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Markets can help deliver on the pledges made at Glasgow

- Jagmohan Sharma, IFS, Ph.D

At the current emission rate of 50 Gigatons (GT) per annum of carbon dioxide equivalent of greenhouse gases (GHG), the remaining budget for 1.5 degree (300 GT) and 2 degree (900 GT) global warming would get exhausted in 6 and 18 years, respectively. Time is running out! World leaders must retrieve the ‘common future’ of mankind, from suffering and losses due to a changing climate, for wellbeing and sustainability at Glasgow.

Paradoxically, the guiding light this time round is the Covid-19 pandemic and its ‘nobody is safe unless everybody is safe’ message. Covid19 has shown that redistribution of resources - technological, economic, knowledge and human - is fundamental to securing our common future. As Covid19 is, a changing climate is also a bad global common, and the rich world cannot remain isolated from its effects. The omen for the summit up to now, however, is mixed.

While fresh pledges for halting deforestation by 2030 and reducing emission of methane gas (by 30% from 2020 levels by 2030) have been made, the absence of four of the five BRICS heads of state – Bolsonaro (Brazil), Putin (Russia), Xi (China) and Ramaphosa (South Africa) – at Glasgow is discouraging. While public funding supporting the pledges is only to be seen to be coming, participation by business leaders like Bezos of Amazon indicates the interest of industry.

Unfortunately, developed countries have gone back on their commitment made in 2009, and reaffirmed under Article 9 of the Paris Agreement, to contribute $100 billion per year in assistance to the developing countries for climate action from 2020 through 2025. The ‘Climate Finance Delivery Plan’ presented on their behalf discloses such a possibility only by 2023. This failure is extraordinary and dissipates the confidence of the developing world to participate in dealing with the aggravating climate crises. Protests outside the conference venue are growing demanding urgent action.

However, the Indian panchamrit pledges on ‘net-zero emissions’ by 2070, and by 2030 - reducing emissions by 1 GT of the projected emissions, reducing the energy intensity of GDP by more than 45%, renewable energy installed capacity of 500GW and 50% renewables in energy-use mix, should aspire developed countries for higher performance and better cooperation.

Phasing out of coal by India is contingent on the nuclear suppliers’ group (NSG) membership. Governments are much fraught with their own national circumstances and not been acting fast enough, and this has serious implications for success at Glasgow. Trillions of dollars are necessary for transition from fossil fuels and adapting to the impacts of climate change. Do we see such contributions from the developed world, which is historically responsible for the climate crisis? Likely answer is - no, as the public funding pledges made by the developed countries in the past have remained unmet. Can private funding and the markets help?

Markets lead: Industrialization has been inefficient in the terms of utilization and conservation of resources and energy. Leveraging on the market opportunities, profit seeking tendencies continue to carelessly deplete natural resources and dump pollution with impunity on the society exacerbating sustainability risk for natural ecosystems. With access to the raw materials and markets globally, resources are exhausted, and pollution is generated impacting the environment and communities locally, while products become available to a faraway buyer at a cost that does not include social and environmental costs.

It is festival time, and the ‘big sale’ season is on. There are innumerable products on sale on e-platforms. Companies are likely to declare rich profits for their shareholders. However, should shareholders be happy about the profits? The answer is – yes - if the company produces in an environmentally and socially responsible manner. However, the answer is likely to be – no, as companies calculate profits without accounting for associated environmental and social costs of production. Ignoring these costs is affordable to companies, as the regulator itself lacks standardized methods to enforce them. And CEOs are rewarded only for increasing sales revenues and profit margins in the short term.

Nonetheless, an increasing trend is noticed among investors and shareholders in favor of robust ESG (environment, society, and governance) practices that are believed to promote all-round sustainability of businesses. This situation gives companies an opportunity to be ahead of and even guide the regulator in evolving business standards. As otherwise, regulatory measures can come in a manner, and at a pace, that could render businesses unviable.

At Glasgow, formalizing markets and mechanisms for achieving greenhouse gas (GHG) emission mitigation under Article 6 of the Paris Agreement remains at the core of the negotiations. With dollars and technology, the private sector gains significance. Large corporations that control businesses across the globe must adopt fresh production approaches that leave nothing for the landfill, promote transparency about pollution, carbon, and water footprint, and demonstrate responsibility for similar accountability by their local suppliers. These approaches are shown to enhance sustainability of businesses by reducing risks from environmental and social externalities, and through enhanced cost efficiency. Corporates like Tata and Levi’s are increasingly transparent about their environmental footprint and place such information in the public domain. Regulators may consider making reporting of environmental footprint mandatory.

Finally, among new hope and old despair, only time will disclose what drives countries for climate action. However, meanwhile, respecting their ‘common but differentiated responsibility’, developed countries must raise their commitments and performance; and stop bargaining for more time for new technologies to emerge that can avoid adjustment pains for their citizens. Despite mounting climate-mediated risks, it is essentially the funding that would decide action. Potentially, market-linked private funding is the answer. Market should support environmentally-responsible production of goods and services for our common future and businesses’ own sake.

Author is Director General, Environmental Management and Policy Research Institute, Bengaluru. Views are personal.

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