Whose CO2 is it Anyway? Seema Jayachandran’s Research Explores Alternate Mitigation Efforts

As CO₂ emissions continue to climb globally, Seema Jayachandran, a professor of economics and public affairs and co-director of the Research Program in Development Economics, published research in the Journal of Economic Perspectives about alternate strategies for low- and middle-income countries to reduce climate change. In this Q&A, she talks about some of those findings from “Think Globally, Act Globally: Opportunities to Mitigate Greenhouse Gas Emissions in Low- and Middle-Income Countries.”

SPIA: In the piece, you and your co-author argue that the most cost-effective opportunities for atmospheric CO₂ mitigation will happen in low- and middle-income countries, like Uganda and India, compared to high-income countries, like the United States and Norway. Can you tell us more about this idea?

SJ: When a country emits greenhouse gases, most of the environmental costs are outside its borders. The global scope of it makes climate change hard to solve: A country has a temptation to free-ride and let others solve the problem. In our piece, we turn that logic on its head and point out that the global nature of the externality also offers an opportunity. Atmospheric CO₂ decreases by the same amount whether emissions fall by a ton in the United States or India, so we can seek out the most cost-effective investments to mitigate climate change anywhere in the world, not just within our borders.

Many climate bargains are going to be in low- and middle-income countries (LMICs). One simple reason is that mitigation projects often use land and labor as inputs, and those factors of production are much cheaper in LMICs. For example, one of my other studies looked at a program that compensated landowners in Uganda if they kept the forests they owned intact. We found that the program averted about 20 times as many tons of carbon per dollar spent than a similar program in the U.S. That huge gap is because the economic profits someone can earn by clearing and using an acre of forest in Uganda is a lot less than it is here.

That math tells us something about how governments in high-income countries should be thinking about climate change. The U.S. government is going to spend about $1 trillion on climate mitigation over the next decade through the Inflation Reduction Act (IRA). The IRA has other objectives too, such as domestic job creation, but purely from the point of view of making the biggest dent in climate change, it’s unlikely that only acting within our borders is the best approach.

SPIA: What are some other reasons low- and middle-income countries are better suited for these strategies?

SJ: There are three main reasons that many of the climate bargains are in LMICs. The first is what I mentioned above about inexpensive land and labor. That’s applicable not just for forest protection but also for projects like large solar farms.

The second reason is that a lot of the low-hanging fruit, like using simple techniques to reduce methane release from landfills, have already been tapped in high-income countries but not LMICs. That’s partly because LMICs, understandably, have been prioritizing economic development more than climate change mitigation. Another example is shifting away from coal. The energy transition is well underway in high-income countries, but almost half of electricity generation in middle-income countries is still based on coal.

The third reason why pursuing mitigation in LMICs is cost-effective is that it is cheaper to “build green” than to “retrofit green.” High-income countries already have a lot of their infrastructure, such as public transit systems and large buildings, in place. Meanwhile, LMICs are going to experience huge infrastructure expansions in the coming decades. From the get-go, you can incorporate features like passive cooling and lower-carbon-footprint building materials.

SPIA: Can low- and middle-income countries tackle this problem head-on with their financial resources? Is there enough available capital to do it right?

SJ: Probably not. Arguably the more important question is whether LMICs should be expected to tackle the problem themselves, even if they could. Climate change is a crisis that has been created, overwhelmingly, by people in high-income countries, so that’s where the financial responsibility lies. While the question of who should pay is not the focus of our piece, there’s a fairly strong case that it should be richer countries, in my view.

Let me also make another important point: Funding climate change mitigation in LMICs should not be mistaken for development aid. Mitigation projects will generate some economic benefits in the LMIC where they take place, such as job creation, technology transfer, or reduced local air pollution. However, those benefits are likely to be much smaller than the total project budget. Some of the project budget might be spent on imported materials, like solar panels, for example.

Or take my earlier example of paying landowners for forest protection. The payments are offsetting the income the Ugandan landowner loses out on by no longer selling timber or using as much land for agriculture. The payments ensure that you aren’t making people worse off, but they don’t make them a lot richer.

It would be a travesty if high-income countries and multilateral organizations divert their development aid budgets toward climate mitigation in LMICs and frame it as development aid. Mitigating climate change costs effectively doesn’t need to, and shouldn’t, come at the expense of less aid for poverty reduction and economic development.

SPIA: What is the role for higher-income countries and what does success look like if everyone can align their goals?

SJ: Our article aims to lay out the simple economic case for more climate change mitigation in LMICs rather than to offer a blueprint for how to do it, but a few things are worth mentioning.

First, national targets like “net zero” should take into account mitigation efforts outside a country’s borders. When we define targets and achievements within our borders, we reduce the incentive to pursue projects abroad, even if they are cost-effective.

Second, we need more rigorous protocols to verify the amount of mitigation that a project generates. It is inherently hard to know what would have happened if the solar farm was never built, but there needs to be oversight so that funders cannot systematically overstate the mitigation they achieved. That’s the problem with the voluntary carbon credit market — so much overclaiming of benefits. That over-claiming is true everywhere in the world. It’s not LMIC-specific, even if a lot of those offset projects take place in LMICs.

Third, the anticipated local co-benefits of mitigation projects should be laid out explicitly, and then measured to the extent possible, to ensure that LMICs receive their fair share of the “gains from trade.”

Success would be if countries still have some “home bias” in their climate activities, but they rebalance their portfolios to fund more climate change mitigation in LMICs that is credibly reducing emissions. High-income countries will have achieved more mitigation per dollar spent, and LMICs will enjoy local environmental benefits, like cleaner air, and some economic stimulus.

SPIA: What about for our readers at home? Are there any day-to-day activities they can do right now to help the CO₂ emissions problem?

SJ: I’ll start with what I wouldn’t recommend, which is buying voluntary carbon credits in most cases for the reasons I just said! I’ve soured on those markets because they’ve caused some people to turn away from climate change mitigation in LMICs, whereas we should be just as skeptical of these markets.

We can use our time and voices to advocate for more climate funding, both for mitigation and support adaptation in LMICs. LMICs are going to be hit hard by climate change and need more aid. And, of course, we can all do our small part by adjusting our lifestyles.