1.The carbon markets conundrum at COP26

Success in Glasgow hinges to a great extent on the conclusion of one of the most technical and highly contentious issues

If climate negotiations are compared to a game of diplomatic chess, Article 6 of the Paris Agreement would be the king to be checkmated and captured for concluding the Paris Agreement Work Programme (PAWP) at the 26th Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC). Article 6 of the Paris Agreement introduces provisions for using international carbon markets to facilitate fulfilment of Nationally Determined Contributions (NDCs) by countries. The success of COP26 at Glasgow hinges, to a great extent, on the conclusion of carbon markets discussions. Despite several rounds of high-level meetings, it remains one of the most technical and highly contentious unresolved issues of the PAWP.

A sensitive issue

Developing countries, particularly India, China and Brazil, gained significantly from the carbon market under the Clean Development Mechanism (CDM) of the Kyoto Protocol. India registered 1,703 projects under the CDM which is the second highest in the world. Total carbon credits known as Certified Emission Reductions (CERs) issued for these projects are around 255 million which corresponds to an overall anticipated inflow of approximately U.S.$2.55 billion in the country at a conservative price of U.S.$10 per CER. Therefore, logically, India has a lot to gain from a thriving carbon market. However, with the ratification of the Paris Agreement, the rules of the game have changed.

Unlike the Kyoto Protocol, now even developing countries are required to have mitigation targets. Developing countries are faced with a dilemma of either selling their carbon credits in return for lucrative foreign investment flows or use these credits to achieve their own mitigation targets. This has made Article 6 a highly sensitive issue that requires careful balancing of interests and expectations.

What should be debated

For developing countries, the new market mechanism is much more than a tool for achieving mitigation targets under the NDCs. Much like its predecessor, it should help promote sustainable development and assist climate change adaptation in the developing countries. It should encourage private sector participation and attract foreign investments to support low carbon development. While over 50% of the countries have communicated their intention of using market mechanisms to achieve NDC targets, India is not one of them as it aims to rely on domestic mitigation efforts to meet its NDC goals. It is the developed countries that would rely more on market mechanisms for achieving their climate targets as they would be comparatively low-cost options.

The three critical issues that would be hotly debated in Article 6 negotiating rooms are CDM Transition, Accounting rules and Share of Proceeds to the Adaptation Fund. Let us examine them one by one.

CDM transition: The CDM projects have gone through due diligence and credits have been issued under UNFCCC oversight. Therefore, the Article 6 mechanism should honour the previous decisions and allow for a smooth transition of these projects and credits to ensure not only the viability of these projects but also inspire trust among the private investors in the UNFCCC decision-making process.

However, some countries have cast doubts on the environmental integrity of these credits and while there is greater acceptance for transition of projects/activities, the same is not the case for transition of credits. If the decision regarding transition of CDM is not favourable, it could lead to a loss of billions of dollars worth of potential revenue to India alone. A possible landing zone can be that the new supervisory body to be formed under the Paris Agreement can re-examine the validity and rigour of such credits.

Accounting rules: Article 6.4 mechanism is meant to incentivise the private sector and public entities to undertake mitigation activities for sustainable development. Under this mechanism, a country can purchase emission reductions from public and private entities of the host country and use it to meet its NDC targets. However, this does not automatically imply that emission reductions transferred from a host country be adjusted against its NDC targets. It must be appreciated that these reductions represent additional efforts of the private sector or public entities to mitigate greenhouse gas emissions, and in fact raise global climate ambition. This is also in line with the provision of Article 6.5 of the Paris Agreement wherein the host country is not required to undertake corresponding adjustment for the projects outside its NDC.

The path ahead

Being a developing country, India does not need to undertake economy-wide emission reduction targets at this stage of its development. This means, not all mitigation actions fall within the purview of its NDC. Therefore, it can significantly gain from the market mechanism under Article 6.4 by selling emission reductions that lie outside its NDC. The counter view of developed countries, that this will deter raising ambition levels, is flawed as such efforts will in fact be additional to what have been committed in the NDC. Robust accounting will ensure that there will be no double-counting of emission reductions.

Share of Proceeds (SOP) to the Adaptation Fund: For developing countries, adaptation is a necessity. However, it remains severely underfunded compared to financing for mitigation activities. While developing countries emphasise that the SOP must be uniformly applied to Articles 6.2 and 6.4 to fund adaptation, developed countries want to restrict its application to Article 6.4. This would disincentivise the Article 6.4 mechanism and limit voluntary cooperation to the cooperative approaches under Article 6.2 favoured by developed countries.

In a way, carbon markets allow developed countries to keep emitting greenhouse gases while developing countries benefit from the revenue generated from the sale of their carbon credits. Central to the discussions on Article 6 is equitable sharing of carbon and developmental space. Climate justice demands that developing countries get access to their fair share of global carbon space. As developing countries are nudged to take greater mitigation responsibilities, a facilitative carbon market mechanism that respects the principles enshrined in UNFCCC would greatly help accelerate their transition to low carbon development and would be a win-win solution for all countries.

Background

The COP 26 United Nations Climate Change Conference will be hosted by the UK from 31st october to 12th November.

• Earlier, Intergovernmental Panel on Climate Change (IPCC) published its assessment report on Earth’s climate, highlighting heat waves, droughts, extreme rainfall and sea-level rise in the coming decades.

Key Points

• COP 26 Goals: According to the United Nations Climate Change Framework Convention (UNFCCC), COP26 will work towards four goals:
  • Net Zero by 2050:
    • To secure Global Net-Zero by Mid-Century and keep 1.5 Degrees within reach.
    • Countries are being asked to come forward with ambitious 2030 emissions reductions targets that align with reaching net zero by the middle of the century.
    • To deliver on these stretching targets, countries will need to:
      • Accelerate the phase-out of coal
      • Curtail deforestation
      • Speed up the switch to electric vehicles
      • Encourage investment in renewables.
  • Adapt to Protect Communities and Natural Habitats:
    • Countries will work together to ‘protect and restore ecosystems and build defences, warning systems and resilient infrastructure and agriculture to avoid loss of homes, livelihoods and even lives.’
  • Mobilise Finance:
    • Developed countries must make good on their promise to mobilise at least USD100bn in climate finance per year.
  • Work Together to Deliver:
    • Another important task at the COP26 is to ‘finalise the Paris Rulebook’.
    • Leaders will work together to frame a list of detailed rules that will help fulfil the Paris Agreement.
• Suggestions for India:
  • Update its Nationally Determined Contributions (NDCs).
    • (NDCs detail the various efforts taken by each country to reduce the national emissions)
  • Sector by sector plans are needed to bring about development.
    • Decarbonisation of the electricity, transport sector and starting to look at carbon per passenger mile is needed.
  • Aggressively figure out how to transition the coal sector.

Conference of Parties (COP)

• About:
  • The Conference of Parties comes under the UNFCCC which was formed in 1994. The UNFCCC was established to work towards “stabilisation of greenhouse gas concentrations in the atmosphere.
    • COP is the apex decision-making authority of UNFCCC.
  • It laid out a list of responsibilities for the member states which included:
    • Formulating measures to mitigate climate change.
    • Cooperating in preparing for adaptation to the impact of climate change.
    • Promoting education, training and public awareness related to climate change.
• Meetings:
  • COP members have been meeting every year since 1995. The UNFCCC has 198 parties including India, China and the USA.
    • Generally it meets in Bonn, the seat of the secretariat, unless a Party offers to host the session.
• Presidency:
  • The office of the COP President normally rotates among the five United Nations regional groups which are – Africa, Asia, Latin America and the Caribbean, Central and Eastern Europe and Western Europe and Others.
  • The President is usually the environment minister of his or her home country. S/he is elected by acclamation immediately after the opening of a COP session.

COP’s with Significant Outcomes

• 1995: COP1 (Berlin, Germany)
• 1997: COP 3 (Kyoto Protocol)
  • It legally binds developed countries to emission reduction targets.
• 2002: COP 8 (New Delhi, India) Delhi Declaration.
  • Focuses on the development needs of the poorest countries and the need for technology transfer for mitigating climate change.
• 2007: COP13 (Bali, Indonesia)
  • Parties agreed on the Bali Road Map and Bali action plan, which charted the way towards a post-2012 outcome. The Plan has five main categories: shared vision, mitigation, adaptation, technology and financing.
• 2010: COP 16 (Cancun)
  • Resulted in the Cancun Agreements, a comprehensive package by governments to assist developing nations in dealing with climate change.
  • The Green Climate Fund, the Technology Mechanism and the Cancun Adaptation Framework were established.
• 2011: COP 17 (Durban)
  • Governments commit to a new universal climate change agreement by 2015 for the period beyond 2020 (Resulted in the Paris Agreement of 2015).
• 2015: COP21 (Paris)
  • To keep global temperature well below 2.0C above pre-industrial times and endeavor them to limit them even more to 1.5C.

• It requires rich nations to maintain USD 100bn a year funding pledge beyond the year 2020.
• 2016: COP22 (Marrakech)
  • To move forward on writing the rule book of the Paris Agreement.

• Launched the Marrakech Partnership for Climate Action.
• 2017: COP23, Bonn (Germany)
  • Countries continued to negotiate the finer details of how the agreement will work from 2020 onwards.
  • First set of negotiations since the US, under the presidency of Donald Trump, announced its intention earlier this year to withdraw from the Paris deal.
  • It was the first COP to be hosted by a small-island developing state with Fiji taking up the presidency, even though it was being held in Bonn.
• 2018: COP 24, Katowice (Poland)
• It finalized a “rulebook” to operationalise the 2015 Paris Agreement.

• The rulebook covers climate financing facilities and the actions to be taken as per Nationally Determined Contributions (NDC).
• 2019: COP25, Madrid (Spain)
  • It was held in Madrid (Spain).
  • There were no concrete plans regarding the growing climatic urgency.

2.The outlines of a national security policy

Once cybertechnology becomes a key variable in the defence policies of a nation, land size or GDP size are irrelevant

National security concepts have, in the two decades of the 21st century, undergone fundamental changes. These fundamental changes reveal that a large country, in terms of size of geography, population and GDP, will not deter any country. Cyber warfare has vastly reduced the deterrent value of these sizes since cyber weaponry will be available even to small island countries, and the capacity to cause devastation to a large nation by cyber warfare is within the reach of even small and poorer nations.

An equaliser

Innovations in weapons moved from stones in the pre-historic era, to bows and arrows, and later to cannons and guns in the 19th century. These were followed by aeroplanes, nuclear bombs, and intercontinental missiles in the 20th century. In the 21st century, the world is moving to cyber weapons-based warfare which will also immobilise current tangible advanced weapon systems in a war.

Therefore, in the 21st century, after cybertechnology enters as an important variable in nations’ defence policies, the size of a country will cease to matter. Sri Lanka, or North Korea, empowered by cybertechnology, will be equal to the United States, Russia, India or China, in their capability to cause unacceptable damage. Weapons in the 21st century will merely mean a cyber button on the desk of the nation’s military and the leader of the government. Geographical land size or GDP size will be irrelevant in war-making capacity or deterrence.

More innovations

These fundamental changes are entirely due to the earlier 20th century innovations in cybertechnology and software developments. Drones, robots, satellites and advanced computers as weapons are already in use. More innovations are around the corner. Some examples of further innovations are artificial intelligence and nanotechnology.

Warfare, therefore, will be no more just mobilisation of weapons or be dependent on the size of the armed forces of men. It will be cyber warfare. From remote controlled drones to artificial intelligence driven weapons systems, etc., will matter in the 21st century.

Hence, national security in the 21st century covers not merely the overt and covert operations but, more crucially, electronic operations from a remote centre beyond the front lines of ground forces or air power to track enemy assets by these newly weaponised cyber instruments of technology. Tracking those cyber warfare centres of the adversary will need a new national security policy.

By credible accounts, China, recently, publicly cautioned Indians to sit up and take notice by using cybertechnology to shut down Mumbai’s electric supply in populated areas of the city, for a few hours. This was to overawe Indians as we were clueless for hours as to what went wrong till reports emerged about a possible cyberattack . Thus, each nation will have to prepare more for bilateral conflicts in the 21st century that are based on cyber warfare rather than in multilateral acts of conventional war or rely on military blocs for mobilisation.

The four dimensions to this

National security at its root in the 21st century will depend on mind-boggling skills in four dimensions:

Objectives: the objective of the National Security Policy in the 21st century is to define what assets are required to be defended, the identity of opponents who seek to overawe the people of a target nation, by unfamiliar moves to cause disorientation of people. Although the novel coronavirus is perhaps accidental, it has completely destabilised peoples globally and their governments in all nations of the world over, and also derailed the global economy because nations were most unprepared for such a pandemic, even conceptually. So far, nearly two years of the pandemic have left several millions [or more] dead with most economies having been driven to the edge of disaster. Normal life has been disrupted. Never before has there been such a virus attack of this dimension. This is a preview of the kinds of threats that await us in the coming decades which a national security policy will have to address by choosing a nation’s priorities.

Priorities: In such scenarios of uncertainties about the future in the 21st century, national security priorities will require new departments for supporting several frontiers of innovation and technologies such as hydrogen fuel cells, desalination of seawater, thorium for nuclear technology, anti-computer viruses, and new immunity-creating medicines. This focus on a new priority will require compulsory science and mathematics education, especially in applications for analytical subjects. Every citizen will have to be alerted to new remote controlled military technology and be ready for it.

Strategy: The strategy required for this new national security policy will be to anticipate our enemies in many dimensions and by demonstrative but limited pre-emptive strikes by developing a strategy of deterrence of the enemy.

For India, it will be the China cyber capability factor which is the new threat for which it has to devise a new strategy.

The agenda for the new strategy will be critical and emerging technologies, connectivity and infrastructure, cyber security and maritime security. But, alas, India by trying to befriend nations on both sides of the divide ended up with no serious ally internationally. The position of India is much like that of the bat species in the Panchatantra.

Methods to use

Resource mobilisation: The macroeconomics of resource mobilisation depends on whether a nation has ‘demand’ as an economic deficit or not. That means, for example, if demand for a commodity or service is in deficit or insufficient to clear the market of the available supply of the same, then liberal printing of currency and placing it in the hands of consumers is recommended for the economy to recover the demand supply parity. This then is one way of facilitating resource mobilisation in a demand supply balanced market. A way to increase demand is by lowering the interest rate on bank loans or raising the rates in fixed deposits which will enable banks to obtain liquidity and lend liberally for enhancing investment for production.

If it is ‘supply’ that is short or in deficit compared to demand, then special measures are required to incentivise to encourage an increase in supply. The bottomline is that except for endowments of nature, a true economist adept in macroeconomics and inter-sectoral impact, will not despair for a lack of resources. Macroeconomics has many ways to generate resources without taxation. Printing of notes of currency is one way when there is a demand shortage.

Cyber is often touted as the fifth dimension of warfare — in addition to land, sea, air and space. It increasingly appears that the cyber warfare is going to become a regular part of the arsenal of nations

As far as India is concerned, it ranks 3rd in terms of the highest number of internet users in the world after the USA and China, but still, its cybersecurity architecture is in a nascent approach.

The changing military doctrines, all across the world, favour the need to raise cyber commands reflecting a shift in strategies along with building deterrence in cyberspace.

Cyber Warfares and India

• About: It is the use of computer technology to disrupt the activities of a state or organization; deliberately attacking information systems for strategic or military purposes.
  • Cyber warfare typically involves the use of illegal exploitation methods on the internet, corruption or disruption of computer networks and software, hacking, computer forensics and espionage.
• Arguments in Favour of Cyber Warfares: Tempered by responsible use and appropriate controls, cyberwarfare is a safer and more flexible strategic alternative, one critical step between sanctions and bombs.
  • Minimises Human-life Loss: Reducing loss of human lives forms one of the core principles of ethics of war.
    • Cyberwars can be seen as an opportunity to decrease global violence and can shift wars’ focus away from human casualties.
  • Prevents Physical Territorial Invasions: Fighting digitally offers a unique opportunity; the continuation of politics by other means, without the physical invasion of a sovereign territory.
• Arguments Against Cyber Warfares:
  • Threat to International Security: Cyber warfare attacks on military infrastructure, government and private communications systems, and financial markets pose a rapidly growing but little understood threat to international security and could become a decisive weapon in future conflicts among States.
  • More Number of Countries to Engage in Wars: Once cybertechnology enters as an important variable in nations’ defence policies, the size of a country will cease to matter.
    • Even smaller countries empowered by cybertechnology will be equal to the larger countries like the US, Russia, India or China, in their capability to cause unacceptable damage.
  • Lowering Threshold of Entry into War: Weapons in the 21^st century will merely mean a cyber button on the desk of the nation’s military/ the leader of the government.
    • Geographical land, population, or GDP will be irrelevant in war-making capacity or deterrence.
  • More Frequent Conflicts: With cyber warfares becoming a norm, each nation will have to be more prepared for bilateral conflicts that are based on cyber warfare rather than in multilateral acts of conventional war or rely on military blocs for mobilisation.
• Threats to India:
  • Past Experiences: India has been the victim of cyber attacks multiple times in the past.
    • In 2009, a suspected cyber espionage network dubbed GhostNet was found to be targeting, amongst others, the Tibetan government in exile in India, and many Indian embassies.
    • The power outage in Mumbai in 2020 is also suspected to be the result of an attack by a Chinese state-sponsored group.
  • Threats from China: The real danger to India lies in targeted cyber attacks coming from adversarial nation states.
    • Countries like China can bring immense assets to bear in carrying out sophisticated cyber attacks.
  • Lack of Cyberspace Infrastructure: India is one of the few countries which still does not have a dedicated cyber component in its military.
    • The setting up of a Defence Cyber Agency was announced but came out only as a typical half-hearted step characterising India’s lack of strategic planning process.

3.‘High oil prices will sap global recovery’

Puri urges Saudi Arabia, other OPEC nations to work towards affordable and reliable supplies

India, the world’s third-largest energy consumer, on Wednesday warned that high oil prices will undermine global economic recovery, and nudged Saudi Arabia and other OPEC nations to work towards affordable and reliable supplies.

Petrol and diesel prices have hit record highs across the country after relentless price increases since May.

“If energy prices remain high, global economic recovery will be undermined,” Petroleum and Natural Gas Minister Hardeep Singh Puri said at the India Energy Forum by CERAWeek.

Global oil prices crashed to $19 per barrel in April 2020 as demand evaporated with most nations clamping lockdowns to control the spread of the novel coronavirus.

Demand recovered this year as vaccination against the infection revived economies worldwide.

International benchmark Brent crude has since rallied to $84 per barrel.

This, he said, had made fuel expensive and was stoking fears of inflation.

Mr. Puri said India’s oil import bill had climbed from $8.8 billion in June 2020 quarter to $24 billion this year because of a spike in global oil prices.

‘Energy access crucial’

“India believes energy access has to be reliable, affordable and sustainable,” he said adding economic recovery after a devastating pandemic had been fragile and it was further being threatened by the high prices.

India, which imports almost two-thirds of its oil needs from West Asia, has told oil producers, including the Organisation of Petroleum Exporting Countries (OPEC), that high crude prices will hasten the transition to alternate fuels and such rates will be counter-productive for the producers.

Mr. Puri has in recent weeks flagged the issue of high oil prices to Saudi Arabia, the UAE, Kuwait, Qatar, the U.S., Russia and Bahrain. He conveyed India’s strong preference for responsible and reasonable pricing, which was mutually beneficial for consumers and producers.

Mr. Puri said volatility in international prices was not just hurting India but also industrialised nations.

While the world had begun the transition towards cleaner fuels such as electric-powered vehicles and hydrogen, most nations were still dependent on oil to fuel their economies. And high oil prices would hurt the recovery in demand.

India is 85% dependent on imports to meet its oil needs.

Background

Recently, the United Arab Emirates (UAE) pushed back against a plan by the Organization of the Petroleum Exporting Countries (OPEC+) Plus group to extend the global pact to cut oil production beyond April 2022.

Key Points

• The Output Pact & Fluctuating Oil Price:
  • The OPEC+ group of countries had, in April 2020, entered into a two-year agreement (Output Pact), which entailed steep cuts in crude production to deal with a sharp fall in the price of oil as a result of the Covid-19 pandemic.
    • The price of Brent crude hit an 18-year low of under USD 20 per barrel in April 2020 as economic activity around the world crashed as countries dealt with the pandemic.
  • In November 2020, the prices started rising and in July 2021, they were USD 76.5 per barrel mainly due to the steady rollout of vaccination programmes around the world.
  • OPEC+, however, maintained lower levels of production despite crude oil prices reaching pre-Covid levels, with Saudi Arabia, notably, announcing a further cut in production of 1 million barrels per day for the February-to-April period, which helped boost rising prices even further.
    • The OPEC+ group ran into sharp criticism from developing economies, including India, for deliberately maintaining low supply levels to raise prices.
  • In April, OPEC+ agreed to gradually increase crude production, including a phased end to Saudi Arabia’s 1 million barrel per day cut in production by July.
• UAE’s Objection:
  • UAE agreed that there was a need to increase crude oil production from August 2021, but did not agree to a condition by the OPEC Joint Ministerial Monitoring Committee (JMMC) that the two-year production agreement be extended by six months.
  • The UAE’s key objection to the existing agreement is the reference output used to calculate the total production apportioned to each oil-exporting country.
    • The baseline production level reference used in the current agreement was not reflective of the UAE’s production capacity and, therefore, led to the UAE being apportioned a lower share of total production of crude oil.
    • UAE would be open to extending the agreement if baseline production levels were reviewed to be fair to all parties.
• Impact of OPEC+ conflict on India:
  • Delayed Relief:
    • If the UAE and other OPEC+ nations do not reach an agreement to increase production in August, expected relief in the form of lower crude oil prices could be delayed.
  • High Domestic Prices:
    • India is currently facing record-high prices of petrol and diesel. High crude prices have led to Indian oil marketing companies hiking the price of petrol by about 19.3% and that of diesel by about 21% since the beginning of 2021.
  • Slow Recovery:
    • The high price of crude oil was slowing down the economic recovery of developing economies post the pandemic.
  • Inflation:
    • The high prices might also increase the Current Account Deficit and put inflationary pressure on the Indian economy.

Organization of the Petroleum Exporting Countries

• About:
  • It is a permanent, intergovernmental organization, created at the Baghdad Conference in 1960, by Iran, Iraq, Kuwait, Saudi Arabia, and Venezuela.
  • It aims to manage the supply of oil in an effort to set the price of oil in the world market, in order to avoid fluctuations that might affect the economies of both producing and purchasing countries.
• Headquarter:
  • Vienna, Austria.
• Membership:
  • OPEC membership is open to any country that is a substantial exporter of oil and which shares the ideals of the organization.
  • OPEC has a total of 13 Member Countries viz. Iran, Iraq, Kuwait, United Arab Emirates (UAE), Saudi Arabia, Algeria, Libya, Nigeria, Gabon, Equatorial Guinea, Republic of Congo, Angola and Venezuela are members of OPEC.

Organization of the Petroleum Exporting Countries Plus

• It is a loosely affiliated entity consisting of the OPEC members and 10 of the world’s major non-OPEC oil-exporting nations which are:
  • Azerbaijan, Bahrain, Brunei, Kazakhstan, Malaysia, Mexico, Oman, Russia, South Sudan and Sudan.