BW Businessworld

Bottom-up Innovation For Sustainable Development And Green Credits

When it comes to environmental and social programs, India must design in order to forge its path towards sustainable development, more specifically an incentive framework

It is important to investigate why a ‘planner’s approach’ or a top-down intervention won’t yield effective results when crafting an environmental policy such as an incentive framework for sustainable development, while taking specific examples related to Easterly’s criticism, Sustainable Development Goals and institutional causes, and specific environmental programs like carbon trading and REC, whose short-comings lie in their non-searcher’s approach. With Easterly distinguishing between the methods of ‘ineffective planners’ and ‘creative searchers’ in the realm of foreign aid, he lists the characteristics of top-down, planners as those who “announce good intentions but do not motivate anyone to carry them out” or monitor its effective execution, who “raise expectation but take no responsibility in carrying them out”, “determine supply” without knowing or understanding the demand context, those who “apply global blueprints” without local adaptation, those who “lack knowledge at the bottom” and are oblivious to ground-realities, and ignorant about appropriate feedback and accountability mechanisms.

With particular disdain and criticism towards policies and functioning of multi-lateral, international organizations, Easterly goes on to critique various grand projects by the UN, specifically the Millennium Development Goals Project, which was a precursor to the Sustainable Development Goals, having failed to achieve the targets set by the MDG goals. With regards to the complex bureaucracies which underline such programs, which have multiples agencies and agents working on similar goals but with no coordination or accountability, he says, that with such grand programs which do not recognize actual realities through indigenous research, “if everyone is to blame if something goes wrong, then no one is to blame”, due to the problem of free riders in this uncoordinated collective action towards well-intentioned goals. With multiple goals defined clearly by these large UN goals, without clearly laying out the path required to achieve them, we can recall the principal-agents theory and realize that “having principals weakens the overall incentives for agents to deliver to anyone principal”.

When it comes to environmental and social programs India must design in order to forge its path towards sustainable development, more specifically an incentive framework like Green Credits, a planner’s approach would use the blueprints of the Green Credits model by Dembo and without adapting it to the Indian context, it would execute the program, which most likely won’t yield effective results due to the problem of ‘isomorphic mimicry’. Thus ‘isomorphic mimicry’ with respect to Green Credits (using a planner’s approach) may lead to persistent failure in achievement of sustainable development objectives, as various environmental programs like Carbon Trading and Renewable Energy Certificate schemes or particular actions taken by the Indian forestry department have done, when executed from a planner’s, top-down interventionist approach.

Carbon Trading, despite being increasingly popular among corporate stakeholders, industry heads, and politicians in India, has its own set of drawbacks and flaws, especially when directly adapted as an environmental policy without improvisation. The scheme, as seen by the European Union Emission Trading scheme has become a source of windfall profits for polluters through its failed mechanisms, offshore carbon offsets, and it has, in fact, led to emissions not being reduced, but only regulated in a manner which ensures profits for them. With unfair allocation of allowances, complexity of the apparatus set up, difficulty in quantitative and qualitative measurement, lack of a just regulator (without conflicts of interest), and the potential for the entire carbon market to become a gambling arena for carbon price speculators and traders, the objective of carbon trading to actually reduce emissions is lost in its many flaws. With geographical and cultural differences, it is difficult to come up with a measure of climatically equivalent solutions on a global scale and even positive solutions to combat global warming are hindered by carbon trading. Carbon trading with its huge costs in monitoring, auctioning, setting up of regulatory institutions, technology to measure and track emissions only address the problem on an industrial scale, without any change induced on a grass-root behavioral level. Moreover, the Carbon Allowance Trading Mechanism is based on principles of “pay to pollute”, where it is implied to be a fee or a punishment for being non eco-friendly, as opposed to a scheme which “pays to pollute less”, which is like a carrot-approach to induce positive, eco-friendly behavior (where one is rewarded for good behavior (saving electricity, reducing waste, reducing fossil based emissions) as opposed to punished for bad behavior (taxing for polluting more, increasing costs for higher electricity consumption etc). Thus on a philosophical and behavioral level also, carbon trading maybe aiming at the wrong objectives, and thus leading to failure in achieving sustainable development goals.

According to a Carbon Market roadmap, not only is the implementation of the scheme expensive and requires cooperation and funding from the private corporate sector, but the effectiveness of such a scheme in actually reducing emissions or improving environmental quality is debatable, especially given the loopholes in the framework, where companies are given the option to “offset” their pollution by perhaps carrying out eco-friendly projects elsewhere, which may not be “environmentally equivalent”, given the complexities in the eco-system, where emissions in one region cannot be negated by “green projects” elsewhere.

In principle, it is confusingly thought to be similar to Green Credits, but however, there are many differences. Fundamentally, in carbon trading, a certain amount of allowances or "carbon credits" that you as a company are allocated, which determine how much carbon you can emit. If you happen to emit lesser than the allowances given to you, you can sell them to another company that emits less than credits allocated to them. Meanwhile, if you are emitting more, you can buy allowances from a corporation that does not need theirs. This mechanism gives every company an incentive to employ emission-reducing practices. The market forces determine the price of carbon credit. The supply is the “cap” on emissions set by the government (e.g. the cap may be reduced over time to reduce overall industrial pollution) and the demand is the number of industries who require these allowances to continue their emissions. Thus to keep the carbon allowance price high, the supply of these allowances has to be kept lower, so as to make it more expensive for industries to pollute. Market distortions in phase 1 of the EU-Emissions Trading program kept the price of carbon allowances relatively small, and various loop-holes within the framework of the system deemed it ineffective for being an efficient scheme for emission reduction.

The mechanism still does not address the issue on a grass root level. How should an average citizen who is to be a part of the eco-friendly 30% of India’s population in 2035, start evaluating their behavior such as reduction in fuel usage, electricity usage, water usage or insulation of their home? How do they change their own and their family’s psyche to be environmentally conscious in the future, along with shifting to renewable sources for electricity production? How does the average Indian citizen contribute to reducing the emission intensity of the GDP by 33%, especially given the revelations in the earlier chapters about India’s human development issues, poverty and high emission ‘rate’?

Another environmental scheme which is costly, heavily depends on a planner’s approach and cannot be adapted in India is the Renewable Energy Certificate program. In the USA, because an electrical grid receives power from various sources that are renewable or non-renewable sources, there is no discernible way to find out which source exactly a particular household in that energy grid gets its electricity from, and thus no way to effectively promote Renewable energy power supply. With REC or Renewable Energy Certificates, households can purchase RECs and be deemed eco-friendly, and the money from the acquisition goes into building more renewable energy sources for power supply. However, the scalability and scope of such a scheme in India are yet to be determined, especially given the large disparities in demographics, demands, power production, electrical grid structure, composition of households, culture, ecological footprint and so on. It entitles households and businesses in a particular electricity grid, to purchase RECs from local state utility suppliers, who will use the money to build infrastructure for renewable energy production, or get renewable energy power at subsidized rates. It does not change behavior of individuals or household or business practices, but merely entitles them to meet their local renewable energy requirements through certification, even though at a much later stage (with enough sale of RECs), there will be an increase in renewable energy sources. However the future savings associated with such investments, as well as lack of short-term impact on energy optimization makes this scheme also investment heavy, and ineffective (mostly because within an electricity grid which gets electricity from various different sources, the source of electricity, whether renewable or non-renewable, for different units is indiscernible).

Carbon trading and REC’s again which are mostly carried out on a macro level with heavy planning, huge investments along with a plethora of environmental laws and policies in India are costly, wasteful and use the planner’s approach to set objectives without any localized learning, and are not all-encompassing in their approach hence pushing India further away from the achievement of sustainable development goals. When the Indian Forestry Department, after learning that in Indonesia, forest protection laws have decreased biodiversity loss, draw legislation which heavily protects a particular forest, this single dimensional thinking on just one plane of environmental protection, maybe extremely detrimental to the indigenous tribes who may be depending on that the forest for their living, pushing them further down the lane of poverty (which is evident by the Human Development Indicators of various tribes in India, due to poor environmental planning).

Therefore Green Credits, if applied in India with a searcher’s approach, may just form an excellent framework for communities all across India with varying incomes, cultures, practices, norms, ecological footprints can participate to collectively lower our impact on the planetary thresholds and move towards a safe and just space for humanity within India, and perhaps outside, if it demonstrates and emulates the success of other programs designed through the searcher’s approach.

Tags assigned to this article:
sustainable development sustainability

Top themes and market attention on: