TCS Daily


History Repeats Itself

By Alan Oxley - October 25, 2004 12:00 AM

Russia's ratification of Kyoto was expected. The question is why did President Putin do it? Kyoto will not reduce global emissions of carbon dioxide and accession could well be detrimental to Russia's economy. There are several theories. Here is a new one. The Russians have a fine eye for failing institutions. It has done this before.

As climate change aficionados know, Russia's ratification was necessary to bring the Kyoto Protocol into effect. The Kyoto Protocol has a rule which is common in international conventions. The Protocol does not come into effect until a defined number of countries, usually responsible for an important share of the activity concerned, support the Treaty.

This makes sense. There is little point trying to create international law unless a good share of the international community which is directly affected goes along. What would be the point of Norway, Ghana and Uruguay signing an international convention banning use of noisy jet aircraft?

Kyoto cannot come into effect until the number of ratifiers includes those who account for 55 percent of the carbon dioxide generated by those countries listed in an Annex to the Protocol. This seems sensible, until we understand how limited that group is. It does not include developing countries like China, India and other high growth economies in East Asia which today account for over 40 percent of the carbon dioxide generated by human activity. Since they are the world's fastest growing producers of carbon dioxide, that share is steadily increasing.

So this Protocol is triggered when countries who at best account for 30 percent of the world's human-generated CO2 accede. Russia has triggered this threshold. It is obvious that if only a minority of producers of CO2 cut back, overall, global emissions will continue to increase. Putin also had before him an exhaustive analysis led by Andre Illiarnov, his economic advisor, which showed that if Russia cut back emissions, this would retard economic growth. It also showed the science underpinning Kyoto was flawed.

Russia still joined. The quid quo pro was to leverage the EU to move in Russia's direction on the terms of its accession to the WTO. Even that was not cost-free. Russia had to commit to increase domestic energy prices over time. Others argue the real deal was to buy the EU's silence as Vladimir Putin restores power to the Russian State.

Putin will know he has joined a Convention that can't work. It is another great blooper from the United Nations. So maybe for him it's a "what the hell does it matter?" argument, especially if he can get something out of it from the Europeans.

The UN produced another blooper in the seventies. It was called The Common Fund for Commodities. The idea is that rich countries would financially support a fund to compensate poor countries when the world price of commodities and the value of their exports fell. The world's Finance Ministries in industrialized countries and the IMF pointed out the idea was nuts. It was the ultimate effort to control world prices. No one could try that without bankrupting themselves.

Developing countries in the UN thought it was great (it wasn't their money) and they had the numbers in the UN. Prime Ministers and Foreign Ministries who did not understand economics ploughed on, convinced this would fix the world economy and improve economies in poor countries. Most Europeans supported it, but the US did not. The Convention establishing the Fund was completed in 1980. It had a trigger clause, like Kyoto, and US abstention prevented it from coming into effect.

Foreign ministries in industrialized economies slowly came to their senses (it helped that Finance Ministries had said they wouldn't pay for it) and privately expressed relief that that this dumb idea would never have life breathed into it. Then in 1988, to everyone's amazement, the Soviet Union announced it would ratify the Convention, crossing the trigger point and bringing it into effect. This induced a collective groan, although it did not make the news. In the way in which the UN works, the Common Fund had been transformed into something innocuous.

In the UN system, bad ideas are never disowned (the World's Governments don't admit to making mistakes), they are quietly rendered ineffective. Since no one would fund the mechanism to flatten world prices for commodities, "The Common Fund" was worked over and transformed into something else -- a small agency to do technical studies on trade and production of commodities. It is based in Amsterdam, probably funded by the Dutch Government, and does very little.

Why did Gorbachev ratify The Common Fund Convention when everyone else had concluded it could not work? Who knows? Perhaps it delivered Russia a seat on a UN body. Maybe someone in the Kremlin thought it would get some free technical assistance. But it showed the Russians have a fine eye for failing institutions.

Those who wonder where all the animation and energy currently invested in the Kyoto Protocol might ultimately lead should study the history of The Common Fund. The ambition in Kyoto to create a global institution to regulate global production of carbon dioxide or regulate trade in the gas is as unrealistic as the original ambition for the Common Fund to regulate world prices for commodities. Once Governments work out the full cost and impracticability of the Kyoto ambition, the Common Fund model suggests a practicable, if not inevitable, fate: create instead a technical assistance fund to help countries reduce generation of carbon dioxide. The World Bank has already created something like it. It is called the Global Environment Facility.

Maybe the Russians have insight of the late arrival.

Alan Oxley is a former Ambassador to the GATT, predecessor of the WTO and Chairs Australia's national APEC Centre.


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