TCA Srinivasa-Raghavan: West agenda on climate change

LINE & LENGTH

Simple: Create scale economies for clean technology. Then Western firms can adopt it more cheaply.

Earlier this week, Larry Summers, the renowned economist, former President of Harvard, one-time assistant secretary to the US Treasury, etc, gave the Second K B Lall Memorial Lecture. He spoke on climate change and global finance and said, among other things, that it would be a good idea to link development loans to environmental issues.

Mr Lall would not have approved. He was a member of the ICS and one of the best and brightest the civil service has ever had.

On retiring from the government, he founded ICRIER, short for Indian Council for Research on International Economic Relations. In retrospect, it is amazing how far down the road he could see because he was among the pioneers who knew that India would have to re-integrate itself with the world economy one day. In the early 1980s, this was not a fashionable view.

But Mr Lall was clear. Before the inevitable happened, India, which under Indira Gandhi and the influence of the Left had destroyed an important part of its intellectual capital, would have to rebuild that capital. ICRIER was the result.

Mr Summers' main message was to India and China, and it was as follows: it is you guys who are fouling our atmosphere, so it is up to you to pay for cleaner technology. How you do it is your problem, but I think you should eliminate energy subsidies at least to begin with. Those who follow these things will recall that last year Nicholas Stern of the Stern report on the economic implications of climate change had said more or less the same thing. But these are not particularly clever things to say, not least because""as the questions to Mr Summers showed""they seem to let the West entirely off the hook when it is mainly responsible for the CO2 emissions.

I, too, wanted to ask Mr Summers some questions. But seeing as to how everyone was looking forward to a drink and dinner at the end of long day, I held off. The questions were as follows:

Is climate change merely a reasonable assumption on a par with the rationality assumption in economics? Is it one of those things economists do so well"""assuming that there will be climate change ..."?

If it is not an assumption, why is the consensus among economists not matched by a similar consensus among scientists? After all, for every scientific paper that adduces evidence about global warming, there is another that adduces evidence to the contrary. (By the way why do these latter not get any play in India? Would TERI like to do a full summary, to begin with?)

Will Western firms, as part of their global conscience and responsibility, give away clean technology and machinery for free? This might go some distance in compensating for the per capita pollution argument, as also reduce the impact of eliminating subsidies in the developing countries by shifting the burden to the developed ones.

I put these questions to my old classmate, Brijeshwar Singh, who now heads AIR and is among one of the clearest thinkers on economic issues. He made a simple but devastating point. Three disciplines were colliding in the debate on climate change, he said. Two of these deal in large changes""namely, biology and climatology""and one deals in small changes, namely economics.

But whereas economics is good at dealing in marginal solutions and adjustments, climate change is about very gross events. Ergo, to try and use economic instruments to do something about global warming""assuming of course that it is indeed happening""is "like trying to stop the extinction of dinosaurs with tax breaks and subsidies".

If we put these objections together, namely, mine that climate change is still a mere assumption, or Brij's that even if the assumptions are valid but not verifiable economics can't tackle it, we are left with the oldest question in the world: what is all the fuss about?

Not to put too fine a point on it, I'd say that the real agenda, of which Mr Summers is not aware, is to create a large enough market for clean technology to make it viable for the West to adopt it in a big way. That means persuading India and China to buy it as well. Indeed, the actual reason why the US didn't sign the Kyoto Protocol was because the costs were front-loaded for the West.

But, alas, it needs to adopt clean technology because clean environment has become a popular concern as well as a political creed to which politicians simply must subscribe. The people want it.

So, in terms of causality, a popular reaction to localised pollution has been turned into a global issue, mainly in order to get scale economies""so that the local environment can be cleaned up. Neat.

However, as Jagdish Bhagwati pointed out long ago, they can't impose their welfare function on others without paying them for it. Mr Summers was saying the exact opposite: we want you to pay for it.

But the post-lecture, dinner consensus was clear. You want a clean environment, you pay for it.