon trading centre. But it is unlikely that South-east Asia will achieve the level of integration necessary for regional carbon trading in the near future.

A more realistic way for Singapore to reduce carbon emissions is to introduce a carbon tax. This would be simpler to administer and would cover all carbon in the economy. As the price of 'dirty' goods increases, consumers will turn to green goods. This will in turn attract private initiatives for green technologies. Receipts from the carbon tax can either be used to reduce other taxes or channelled into green research.

Fraught with uncertainties and practical problems, the Copenhagen summit is unlikely to achieve the goal of binding quantity cuts. Nevertheless, it has successfully attracted the public's attention to a global environmental problem.

Euston Quah is professor of environmental economics and head of economics at NTU. Qiyan Ong is pursuing her PhD at the university.

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