Can Money Buy Everything !!

There was a famous Mastercard Campaign that had been running for quite a few years. The punch line of their ads said –

 “Money can't buy everything; for everything else there is Mastercard".

The series of ads that ran during this campaign were very touching, and people used to emotionally connect with those ads. The ads usually focused on the emotional aspects of people that can't be bought. Now, to the list of things that one can buy using money, Mastercard can add - Environment Pollution. Oh yes, now one can pollute the environment at their own will and use money to buy CER (Certified Emission Reduction) certificates; which in turn helps in reducing their Carbon Footprint - notionally. Mastercard’s new punch line can be:

“Money can't buy everything; for everything else (even environment pollution) there is Mastercard”

Carbon Foot print

The concept around reducing the global carbon footprint goes like this:

1.     A company, X, uses fossil fuels/coal/natural gas for its production process, as it is cheaper compared to other "cleaner fuels" and other sources of "Renewable Energy" (e.g. - hydel power, solar power etc)

2.     Hence, X emits a lot of GHG (Green House Gases) such as CO2 in the atmosphere.

3.     These gases are harmful for the environment, especially the Ozone layer that protects our planet from the harmful effects of the UV rays.

4.     Imagine our planet surrounded by a kind of blanket (ozone layer) with lots of holes through which the UV rays are percolating.

5.     Now comes the catch. There is a UN body called UNFCCC, which says that the only parameter that it would use to gauge the Carbon Footprint of an organization is the no. of CERs it has.

6.     These CERs can easily be traded in the global market, in exchange for money, just like a regular financial instrument.

China Rules..

India is the 5th largest when it comes to the emission of CO2, after US, China, Russia and Japan. Just for comparison sake, India produces CO2 as much as just 18% and 30% to that of US and China respectively. What is noticeable about China is that in the past one year, it has started a lot of renewable energy projects, thus beginning to rely more on wind and hydel power. As of today, China houses as much as 50% of world's total no of hydel projects!! That is what determination (as well as Monarchy) can do for you. China is also thinking of imposing caps on industry-wise allowable limits for CO2 emissions, as well as putting an extra tax on companies that produce more than the specified limits of CO2. Hail China for these steps.

India – Again a Laggard

India has vowed to reduce its Carbon Footprint by as much as 25% by 2020. At the same time, India has also made its stand clear that it would not impose any binding emission cuts as suggested by UNFCCC, considering that the large part of the population lives below the Poverty Line - as the additional costs incurred by the company in using cleaner fuels would directly be passed on to the consumers. According to the Planning Commission of India, 27.5% of India's population lives below the poverty line, as of 2004-05. The BPL population has shown a constant decline over the years, and continuing the same trend, it's my rough estimate that the figure would now be at somewhere around 24%. So, what about the remaining 75% population?

The Govt. would never be able to pass on a bill regarding imposing industry-wise cuts in India, if the matter is left alone to the politicians and the big business houses of this country. Given the level of corruption in India (India ranks 87 in the World Corruption Index); such a bill would never see the light of the day. What is most amazing about Govt's statement is that they never tell when such a Legislative Bill would actually be introduced in India - what is their target level of population of BPL at which they would act. The most amazing part is that the BPL population didn't play any (or may be negligent) role in India's Growth Story - yet the Govt. is using it as its scapegoat. I believe it's not the Govt but the vested interests of the business houses of India that is speaking through Govt's mouth. The Govt is not concerned about the generations that are going to come - it's only concerned about the fact that again, after 5 years, they have to come to power - for which they would require the support of business groups, as well as their money for campaigning etc. It was shocking to me when I read in the newspaper last week that Mr. Sharad Pawar openly stated that the moves of the Govt is actually making the business houses the enemy of the ruling party. The business groups were feeling that the Govt was no more "business friendly" - and that they may move their support to the opposition party if this continues. Now what was that? There seems to be no space for justice for the common people in India!!

Developing Vs Developed Nations

What is the most surprising part in this issue of reducing the carbon footprint is that the developed nations, which are the biggest consumer of power, and hence have the highest carbon footprint, are so helpless at reducing their CO2 emissions. These people have so much money (as they are supposedly the biggest consumers of services in the world as well) - why can't they shell something extra to pay for renewable energy. Instead, they go on happily emitting CO2 without any checks and regulations, and then later use MONEY to buy the CERs, which is the metric used by the UN watchdog to infer about the carbon footprint of an industry. I believe that these UN bodies form the regulations keeping in mind the best interests of the Developed Nations; and try to impose all possible rules on the developing/under-developed nations. These UN bodies don't seem independent to me anymore - similar to the case when the UN bodies didn't (or may be couldn't) do anything when US attacked Iraq just because of assumptions that Iraq had WMD (Weapons of Mass Destruction). The only good thing that President Bush did was adding one more acronym to the ever-growing English dictionary - WMD. He would surely be remembered always for coining this word.

Methodology

In my opinion, taking the following course of action would be helpful in reducing the global carbon foot print and for the future generations as well:

1.     A global cap should be put on all economies so that the total emission of CO2 globally should be calculated and controlled.

2.     This should be then divided between the nations, factoring various things like population, kind of economy, production capacities, infrastructure etc. Each nation should be given a score on such parameters, and then a weighted average score should be calculated for all nations. The amount of CO2 emissions of each nation should be determined by this score. Higher the score, higher the allowable emission of CO2.

3.     The nations should then divide the allotted limit of CO2 emission industry-wise, and the national industry bodies should then divide this limit among the various players in that particular industry, depending on the production capacity or any such relevant metric for that industry.

4.     If a business group has multiple businesses across industrial sectors, those BUs (Business Units) should not be allowed to mutually share the target CO2 emission. For eg, say there is a business group ABC that has 2 business units in different sectors. The 1st BU had a limit of 5 units of CO2 emission, while the 2nd one had 8 units. So, if the 1st BU produces only 4 units, and the 2nd one 9 units, the extra 1 unit can't be transferred from 1st BU to 2nd BU.

5.     The trading of CERs should be completely banned. A company can't be allowed to reduce his carbon foot print by paying for it, though it is not taking any steps towards using clean fuels.

6.     The companies that produce more CO2, than what they are supposed to, should be taxed additionally - call it as "Carbon Tax"- over and above the regular corporate tax levied on the companies.

7.     The CERs should be mandatory criteria for credit rating agencies when they are rating a company. That is the additional incentive the companies should get for using clean fuel, and hence for getting the CERs.

Modify the Metrics Please!!

I guess it's high time to turn more attention to this issue, and give it more attention that it actually deserves. I believe putting a global cap on CO2 emissions is a mandatory step, so that all nations get aligned to a common goal. Also, instead of the nations claiming that they would reduce the CO2 emissions by x% by a certain period of time, they should state that they would make sure that y% of their total energy production would be done through use of clean fuel / renewable energy. This approach would be more effective because each country claims to reduce the current level of their CO2 emission by x%; but this is x% of the current level. 

Let us take an example. Say, a nation is producing 100 units of CO2 today, and they claim to reduce their emissions by 20% in 10 years. Hence, what they it is effectively saying is that it would reduce CO2 emissions by just 20 units in 10 years.

 But, let's say, its energy demand is increasing at a rate of 5% every year. So, the total no of CO2 units it would be producing after 10 years is 162 units approx. Even if one reduces 20 units from this (Say these units come from renewable energy sources), the total units of CO2 emitted would be 142 units.

Hence, we see that over 10 years, the CO2 emission has actually increased by 42 units.

If we take the other approach, and say that by 10 years, 20% of the nation's energy consumption would come from clean fuel. This simplifies to:

Total units produced after 10 years - 162 units

Power from clean fuel/renewable energy - 32 units

Power from regular sources - 130 units.

The increase happens in this case as well, but it is much less compared to the 1^st case. There is rather a higher increase in the use of renewable energy in the latter case.

Hence, we find that the second metric would be more suitable than the 1st one. Any one from the Govt listening?