Comments on: India and the Copenhagen summit

By: Raghbendra Jha

Raghbendra Jha — Tue, 08 Sep 2009 23:04:44 +0000

However, as the article argues, the foreign exchenge inflow will not be an unmixed blessing, even if this technology is competitively priced. Developing countries will have to reduce carbon emissions (hence reduce the pace of their industrialisation and poverty reduction) as a consequence. If the exchange rate is left untouched, as it would under an inflation targeting regime, real exhange rates of developing countries will definitely appreciate. This will be a Dutch disease type effect and reduce developing country exports. If the exchange rate is managed, sterilization will have to be resorted to. Given recent experience it would be wrong to underestimate the pains associated with sterilization that many monetary authorties in developing countries have to go through in the face of financial inflows.

By: Lincoln Fung

Lincoln Fung — Tue, 08 Sep 2009 03:06:39 +0000

If the developed countries buy reduction in emissions or emissions growth from the developing countries, then the developing countries can use that income in foreign exchange forms to buy the technologies that would help reduce emissions or their growth. While sterilisation is an option, most countries do not necessarily have to use them.

By: Raghbendra Jha

Raghbendra Jha — Sun, 06 Sep 2009 22:47:41 +0000

Lincoln Fung’s comments and suggestions are useful. My article does not say that the global ETS is a bad idea. It points out to the difficulties developing countries would face if the global ETS is not accompanied by a technology transfer mechanism. An inflow of foreign exchange on account of selling of ETS would appreciate real exchange rates (if inflation targeting is followed exchange rates will have to be left alone). At the very least it will lead to serious problems of having to sterilize which will make the task of monetary management harder. This would be particulalry true if the present developed countries see the global ETS as a means of limiting the reduction in CO2 that they themselves have to make.

By: Lincoln Fung

Lincoln Fung — Fri, 04 Sep 2009 01:24:42 +0000

If a global ETS is done on a voluntary basis and everyone has the same right to emit, I don’t see any disadvantage to developing countries. To the contrary, I think it will be a good thing for both the developed and the developing countries, as well as the climate.
I think if a global carbon tax and a global ETS are done on the basis of equal per capita allocation of emission rights, then it can only be a good thing to everyone.