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The sky is the limit

The Finance Minister shouldn’t be swayed by rhetoric about measures that supposedly combat climate change, writes Darryl D’Monte.
By Darryl D’Monte | None
UPDATED ON FEB 24, 2008 10:46 PM IST

Two Indian executives from the world’s largest accounting firm PricewaterhouseCoopers have made a somewhat self-serving case on the eve of the budget for exempting, or at least reducing, the tax on the sale of carbon credits by Indian companies. Carbon credits are officially known as ‘certified emissions reductions’ (CERs), certificates for reducing a tonne of carbon dioxide. These certificates are then traded on the international market at prices ranging around 13 euros or Rs 756 at the moment.

In last year’s budget, P. Chidambaram himself stated that “India has also strongly promoted the clean development mechanism (CDM) under the Kyoto Protocol [for reducing global warming gases] and has the largest number of CDM projects.” Last year, India generated 27 million CERs, worth roughly Rs 2,000 crore, twice the amount in 2006. The Environment Ministry waxes eloquent about the rate of growth of these credits being faster than that of the IT or construction industry. According to international consulting firms, the global market for these credits is now around $ 70 billion per year. In two years, it is estimated to touch $ 100 billion and India’s share could be more than $ 25 billion. The two Indian executives speculate whether the FM will treat the income from sale of these certificates as incidental or subject to capital gains tax. Or, best of all, that these are means to “achieve the benevolent, social objective of preventing climatic changes... and thus achieve sustainable development”.

They refer to how funds received under the Montreal Protocol for phasing out ozone-depleting substances are exempt from tax. However, these sums aren’t accrued by selling credits but, under the protocol, industrial countries voluntarily contribute to help developing nations switch over to technologies in air-conditioning, refrigeration and a host of other materials that do not cause global warming. Hence the executives’ plea that this measure would promote “India as a frontrunner in the fight against global warming” is a pie in the sky. In this case, the sky is the limit.

There are environmental and moral arguments against the much-vaunted CDM. Instead of viewing climate change as simply the biggest challenge that has ever confronted humanity, trading in credits amounts to business as usual. It permits countries and companies to continue polluting the atmosphere and buying credits in developing countries that will absorb such emissions, instead of reducing them in the first place. Contrary to what many neo-liberals believe, there are limitations to what the market can achieve. Climate change itself surely is one such imperfection. What is more, when developing countries have to reduce their emissions, after the first phase of the Kyoto Protocol ends in 2012, what price will Indian companies have to pay for a CER? If market principles truly applied, polluters should pay. Even two decades ago, the Worldwatch Institute in Washington calculated that a $ 50 tax on a tonne of CO2 would yield sufficient revenue not just to rid Earth of pollution but to meet its development needs as well.

The FM would do well not to be swayed by rhetoric regarding measures that supposedly combat climate change. Wind power, in which India is the fourth largest so far as installed capacity is concerned, is another example. The country’s potential is reckoned to be 45,000 MW, of which only 10,500 MW will be tapped by the end of the 11th Plan. A central scheme grants such investments an accelerated depreciation benefit of 80 per cent, an income tax holiday, exemption from excise and concessional customs duty. However, the Ministry of Renewable Energy, instead of regularly totting up capacity figures, should conduct a thorough audit of how many Indian companies are actually generating electricity through the windmills they erect. Or are they taking advantage of the tax breaks and letting the generators rot in the countryside?

The environment needs to be protected from both market and technological fundamentalism. This writer was exposed to a sterling example of the latter at a [recent] conference [last week] in Madrid on the impact of climate change on cities. Jeremy Rifkin, the American economist and writer who heads the Foundation on Economic Trends and has written 17 best-sellers on the impact of technologies on society (including The End of Work), announced a third industrial revolution. The first, according to Rifkin, was the advent of electricity and the printing press; the second the era of oil (only discovered in the mid-19th century). Oil is in its sunset stage, even as it reaches $ 100 a barrel.

The world was about to enter the third, which was the convergence of IT and energy technologies, what he terms “distributive communications”. In this brave new world, energy — which is the driving force of each revolution — would not be elite and top-down but decentralised and people-centric. Oil, controlled by multinational companies and feudal producers, was the opposite. The IT revolution would provide grid technology with the software to connect PCs of even those without electricity. The biggest beneficiaries, he believed, would be developing countries — half the world’s people have never made a phone call and a third make do without electricity. Thus, the marriage of IT and the new energy technologies, the ‘intergrid’, could enable every newly wired and constructed building (or presumably those retrofitted) to convert energy from solar panels and other means and distribute the surplus power to the grid. By contrast, Shanghai was an example of elite energy. The Sears Towers in Chicago consumes more energy than 40,000 people.

Rifkin, and others like Lester Brown, founder of Worldwatch, and Jonathan Lash, who heads the World Resources Institute, are enamoured of the potential of hydrogen, seen as a totally clean fuel. Seven Japanese companies are perfecting the storage of hydrogen in batteries. In New York’s Times Square, a skyscraper is already powered by hydrogen. Forty buses are similarly fuelled in Hamburg, while GM will roll out its first H model by 2011 that he described as a “batman or dotcom car” with no steering wheel, only a joystick. When it’s not being used, it can generate small quantities of power locally. However, the production, transport and storage of hydrogen, at present, is by no means climate-friendly. If everyone uses even a hydrogen car, the already clogged roads in every city are only going to get worse.

The widespread belief that the world needs technological fixes to solve all its problems is naïve. It is not as if Bill Gates developed Microsoft to make the planet literate or Monsanto wants to rid the world of its hunger through genetically modified foods. An alternative technology will only work in an alternative society. This is why the US, the richest nation, has some 30 million poor people, which has prompted Mohammad Yunus of Bangladesh to start a Grameen Bank in New York. “Power to the people,” which Rifkin exults in literally, will not be ushered in by the microchip or hydrogen battery, but by a redistribution of wealth. The tragedy is that with all the technological advances already under way, the world is actually witnessing greater inequality.

Darryl D’Monte is Chairperson, Forum of Environmental Journalists of India.

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