The Clean Development Mechanism (CDM) is a means for industrial nations, known as Annex 1 countries, to meet their greenhouse gas emissions reductions targets by taking credit for reductions from projects they fund in developing countries. The idea is that projects to reduce emissions will cost less to develop and implement in the developing countries where technology is further behind. Industrialized countries can achieve more reductions via investment in the developing countries, achieving greater emissions reductions for less sunk cost. At least this is the idea under the Kyoto Protocol. A researcher at the Program on Energy and Sustainable Development (PESD), Michael Wara says this, in fact, is not how the CDM is working.

Wara lectures at Stanford Law School, teaching the popular class International Environmental Law. A graduate of Stanford Law School, Wara also has a PhD in Ocean Sciences from the University of California, Santa Cruz. His doctoral work on the interaction between climate change and oceanatmosphere dynamics in the tropics echoes in his current research on the CDM. He understands the science of greenhouse gases and how they affect Earth and its climate. One of those greenhouse gases is HFC-23, a byproduct of manufacturing refrigerants. HFC-23 is one of the gases countries targeted to reduce under the CDM; it can be eliminated rather easily and has been seen as the “low hanging fruit” of the CDM. In fact, more than half the greenhouse gas reductions of CDMs to date have been reached via reducing HFC-23 in developing counties. For the reductions, the project sponsor countries receive credits to put toward meeting their own reductions targets. These credits are called Certified Emission Reductions or CERs.

This is where Wara noticed a big discrepancy between what was credited through the CDM and what was actually happening on the ground. The CERs are not just feel-good pieces of paper that countries collect as proof of their doing good but are certifications of equivalent reductions of one metric tonne CO2 emissions. Carbon is the standardizing greenhouse gas and so regardless of what greenhouse gas is reduced with the CDM the sponsoring country is credited with CERs. But these “carbon credits” have a value—carbon is a traded commodity on many global markets. Wara could directly compare the CDM effect versus the credits issued. Since the cost of implementing the reductions was known or could be calculated, and since the credits were standardized to a greenhouse gas being traded on an open market, Wara could quantitatively critique the CDM.

Wara’s finding showed a major flaw in the CDM design. Looking at the large percentage of greenhouse gas reductions met within the CDM by eliminating HFC-23, the value of the credits created by these reductions were more than four times as valuable as the cost of implementing the reductions. This is not small change, as billions of dollars worth of CERs have been credited for the projects. What is more, the credits for eliminating the HFC-23 byproduct of manufacturing refrigerant were far more valuable than the refrigerant itself, creating incentives to build these manufacturing plants in order to cash-in on the CERs. Exposing these loopholes has brought attention to Wara’s work. He has presented his findings at numerous conferences and published his report (Nature 445, 595-596 (8 February 2007) doi:10.1038/445595a) and derivatives broadly. Wara continues to study the CDM and the global market for greenhouse gases and the post-Kyoto regime for reducing their emissions.

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This year’s 27 Stanford Summer Fellows on Democracy and Development—outstanding civic, political, and economic leaders from developing democracies—were selected from more than 500 applicants to take part in the program, which FSI’s Center on Democracy, Development, and the Rule of Law (CDDRL) hosted July 30–August 17, 2007. They traveled to Stanford from 22 countries in transition, including Iraq, Afghanistan, Iran, Pakistan, China, Russia, Egypt, Nigeria, Kenya, and the Democratic Republic of the Congo. And like their academic curriculum during the three-week program, which examines linkages among democracy, economic development, and the rule of law, their professional experiences and fields of study center on these three areas, assuring that each fellow brings a seasoned perspective to the program’s discussions.

“Should the United States promote democracy? Can the United States promote democracy?” The curriculum for the first week focused on defining the concepts of “democracy,” “development,” and the “rule of law” and identifying institutions that support democratic and market development. Using selected articles and book chapters as starting points for discussion, CDDRL Director Michael A. McFaul and Marc Plattner, National Endowment for Democracy vice-president for research and studies, began the weeklong module with an examination of what democracy is and what definition or definitions might apply to distinguish electoral democracy, liberal democracy, and competitive authoritarianism. Another question discussed was whether there was such a thing as Islamic democracy, Asian democracy, Russian democracy, or American democracy.

Faculty including Diamond, CDDRL associate director for research Kathryn Stoner, Stanford president emeritus and constitutional law scholar Gerhard Casper, Stanford Law School lecturer Erik Jensen, and economists Avner Greif and Seema Jayachandran “team-taught” individual sessions as the week progressed. Fellows and faculty discussed how to define and measure development, the role and rule of law in societies, how legal systems affect democratic development, constitutionalism, electoral systems, parliamentary versus presidential systems, horizontal accountability, and market development. Fellows worked in groups to discuss and present their conclusions about an issue to their colleagues, comparing experiences and sharing insights into how well political parties and parliaments constrained executive power and how civil society organizations contributed to democratic consolidation.

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This component grounded the classroom discussions in a practical context. “It was important for our visiting fellows to interact with American practitioners, both to learn about innovative techniques for improving democracy practices but also to hear about frustrations and failures that Americans also face in working to make democracy and democracy promotion work more effectively,” explained McFaul. “We Americans do not have all the answers and have much to learn from interaction with those in the trenches working to improve governance in their countries.”

As the program’s curriculum shifted to democratic and economic transitions for week two, McFaul and Stoner-Weiss balanced the structure of the classroom with guest lecturers, a documentary film premiere, and field trips to Google headquarters and San Francisco media organizations to put into practical context the components discussed theoretically in the classroom. The field trip to San Francisco included a session with KQED Forum executive producer Raul Ramirez, a briefing with the editorial board at the San Francisco Chronicle, and a discussion of links between violence against women and children and poverty, health, and security at the Family Violence Prevention Fund.

“We are building an extraordinary community of democratic activists and officials who have a deeper understanding of the types of institutions that secure freedom, control corruption, and foster sustainable development.” The third week’s curriculum looked at international and domestic efforts to promote democracy, development, and the rule of law. This integrative module drew on the teaching caliber of Stephen D. Krasner (FSI senior fellow), Peter B. Henry (Graduate School of Business), Allen S. Weiner and Helen Stacy (Stanford Law School), and Nicholas Hope (Stanford Center for International Development) as well as Casper, Jensen, McFaul, and Stoner-Weiss. Through case studies and, in particular, comparison of successes and failures in the fellows’ own experiences, faculty and fellows explored and assessed international strategies for promoting rule of law, reconciliation of past human rights abuses, democracy, and good governance. The discussions, occasionally contentious, circled in on a set of central questions: Should the United States promote democracy? Can the United States promote democracy? What are the links between democracy and increasing the rule of law, controlling corruption, rebuilding societies shattered by massive human rights violations, and promoting good governance?

Despite the intellectual rigor of the coursework and discussion, and the exploration of practical applicability with guest speakers and field trips, the Stanford Summer Fellows on Democracy and Development Program was designed as much to stimulate connections among field practitioners and to provide a forum in which to exchange ideas. “Through the summer fellows program, we are building an extraordinary community of democratic activists and officials who have a deeper understanding of the types of institutions that secure freedom, control corruption, and foster sustainable development, and who are keeping in touch with us and with one another,” said Diamond. “When I meet our ‘alumni’ fellows in subsequent years, they speak movingly of the bonds they formed and the insights they gained in these three fast-paced weeks.”

To ensure they fulfill their goal of building a small but robust global network of civic activist and policymakers in developing countries, CDDRL launched a Summer Fellows Program Alumni Newsletter. The newsletter is based on an interactive website that will allow the center to strengthen its network of leaders and civic activists and facilitate more groundbreaking policy analysis across academic fields and geographic regions, the results of which will be promptly fed back to its activist alumni in a virtual loop of scholarship and policymaking. “We envision the creation of an international network of emerging political and civic leaders in countries in transition,” said Stoner-Weiss, “who can share experiences and solutions to the very similar problems they and their countries face.”

SSFDD ALUMNI FOCUS: VIOLET GONDA
A producer and pre s ent er for SW Radio Africa (London), Violet Gonda was a Stanford Summer Fellow on Democracy and Development in 2006, the same year her station was named the International Station of the Year by the Association of International Broadcasters. "CDDRL brings together a cross-section of people from different backgrounds, different careers," Gonda said. "Politicians, lawyers, activists ... all in the same room. It is an amazing group of people."

Banned from returning to her home country because of her journalism work at the radio station-"we are welcome in Zimbabwe but only in the prisons"-Gonda "literally eat[s], breathe[s], and dream[s] Zimbabwe." The summer fellows program, she said, gave her a broad perspective on what's going on in other countries; "it is so intensive ... you can really compare and contrast democracy on every continent." One thing Gonda found is that "when you look at these leaders, you'd think they all were born of the same mother ... and the ways people respond to these crises are the same."

Gonda had such a positive experience at Stanford that she decided to apply for, and was accepted to, the prestigious John S. Knight Fellowships for journalists for the academic year 2007-08. "It's always been Zimbabwe, Zimbabwe, Zimbabwe," she said. "Now I finally have time to sit down and read a book, write an article, go to seminars, sharpen my skills." She is not exactly sitting still however. In December she gave a presentation on Zimbabwe's political situation for the Center on African Studies, and will also be discussing Zimbabwe at the Palo Alto Rotary Club and the Bechtel International Center. "Media in America does not have a lot of international news, particularly on Africa," Gonda said. "So it's a good opportunity to talk about Zimbabwe, and I will take advantage of it."

She is also working on developing new content for SW Radio Africa and plans to interview FSI scholars she met through the summer fellows program so "We are building an extraordinary community of democratic activists and officials who have a deeper understanding of the types of institutions that secure freedom, control corruption, and foster sustainable development." that Zimbabweans can understand what is going on in different countries. Close contact with program alumni means that she has friends and colleagues in other parts of that world who can be called on for their perspective on situations. While SW Radio Africa's mission is "to record and to expose" developments in Zimbabwe, Gonda explained, "it's good to compare, to show people we are not alone, that this is happening elsewhere."

The Bill & Melinda Gates Foundation’s Agricultural Development Program has awarded Stanford University’s Program on Food Security and the Environment (FSE) and a team of collaborators $3.8 million over three years to conduct a quantitative assessment of the effect of biofuels expansion on food security in the developing world. This work will determine how different scenarios of expanded biofuels production in rich and poor countries will affect global and regional food prices, farmer incomes, and food consumption of the poor. In three case-study countries (India, Mozambique, Senegal), it will make a more detailed assessment of the opportunities and pitfalls associated with an array of possible biofuels development scenarios (e.g., using different crops for biofuels production, using marginal land versus highly productive land, etc.). We expect the work will represent the first systematic, detailed effort to address the effects of biofuels expansion on welfare in poor countries and the first available analytic tool for assessing possible biofuels investments in individual developing countries. Project collaborators include FSE, the International Food Policy Research Institute, the Center on Chinese Agricultural Policy, and the University of Nebraska.

Through this grant, the Bill & Melinda Gates Foundation aims to assess how biofuels may affect smallholder farmers in the developing world. This includes assessing both the risks, such as increasing food prices, and the potential opportunities for smallholder farmers to leverage biofuels to boost their productivity, increase their incomes, and build better lives for themselves and their families. The foundation and Stanford University will disseminate the findings widely to inform a broad audience, including policymakers.

FSE is also very pleased to announce a private gift from Lawrence Kemp for further work in the biofuels area. The Kemp gift will be devoted to building a team of faculty and students on campus who will analyze the transmission of global price effects to local markets, provide policy advice and communication on biofuels, and expand the field-level coverage of Stanford’s biofuels work.

In the November 2007 issue of Environment, project collaborators Rosamond L. Naylor (FSE), Adam Liska, Marshall Burke (FSE), Walter P. Falcon (FSE), Joanne Gaskell, Scott Rozelle (FSE), and Kenneth Cassman demonstrate how high energy prices and biofuelspromoting agricultural policy result in higher food prices generally and then examine in detail the potential global effects of biofuels expansion in four countries for four crops—corn in the United States, cassava in China, sugarcane and soy in Brazil, and palm oil in Indonesia. They argue that in each case, the threats to global food security from biofuels expansion likely outweigh the benefits, especially in the short run. This is because in many poor countries these crops play an important role in the diets of the poor and because the poorest in the world typically spend more money on food than they earn in income through farming. They also note that “second generation” technologies such as cellulosic biofuels will likely not play a significant role in biofuels production over the next decade or longer—and thus in the near-term are very unlikely to be the win-win that their proponents suggest. “The ripple effect: biofuels, food security, and the environment” excerpted from Environment, November 2007

The integration of the agricultural and energy sectors caused by rapid growth in the biofuels market signals a new era in food policy and sustainable development. For the first time in decades, agricultural commodity markets could experience a sustained increase in prices, breaking the long-term price decline that has benefited food consumers worldwide. Whether this transition occurs—and how it will affect global hunger and poverty—remain to be seen. Will food markets begin to track the volatile energy market in terms of price and availability? Will changes in agricultural commodity markets benefit net food producers and raise farm income in poor countries? How will biofuels-induced changes in agricultural commodity markets affect net consumers of food? At risk are more than 800 million food-insecure people—mostly in rural areas and dependent to some extent on agriculture for incomes— who live on less than $1 per day and spend the majority of their incomes on food. An additional 2–2.5 billion people living on $1 to $2 per day are also at risk, as rising commodity prices could pull them swiftly into a food-insecure state.

The potential impact of a large global expansion of biofuels production capacity on net food producers and consumers in low-income countries presents challenges for food policy planners and raises the question of whether sustainable development targets at a more general level can be reached. Achieving the 2015 Millennium Development Goals adopted by the United Nations General Assembly in 2000, which include halving the world’s undernourished and impoverished, lies at the core of global initiatives to improve human well-being and equity, yet today virtually no progress has been made toward achieving the dual goals of alleviating global hunger and poverty. The record varies on a regional basis: Gains have been made in many Asia-Pacific and Latin American-Caribbean countries, but progress has been mixed in South Asia and setbacks have occurred in numerous sub-Saharan African countries. Whether the biofuels boom will move extremely poor countries closer to or further from the Millennium Development Goals remains uncertain.

Biofuels growth also will influence efforts to meet two sets of longer-run development targets. The first encompasses the goals of a “sustainability transition,” articulated by the Board on Sustainable Development of the U.S. National Academy of Sciences, which seeks to provide energy, materials, and information to meet the needs of a global population of 8–10 billion by 2050, while reducing hunger and poverty and preserving the planet’s environmental life-support systems. The second is the Great Transition of the Global Scenario Group, convened by the Stockholm Environment Institute, which focuses specifically on reductions in hunger and greenhouse gas (GHG) emissions beyond 2050. As additional demands are placed on the agricultural resource base for fuel production, will ecosystem services (such as hydrologic balances, biodiversity, and soil quality) that support agricultural activities be eroded? Will biofuels development require a large expansion of crop area, which would involve conversion of marginal land, rainforest, and wetlands to arable land? And what will be the net effect of biofuels expansion on global climate change?

Although the questions outnumber the answers at this stage, two trends seem clear: Total energy use will continue to escalate as incomes rise in both industrial and developing countries, and biofuels will remain a critical energy development target in many parts of the world if petroleum prices exceed $55–$60 per barrel. Even if petroleum prices dip, policy support for biofuels as a means of boosting rural incomes in several key countries will likely generate continued expansion of biofuels production capacity. These trends will have widespread ripple effects on food security—defined here as the ability of all people at all times to have access to affordable food and nutrition for a healthy lifestyle—and on the environment at local, regional, and global scales. The ripple effects will be either positive or negative depending on the country in question and the policies in play.

Earlier this month Chinese revelers welcomed the new lunar year with a few more candles than usual. The country was gripped by a crisis in electric power production that caused California-style blackouts across the central and southern parts of the country. Power plants could not keep up with demand, especially because they didn't have enough coal on hand to burn.

The immediate causes of China's power crisis are straightforward. Snow storms disrupted the railroads that carry most coal to power plants. Record low temperatures also boosted demand for electricity and coal. But there was a deeper cause at work. China's free-market policies—the same ones that led to China's extraordinary growth in the past decade—have eroded the government's ability to control its economy. Economic activity, by design, is shifting away from state-owned enterprises and central planning. But Beijing doesn't have structures in place to control those aspects of the economy it doesn't own outright. Market reforms are making Beijing less and less relevant to what's really going on in the economy, threatening to turn China into a "weak state." And it's not just China—India, too, is having trouble regulating its industry and economy. The phenomenon is a dark cloud on the Asian century.

If this all sounds abstract, consider that China's blackouts were mainly a byproduct of the government's struggle to manage the planned and market-based parts of the economy side-by-side. Today, the Chinese leadership is worrying about inflation, but they have few useful tools to slow the rise in prices. A few years ago, Beijing might have dampened industrial growth by closing the spigot of finance from state-owned banks. But many newly deregulated state enterprises, as well as new privately owned companies, have found other sources of capital, including caches of massive profits accumulated over the years. One of the few industries Beijing still controls is power—it owns nearly every aspect of the grid, from generators to distributors. So Beijing decided to try and quell inflation by lowering electricity prices.

The energy industry, however, is bigger than just power generation and distribution. It includes the coal industry, which has been the object of market reforms. Starting two years ago the country largely abandoned the traditional planning system for allocating and pricing coal, the main fuel for power generators and one of the power companies' largest costs. Suppliers and buyers were allowed to negotiate on their own terms. With demand for electricity skyrocketing, suppliers had the upper hand, and coal prices rose. With Beijing keeping prices artificially low, power plants could not pass these costs to the consumer. They responded by cutting back on coal orders. As coal inventories dwindled, power generators cut back on capacity, and the lights went out.

Beijing's lack of practical control over large swaths of industry explains an increasing number of China's woes. The environment is a case in point. The government has an elaborate apparatus for environmental regulation, with strict laws on the books, but it is unwilling to enforce the measures for fear of stepping on the toes of local authorities, who usually push industrial development at the expense of greenery. Changing that power structure will require politically dangerous rewiring of the ruling Communist Party's power base. To be sure, Beijing is still powerful in some areas such as Internet regulation. And its recent success in imposing safety standards to close dangerous small coal mines, another area where Beijing is flexing its muscle, probably inadvertently contributed to the current coal crisis. Overall, however, what's most striking is Beijing's inability to impose needed regulation nor to predict what will happen when it does regulate. For example, a keystone in the government's effort to avoid future energy crises is an aggressive plan to improve energy efficiency about 4 percent per year over the current decade. The actual effect of Beijing's efficiency policies is barely one third that level.

These are not passing problems. They reveal a deep weakness in China's administration because the government has been unable to replace its Soviet-style planning system with an alternative scheme that is better suited to a market economy. Like an American film on the Wild West, much of the economy is governed by central strictures that don't really have much impact.

India is also plagued by administrative weakness—and the problems are getting worse as the Indian economy takes off and government struggles to address the byproducts of rapid economic growth. Large pockets of the Indian power grid are unreliable because Indian policymakers tinker with electricity prices in an effort to deliver political favors. (Electricity supplied to most Indian farms costs almost nothing and in some parts of the country is actually free. India has many farmers and they vote; politicians court them with stunts like free power. Poor accounting systems allow others who steal power to blame the farmers.) That tinkering has put most Indian power utilities into bankruptcy. The problems would be even worse if most of the power sector were not actually owned by the central and state governments in India, which shuffle money around to keep the companies afloat. Unable to get reliable power that is essential to industrial production, most large power users build their own power supplies. By some estimates, one third of the country's power plants are of this "captive" variety—by design, disconnected from the government-controlled grid so they are more reliable and also immune from political meddling.

The rise of weak states on the world stage will affect every aspect of international relations. It could send globalization astray. It will be hard to realize the full benefits of trade, for example, if essential countries are unable to enforce safety standards and trade laws. Fixing these problems may require a new style of international diplomacy that relies less heavily on deals such as treaties with central governments. Instead, specific contracts might be written directly with the segments of society that are best administered and most able to change their behavior. Taming the volcanic growth in Chinese emissions of greenhouse gases, for example, may depend less on whatever deal is crafted with Beijing and more on specific commitments that the West can work out with bosses in the Chinese power sector. How can China be a "responsible stakeholder" in the world economy if it can't actually follow through with commitments it makes in the international arena?

As the pundits gaze at the coming Asian century, they have wondered how Asia's new powers will reshape the world. But the big challenge in the coming Asian century may not be these new countries' burgeoning strength but their weakness.