Sunita Narain: The climate-oil price connection

DOWN TO EARTH

Last month, even as the Russian Cabinet approved the Kyoto Protocol and sent it to the Parliament for ratification, the price of oil crossed $ 50 a barrel "" a 60 per cent increase in the price of this all-crucial commodity, in this year itself.

I would have thought that, for climate change buffs, the oil price shock would have been even bigger news than the Russian move. After all, it has always been argued that an increase in the price of oil will check demand, slow down the pace of emissions and possibly even lead to an impetus for alternative energy technologies that do not destroy the world's climate system.

But this does not seem to be the case. The International Monetary Fund (IMF) expects that, at current oil price levels, the impact on global growth will be moderate, reducing global GDP by just about half a percentage point in 2005.

Therefore, instead of 5 per cent growth in 2004, the world will grow by 4.3 per cent in 2005. In other words, the high price has not, as yet, limited the world's hunger for oil.

In fact, the International Energy Agency (IEA) says the demand for oil has grown by 3.4 per cent over last year. However, it has trimmed its outlook for growth for 2005, expecting a slight economic downturn "" but nothing devastating.

Nothing like the oil shock of the 1970s that brought the world to a stop. Nothing big enough to stop the sales of gas-guzzling sports utility vehicles. And, certainly, nothing to compromise the American (increasingly, the global) way of life.

But I suspect there is much more to this price burp. I suspect it will really hurt us, more than we currently know or can fathom.

Where the world is hurt most: the climate system. The oil price rise will not mitigate adverse impacts of climate change. It will do the exact reverse: exacerbate the situation.

This is because the cost of growth in the developing and energy-intensive South will increase. The cost will leave them with even lesser economic space to make the transition towards efficient technologies that are less polluting.

In fact, the price rise will leave an already-compromised South even more devastated, even less capable of dealing with the adverse impacts of climate change that will hit "" really hit "" its poor and vulnerable populations.

The South needs to invest in ensuring that it can provide food and water security to the marginalised so that the impact of climate change is reduced. We know that. But with higher costs of growth, will it have the capacity to invest where it hurts most?

Let us be clear that India and China, and the rest of the newly industrialising world, are at a stage when they are becoming big consumers of fossil fuels to run their economies. Growth is much higher today here than the rich countries of the already industrialised world. The latter has already guzzled its oil. Today, it is a big, but more or less efficient, user of this resource. If one looks at the growth of carbon dioxide emissions by sectors in the rich world, one will find that the highest increase is in the travel and freight sectors, while manufacturing has become much more efficient in its use of fossil fuels; it emits much less today than it did in 1973.

But conversely, in the developing world, manufacturing is still extremely energy inefficient. We use much more oil per unit output than any part of the rich world.

While Thailand and China consume more than double the oil per unit of output than rich countries, India burns more than three times as much. At the same time, we are expanding our use of fossil fuels in the booming and fuel-inefficient transport sector.

It is ridiculous to argue that we will not be hit by high oil prices. The question is what will take a hit. As yet, most governments of the developing world are fighting hard to find ways to soften the price hike.

For instance, the Thai government has fixed the retail price of diesel at below market prices, at its own expense. India is already spending on subsidising kerosene and LPG and is now also foregoing tax revenues on other fuels.

But the problem with this option is that it will leave governments of the South bankrupt "" not being able to spend where they need to most. First, they need economic space to invest to temper the adverse impacts of growth through public investments and subsidies in public sectors like livelihood, food and water.

Second, they need funds to invest in improving technologies to help reduce local and global emissions. The rich world made these investments when the cost of oil was cheaper. How will the poor and polluted South do this in a scenario of increasingly costly oil and growth?

Whatever happens, it is the poor who will end up as the losers. It is they who have done the least to create the problem. It is they who are most vulnerable to its impacts. The irony is not a joke. It is a shame.