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Vinod Khosla

Vinod Khosla

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06/29/2010

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Global climate change is accelerating like a runaway truck.The conventional wis-dom is simple:the U.S.does not want to participate in a global treaty,becauseIndia and China don’t want to participate.But is that really an accurate assessment,or is it that they don’t want to participate based on Western rules ofengagement?What are those rules,and who makes them? The countries with the biggest bulkand heaviest sticks? And do we use moral and ethical principles? Ifso,whose ethicsand morals? Do we consider a given country’s ability to pay,its natural resources,and its rate ofeconomic development? Many proposals have been made for car-bon cap and trade,but many do not explicitly consider the above issues.Beyond the heaviest sticks and issues oflocal ethics is another complex matter:the political reality in each country.What is politically acceptable,both locally andregionally,becomes even more critical in the democratic world,where the politicsoftoday far outweigh considerations ofthe planets needs in 2050.In addition,wehave learned a critical lesson from recent experience:we must manage global cli-mate risk both prudently and flexibly.We need to achieve currently defined targets,but we must also respond to changing targets quickly as new information becomesavailable.Considering all these issues,I suggest four criteria that any carbon emis-sions control system must achieve.It must meet CO
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reduction targets,be moral-ly acceptable,be politically acceptable in most countries,and be able to adjust todynamic targets.I believe that the single best way to measure progress is based not on CO
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emis-sions as a whole,but rather on creating incentives for the developing world toincrease its carbon productivity ofGDP.That means producing more,but reduc-ing the carbon emissions associated with each marginal dollar ofGDP growth.This concept is also known as the carbon efficiency ofGDP.Researchers at theMcKinsey Global Institute,among many others,have created a set ofglobal reduc-© 2009 Vinod Khosla
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Vinod Khosla
Whose Rules?
Terms ofDiscussions Arounda Global Cap-and-Trade System
Vinod Khosla is the Founder and CEO ofKhoslaVentures,and Partner at the venturecapital firm Kleiner Perkins Caufield and Byers.Previously,Khosla was the founding ChiefExecutive Officer ofSun Microsystems.
 
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This approach is significantly easier for the develop-ing world than many others that have been suggested,and should be more politi-cally palatable.It does not ask them to slow their growth,but rather to improve theefficiency ofthat growth,especially in conjunction with flows ofCDM (CleanDevelopment Mechanism) funding.From a fairness standpoint,it does not undu-ly punish nations for their rates ofgrowth,but rather aligns incentives so that effi-ciency and growth become common goals.Ifwe accept that increasing carbon efficiency is the key,the next question iswhere and how the developing nations can work toward this goal and how theCDM mechanism can be used to guide it.I believe that access to cheap capital (andthus lower financing costs) is vital;in fact,the cost ofcapital may be the most crit-ical tool in developing a lower carbon GDP economy.Developing nations may beable to lower the cost ofcapital by leveraging relatively low-interest loans to investin low-carbon power generation,be it electricity or biofuels.In the rest ofthis arti-cle,I describe these ideas and show how they might work in combination.CONSIDERING METRICSJohn Holdren,director ofthe White House Office ofScience and Technology Policy,summarized the current situation in a recent talk:We have a global climatic disruption and serious harm is already occur-ring.Mitigation,adaptation and suffering are our only options and themore we have ofthe former two,the less we will have ofthe latter.Thekey question is whether we can we avoid catastrophic interference.
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In light ofthe current situation,it is clear that mitigation must happen everywhereto make a material difference.But how should the burden ofmitigation be allocat-ed? The proposals so far have been dominated by Western points ofview andmostly consist oftradeoffs between the various Western constituencies,includingbusiness,labor,agricultural,and environmental groups.The proposals don’t workwith the priorities ofmany developing countries like India and China,which havemostly distanced themselves from the discussions.Is it possible to craft a set of proposals that are more likely to be acceptable to this constituency?The first step toward responding to these questions is reviewing emissions andeconomic data.Figures 1 and 2 show (1) total annual CO
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emissions by country,and (2) CO
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emissions per capita,by country,also denoted by GDP per capita ona PPP basis.
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Discussions in the West turn almost exclusively to one idea:reducingcarbon in percentage terms from the 1990 level.While this is in line with scientif-ic recommendations as a global target,reviewing the charts below raises furtherquestions on how to allocate this goal among all nations.Examining Figure 1,is itreasonable to compare the cumulative emissions oftwo countries,one with a bil-lion people and one with a million? Reviewing Figure 2,is it reasonable to ask acountry whose per-capita income is $1,000 to meet the same percentage carbon
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Figure 1.
Total Annual Carbon Dioxide Emissions,in Millions ofMetric Tonnes,2003
Source:
World Resource Institute,citing IEA data.
Figure 2.
Per-capita Carbon Dioxide Emissions in Metric Tonnes,2003
Source:
World Resource Institute,citing IEA data.
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United StatesChinaRussian FederationIndiaFranceQuatar Quatar United StatesChinaIndiaFranceRussian Federation

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