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6 North-South transfer

Obligation to pay indices
Redistribution of incremental cost
Benchmarks
UN scale of payments
Financing mechanisms
Conclusion
Notes and references

Peter Hayes

In the previous chapter, I calculated the incremental costs to different nations and groupings of nations arising from the carbon abatement scenario and protection against sea level rise. In this chapter, I redistribute these incremental costs based on historic contribution to climate change and ability to pay. As might be expected, the North is obliged to pay substantially more than it would if it ignores its historic contribution and its greater ability to pay than the South. And unless the South's cost is reduced to its obligation-to-pay, it could pay much more than it should - from 58 to 90 per cent more according to the following analysis.

Redistribution in accordance with this indice is then compared with the pragmatic distribution rule known as the UN scale of payments, and some benchmarks. As the obligation-to-pay index does not diverge much from the UN scale of payments, the latter could be very useful in judging national claims for exemption from the former in the climate change context.

Next, I examine how the substantial funds involved might be collected, generated, and transferred by a carbon tax, traceable permits, or sale of abatement services. This analysis shows that the carbon tax and traceable permits are feasible instruments to achieve the requisite financing in the South, but that the sale of abatement services would likely only supplement the former two mechanisms. Finally, I direct the reader to a summary of the major uncertainties that affect each of these links in the logical chain presented in this analysis.

Obligation to pay indices

'Obligation to pay' (OTP) is a composite indice based on two constituent measures 'ability to pay' (ATP) end 'historic contribution to climate change' (HCCC). The indice enables the issue of who should pay (who created the problem and who can afford to pay for the cleanup) to be separated from where abatement should be conducted (the cheapest sites). Here, this concept is used to determine the distribution of the costs of abatement and coastal protection that were calculated in the previous chapter, at high, medium and low abatement cost curves. First, I will briefly review the conceptual components of 'obligation-to-pay' as advanced in Chapter 4.

Ability to pay (ATP) is best formulated as follows:

ATP = GNP - [Population X (GNP/Capita) T'HOLD PQOL]

where:
ATP = ability to pay;
GNP = Gross National Product;
[Population x (GNP/capita) THOLD PQOL] = a basic need adjustment using a threshold physical quality of life or PQOL estimate set at
GNP = 1986US$1,800/capita.

This criterion is useful because it clearly shows who has gained economically from past pollution of the atmosphere. It also identifies who can afford to shoulder the burden of greenhouse gas abatement in the future. This ATP index does not include any special weighting for populations who are especially at risk from climate change, such as those of developing coastal and island states.

The second index that is used to determine overall obligation to pay is historic climate change contribution (HCCC) defined for a given nation as:

HCCC = national cumulative GHG - [Population x NDTHOLD]

where:

GHG = greenhouse gas emissions integrated contribution to atmospheric warming using a 100-year time horizon from year of emission. Here, carbon dioxide from fossil fuel usage is taken as a proxy for greenhouse gas emissions;

ND = natural debt, the national borrowing of the atmosphere's absorptive capacity in cumulative 1950-86 GHG emissions/1986 population;

NDTHOLD = a threshold 'natural debt' defined as the cumulative per capita emission that is attributable to the universal human right to an equal portion of atmospheric absorptive services such as the carbon sink. Any emission above this per capita level is treated as an excess borrowing that counts in the HCCC.

The HCCC of a given nation is weighted relative to its 1986 adult population on the grounds that current populations should carry the burden of ancestral cumulative damage and that national responsibility for climate change is proportional to national natural debt.

As was argued in Chapter 4, the HCCC is an important ethical and political concern that should be reflected in determining obligation to pay. Some critics contend that this criterion places too much emphasis on moral responsibility and not enough on current emissions. However, allowing past decision-makers to avoid liability for their historical contributions to cumulative and irreversible environmental degradation such as climate change fails to provide current decision-makers with an incentive to protect the rights of future generations. The current generation of leaders cannot disavow its obligation to pay off its natural debt from the immediate past at the same time as it claims to be adopting the principle of intergenerational equity. Moreover, the political leaders of the South are not about to let the North occupy all the global atmospheric commons without first obtaining significant compensation - a point stressed repeatedly by the Group of 77 in the negotiations over the Convention. A transparent, quantitative index of historical responsibility will facilitate greatly the ongoing negotiations over protocols on this issue. It is therefore the necessary starting point of meaningful bargaining over this issue, even if political-economic power ultimately elbows aside much of the moral imperative represented by the HCCC index.

These indexes can be combined into a total obligation-to-pay indice by either multiplication or addition. Each index could be weighted, for example, from concern with equity. Here, however, the indexes are simply added without weighting. Of course, politics would determine how the indexes would be combined in an actual negotiation. As both indexes give similar distributions of responsibility, the selection of one rather than both, or the best combination of the two, would be a pragmatic political question.

In Table 6.1 and Figure 6.1, I show the per centage distribution of national and aggregate obligation to pay. The South's obligation to pay is about 7 per cent, the North's about 73 per cent, and the East's about 20 per cent. With this indice, the incremental costs calculated in Chapter 5 can be redistributed between nations in accordance with their global obligation to pay, a procedure followed in the next sections.

If the obligation to pay indice were adopted in a protocol to the Climate Change Convention, then it should be recalculated periodically (say every five years) to reward those who have decreased their historic greenhouse gas contribution relative to projections; and to penalize those who have increased their historic greenhouse gas contribution relative to projections. A similar adjustment to obligation-to-pay should be made for each nation's achieved GNP per capita growth rates relative to those projected in the initial calculation of a nation's obligation to pay.

Table 6.1 Obligation to pay, combined index

National obligation to pay = (% world ability to pay, at threshold income of (1986) US$1,800/ capita) + (historic contribution of cumulative emissions, 1950-86) - (1986 population (national) x natural debt threshold of 10 tonnes of carbon per capita (1986))

At first sight, these adjustments appear to increase the relative obligation-to-pay of the developing countries (which will rapidly increase their share of historic contribution to atmospheric carbon loading, and their ability to pay) and reduce the obligation of the developed countries (which will have an ever smaller share of the accumulated carbon contribution to the atmosphere and likely a lesser GNP growth rate than in the South). In reality, both adjustments would be sensitive to the effect of population growth on the 'basic needs' allowance in the obligation-to-pay indice. Therefore, the 'redistributive' impact of regular recalculation of the obligation-to-pay indice is indeterminate. High population growth in the South, for example, would increase its permitted 'basic needs' emissions that would not count toward its obligation to pay. It could (depending on the impact of population growth on GNP growth) also keep per capita income in the South below the basic needs threshold per capita income (US$1,8001capita) that determines ability to pay in this study.

Figure 6.1 Obligation to pay ability to pay + historic resp - natural debt threshold

If the emissions index in the obligation-to-pay indice is reanalysed using this study's projected population in and cumulative emissions up to 2025 for the North, East and South, then the North's total obligation to pay (updated for cumulative contributions from 1950 all the way to 2025) would increase by about 7 per cent, the East's by about 8 per cent, and the South's by about -14 per cent relative to the distribution of the obligation-to-pay indice in 198617 (58, 23, and 18 per cent respectively).

Conversely, if the basic needs allowance in the emissions component of the obligation-to-pay indice is pegged to its 1986 level (that is, a 1986 population level is used rather than the 2025 figure), then the shift in relative responsibility due to the increases in cumulative contribution from 1987 to 2025 is from the North (-5 per cent) to the East (+1 per cent) and the South (+4 per cent).

How population growth is treated in the two indexes that constitute the obligation-to-pay indice is therefore critical to the impact of its periodic adjustment. The choice of which population to use is political, and there being no 'right' answer. In any case, whatever its direction, the overall redistribution of obligation-to-pay arising from periodic adjustment is relatively small, even after thirty years of additional emissions. I therefore proceed using the current estimate of the obligation-to-pay index stated above in redistributing incremental costs.

Figure 6.2 Cost with and without OTP redistribution, Cases 7 and 3

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