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Climate change or attempts to tackle climate change - which is more dangerous for the developing world?

New research by ODI suggests that the climate change mitigation policies of rich countries could have as big an impact on growth prospects for developing countries as climate change itself.

These policies will also determine how the costs of reducing carbon emissions are shared between rich and poor countries. Some would effectively shift a proportion of the costs to the poor countries that have contributed least to the problem of climate change itself. But this may be overlooked in the face of strong pressure to tackle climate change in the developed world.

However, mitigation policies will affect different developing countries in different ways. Some may threaten growth prospects for some poor countries, but others represent an opportunity.

We know, for example, that carbon tax policies can spell mixed fortunes for developing economies.

Any mitigation policy that drives up the price of carbon for rich country production – such as a carbon tax – could drive up the price of goods imported by developing countries and reduce the amount they could afford to consume. However, production could move to developing countries with no such taxes, boosting their foreign direct investment (FDI) and trade opportunities - though rich countries would probably try to prevent this from happening by imposing border tax adjustments.

In practice, the evidence suggests that the impact of a carbon tax would probably be quite low, as the tax would represent a fairly small proportion of costs. Typically, studies show that only around 0.5-2% of rich countries' national GDP are exposed to significant increases in production costs from the imposition of a carbon tax. Nonetheless, there is a strong lobby in favour of imposing border tax adjustments, though this could be viewed as an attempt to overstate the environmental case as an excuse for protectionism. This could have quite negative impacts on developing countries.

Air transport taxes could also be used as a form of carbon tax. If they reduced demand for air travel, developing countries relying on tourism from rich countries could suffer economic losses. Developing countries exporting goods by air, such as fresh fruit and vegetables, could find their exports less competitive, hitting some countries hard, such as Kenya, which has seen growing demand for its air-freighted produce.

Some companies are developing labelling schemes showing the carbon impact of a product. Some, such as Tesco, with the help of the Carbon Trust, have tried to capture the whole carbon impact of a product, from the greenhouse gas emitted during its production, manufacturing, transportation and storage, to its preparation and use, and the disposal of any waste. However, this is complex and costly, so there may be a temptation for others to use simpler proxies such as ‘food miles', or whether a product has been air-freighted, as a measure of carbon impact. These simpler metrics could serve to exclude developing country producers from rich country markets, even if they produce goods in a carbon efficient way. One study comparing the emissions associated with rose production in Kenya and the Netherlands, found Kenya a more carbon-efficient location, even when airfreight emissions are included.

As this example shows, sophisticated carbon labelling, which accurately measures the total carbon impact of production, may benefit some developing countries by showing environmentally conscious consumers that their products are greener. In a recent article, the World Bank made several recommendations on how to make carbon labelling schemes more development friendly.

However, even then there is a risk that such schemes will exclude developing country producers. Ethical and environmental labelling schemes often exclude developing country producers from rich country markets because they do not have the necessary national institutions and capacity to obtain certification. As previous ODI work has shown , stringent certification requirements may be a barrier to market access for developing countries (particularly LICs), which need support to obtain and maintain effective certification.

On the other hand, some developing countries stand to gain a lot from some international mitigation efforts. Initiatives such as the Clean Development Mechanism (CDM) could bring significant private investment and public funds into developing countries with cheap mitigation opportunities or carbon assets such as forests. However, both initiatives need more development to deliver impact at scale. There is some consensus that the CDM will have only a limited impact on overall emissions reductions without reform. But changing the rules governing how projects are approved and implemented, and widening the scope of the kinds of projects that are included, should facilitate greater investment through the CDM, opening up more opportunities for low income countries (LICs) to benefit from FDI and technology transfer. The inclusion of REDD, sustainable forest management, and improved agricultural practices that increased the amount of carbon that is kept within soil, might be expected to have the largest impact, and the biggest benefits for LICs.

Approaches that make it easier for emissions reductions by whole sectors to be captured within CDM could generate significant gains for countries with industries in the affected sectors. These are most likely to include heavy industry sectors such as cement, iron and steel, paper, refineries, electric power, and transport. In the medium term, therefore, such approaches will be particularly appropriate for countries with large-scale heavy industries, such as China and India. However, these approaches may swamp alternative CDM opportunities, crowding out smaller, more expensive investment opportunities more likely to be available in LICs.

We must take these potentially enormous impacts on developing countries into account when developing policy, and must not inadvertently shift the burden of paying for climate change mitigation to them. At the same time, developing countries need to start positioning themselves to take advantage of new opportunities and protecting themselves from the new risks presented by international mitigation efforts.