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Policy. Research. Practice. 23 March 2015 Editor in Chief Alexander Mitchell Managing Editor Maureen Washburn Solicitations Manager Sarah Foster Marketing Manager Nikolai Condee-Padunov Editors Haley Behre Allison Bott Nikolai Condee-Padunov Lauren Egbert Eric Faulk Brittany Gernhard Danielle Gewurz Osatohanmwen Iyahen Mithila Joshi Nandini Kumar Sindy Lopez Corey Sattler Forum Director Natalie Bucklin Geoff Arnold Radio Director Tristan Hwang

Volume 12, Issue 1 • Spring 2015

Rural Support Programs at SubNational Level: A Case Study from Pakistan


Muhammad Akbar Ali Malik

This paper discusses the impact of Rural Support Programs in Pakistan at the sub-national level. In the emerging decentralization of legislative power in Pakistan, it has become all the more important to have a guided approach to designing development and especially poverty alleviation programs.

An Emissions Trading System as a Policy Option in India


Kyhati Malik

Emissions Trading Systems have been an effective tool for reducing greenhouse gas emissions in the European Union. This paper develops an economic model to discuss international emissions trading.

The Relationship Between Health Insurance, Service Utilization, and Health Outcomes: An Examination of NLSY 1997 Data


Joseph Liss

Given the competing claims that health coverage increases and decreases costs, this paper examines the relationship between having insurance coverage, health care usage, and outcomes, using the National Longitudinal Survey of Youth, 1997.

The United States and Vietnam: The Path to a Modern Relationship

Alexander Perschall

This paper traces the relationship between the United States and Vietnam from World War II to the present and it offers recommendations for improving cooperation between the U.S. and Vietnam.



Rural Support Programs at SubNational Level: A Case Study from Pakistan Muhammad Akbar Ali Malik


This paper discusses the impact of Rural Support Programs in Pakistan at the subnational level. In the emerging decentralization of legislative power in Pakistan, it has become all the more important to have a guided approach to designing development and poverty alleviation programs. This paper uses the case study of the Sindh Rural Support Organization to investigate the impact of RSPs in Pakistan. This paper concludes by using the evidence presented to formulate the appropriate policy response. INTRODUCTION Among the numerous development approaches undertaken in the developing countries, the most successful involve the target population as stakeholders in the development initiatives. The evidence in support of this practice is significant enough for development programs to adopt this approach at some level during each stage of their projects.1

them in micro-credit, grant funds for community physical infrastructure, capacity building, and training for employment.2 HISTORY OF RSPS IN PAKISTAN

The birth of Rural Support Programmes (RSPs) can be traced to the Comilla Model conceived in 1959 by the first Director of Bangladesh Academy for Rural Development (BARD), Akhtar Hameed Khan. Comilla, a village in Bangladesh, was the Rural Support Programs (RSPs) involve first site where Dr. Khan used the approach of communities in their own development by involving the target population in development providing them with the technical and financial initiatives. Following the success of the Comilla resources required for building village physical Model, Akhtar Hammed Khan began the Orangi infrastructure, micro-credit, support in natural- Pilot Project (OPP) in Karachi in 1980 and resource sectors, social sectors and small Shoaib Sultan Khan initiated the Aga Khan enterprise development. Mediation between the Rural Support Programme (AKRSP) in Northern government, other development organizations, Pakistan during the early 1980s. These RSPs and organized communities is also a mandate of gained recognition and thus are being replicated the RSPs intended to improve service delivery in 11 countries including Pakistan, India, and at the grass-root level. More importantly, RSPs Afghanistan by the Aga Khan Foundation.4 direct their activities towards enhancing the livelihoods of targeted populations by engaging The ideology of OPP was simple; people have the 2

Figure 1. RSPs in Pakistan.3 potential and will to better their circumstances but suffer from a lack of organization, capital, and skills.5 The initial work of OPP revolved around social mobilization of the local populace to develop adequate provisions for sewage disposal, water supply, schools, and clinics as the government had failed to provide these services. OPP achieved this by providing social and technical guidance. Orangi was declared a town under the Local Governance Order 2001 with an estimated population of 2.5 million in 2010 and 13 Union Councils.6 Continued progress of OPP resulted in the establishment of three autonomous institutions in 1988.7

The second social mobilization programs in Pakistan was initiated in December 1982 by the Aga Khan Foundation and named Aga Khan Rural Support Programme (AKRSP). As of June 2011, AKRSP was working in all seven districts of Gilgit-Baltistan. This social mobilization approach has been so successful that all other RSPs in Pakistan have been modeled after the AKRSP. AKRSP’s success provided the required support from stakeholders necessary to initiate RSPs at other locations in Pakistan. AKRSP has also received numerous international accolades for its community based projects.8

Evolution of the Rural Support Programme (RSP) • Research and Training Institute (OPP- approach in Pakistan reached a milestone after RTI), which is responsible for managing the National Rural Support Programme (NRSP) low cost sanitation, water supply housing, was launched in 1991. NRSP is the largest of education, and the associated research all RSPs in Pakistan and houses the Institute and training programs. for Rural Management (IRM) which undertakes • Orangi Charitable Trust (OPP-OCT), training of community members, public sectors which is responsible for the micro officials, and development sector professionals. enterprise credit program. NRSP has also helped launch Khushahli Bank, • Karachi Health and Social Development Ghazi Brotha Taraqiati Idara (GBTI), Punjab Association (OPP-KHASDA), which is Rural Support Program (PRSP), and Sindh Rural responsible for the health program. Support Organization (SRSO).9 3

With the new millennium, RSPs in Pakistan reached a new level of coordination and operation when the Rural Support Programme Network (RSPN) was registered as an NGO in 2000. All RSP heads are members of the RSPN board. RSPN’s core functions are policy advocacy, capacity building, and strategy development support for partner RSPs, sharing of best practices through knowledge management and gender related development programs. RSPN is the largest nongovernment rural development network in Pakistan.10

by a section on the discussion of gaps that exist in the current literature on RSPs. Methodology for this paper is described in the fifth section while the sixth section is a review of provincial RSPs in Pakistan which is complemented by the seventh section on the Sindh Rural Support Programme as a case study. This paper concludes with a set of recommendations. RSPS IN THE PAKISTANI CONTEXT As of June 2011, ten RSPs operate in 112 out of 131 districts as well as two out of 13 Federally Administered Tribal Areas in Pakistan. These non-profit rural support programs are registered under Pakistan Companies’ Ordinance (1984). The basic philosophy of RSP employs social mobilization as an operational tool through which the poor organize themselves into self-governed institutions. Such an approach enables a participatory development approach. The basic organizing unit is a Community Organization and serves as the platform through which RSPs and other stakeholders conduct operations. Since the first Aga Khan Rural Support Programme, RSPs have helped to form more than 4,500 COs and establish savings groups which manage over 8 million US dollars.11

STRUCTURE OF THE STUDY This study only takes into consideration the four provincial RSPs: Balochistan Rural Support Programme, Punjab Rural Support Programme, Sindh Rural Support Organization, and Sarhad Rural Support Programme. These RSPs were selected for the following reasons: 1. Using only the provincial RSPs will provide a suitable framework to compare RSPs.

2. Best practices can be highlighted in each province and adopted in other provinces.

3. The 18th Amendment gives the provinces a considerable leeway and control over provincial subjects. Therefore, in the post 18th Amendment scenario, it becomes important to envisage and research an ideal working environment for poverty alleviation programs that derive their funding and strength from provinces.

The common objectives of all the RSPs within Pakistan are: • Organize and socially mobilize all of the poor rural households into community organizations (COs). These exist at sub-village levels aided by Village Development Organizations at the village level and Local Support Organizations (LSOs) at Union Council level.

4. The 7th National Finance Commission award may have increased the provincial share over the divisible pool, but consolidated fiscal deficit is also higher by about 0.3 percent of GDP due to the behavioral responses associated with the 7th NFC Award. Thus, it becomes important to also explore the monetary side of RSPs and compare them against their respective outcomes to suggest policy measures that can increase efficiency. The next section explains the Rural Support Programmes in the context of Pakistan, followed

• Undertake development activities that are based on micro-investment plans in various sectors including microcredit, micro-insurance, community infrastructure, skills training, leadership training, sanitation, health, education, enterprise development and gender and development.

• Create and strengthen links between government line authorities, NGO service 4

providers and organized communities to improve service delivery to the poor. Rural Support Programmes have four key advantages over government operated development in Pakistan. These include penetration, targeting, cost-sharing, and sustainability of development initiatives and human resource development.12 To counter government influence operations RSPs are registered as non-governmental, not for profit companies regulated by the Securities and Exchange Commission of Pakistan. To further reduce government audits and oversight, funds for RSPs are provided through a one-time lumpsum payment.

own staff, it becomes more financially tenuous for the organization to expand its operations. This approach also limits sustainability as the local target population remains external to the initiation activities of RSPs. Although measures have been taken to limit the RSPs from government and bureaucratic influence, such practices still exist and are manifested through the hiring of civil servants as board members or top managers. Provincial governments still tend to exercise their influence over the functions of RSPs, including instituting development projects that are outside of their mandate.

Another weakness that arises out of the current operational methodology is that, at present, micro-credit program spending is not treated Another important contribution of these single separately in the accounting systems of RSPs. lump-sum payments towards the sustainability At the policy level it means that RSPs cannot of RSPs was that these sources of funds separate the costs related to micro-credit continued to exist in the given volatile nature of programs from other costs such as those related Pakistan’s political economy. An exception to this to social mobilization and trainings. This inhibits arrangement was the Balochistan Rural Support the proper calculation of recovery costs and Programme whose operations nearly shut down break-even points for the micro-credit program. in 1997 due to dependence on governmental I observed this practice during fieldwork at the and donor funds after which it was revived under Sindh Rural Support Organization. I found that the same model as other RSPs in Pakistan. the amount disbursed was known and reported One of the basic premises in Pakistan for by the organization, but not the total cost supporting the RSPs is that these interventions associated with delivering disbursements to the are able to provide coverage to the entire rural beneficiary. poor in the foreseeable future. However, the GAPS IN THE LITERATURE coverage rate of NRSP has not been very practical. For example, in three decades RSPs Though there is a substantive literature on have only managed to organize 5 percent of all RSPs in Pakistan as compared to the other poor into Community Organizations as calculated social inventions in Pakistan, this paper seeks using statistics from the 1998 census.13 to address the existing gaps by achieving the following: In this context, several of the structural weaknesses of RSPs must be considered. The 1. Updating the current knowledge on the first structural weakness is the lack of a wellactivities of provincial RSPs in Pakistan. developed exit strategy for RSPs. Currently, There is an increasing amount of literature any expansion of RSPs is undertaken via the on exit strategies for RSPs and their expansion of current administrative structures, sustainability, which is of key importance. i.e. field offices or extra management personnel 2. Briefly examining the successes and at every level of the organization, which increases failures of specific provincial RSPs, as the overhead expenditures of RSPs. The clusters each province has a different political of basic community organizations have not been economy. Many RSPs are experiencing made self-sufficient, which poses a challenge to diminishing donor support and, therefore, sustainability. Also, because RSPs employ their 5

literature on the achievements of RSPs will help improve the situation.

analytically consider its outcomes. Research has been conducted on the UCBPRP through questionnaire based field surveys, focus group discussions, and key informant interviews.

3. Exploring the impact of RSPs by using Sindh Rural Support Organization (SRSO) as a case study and develop an in-depth analysis of its Union Council based Poverty Reduction Programme (UCBPRP), particularly the impact of the program on poverty alleviation.

Poverty scores were collected from 387 households across 24 villages in three Northern Sindh districts: Jacobabad, Kashmore-Kandhkot, and Shikarpur. The unit of analysis in this methodology is a household which complements the sample size. This data collection was carried out over a period of two weeks in February 2012 and was then compared with the baseline data collected at the start of UCBPRP in 2009.

METHODOLOGY Stocktaking For the ease of analysis, a descriptive stocktaking will be undertaken for four provincial RSPs in Pakistan: Balochistan Rural Support Programme, Punjab Rural Support Programme, Sindh Rural Support Programme, and Sarhad Rural Support Programme. A recap of their activities and a comparison of interventions undertaken by provincial RSPs are also included. Only those interventions for which all four RSPs have data in the Annual Reports of Rural Support Programme Network will be taken into consideration:

The poverty scores are collected by using a scorecard based on the Pakistan Social and Living Standard Measurement Survey (PSLM) 200607 which combines recorded variables in Proxy Means Test (PMT) Formula. This generates the poverty score of that household. The formula, as it appears in the PSLM methodology available with the Islamabad Office of the Bureau of Statistics, Pakistan, is as follows: PMT Formula = (13.33627 * Dependent1) + (8.1921546 * Dependent2) + (4.3023447 * Dependent3) + (1.6335994 * Headedu_com2) + (2.3821612 * Headedu_com3) + (9.9985183 *

1. Number of CO formed.

2. Number of CO Members.

3. Number of CO Members trained.

4. Amount of CO Savings (PKR Million).

Headedu_com4) + (5.6188757 * School5_16_ rich) + (2.654221 * School5_16_some) + (2.2346842 * Room_ratio3_2) + (4.9431304 * Room_ratio3_3) + (14.178499 *Room_ratio3_4) + (1.6021682 * Toilet flush) - (0.242181 * Toilet latrine) + (2.4621382 * Refr_frez_wash) + (7.0411817 * Air_cooler) + (5.8609219 * Cook micro) + (1.2114644 *Tv) + (22.708013 * Car_ moto2) + (6.0426008. * Only_moto) + (4.4248476 * Animal_buffalo2) + (0.26315135 * Animal_no2) + (2.0266605 * Agriland_acres_1) + (6.7259651 * Agriland_acres_2)

5. Amount of Micro Credit Disbursements (PKR Million). 6. Number of Loans.

7. Number of Beneficiary Households of Initiated Community Physical Infrastructures.

8. Number of Students enrolled in community established schools.

9. Number of traditional birth attendants/ health workers trained.

Limitations of this methodology are that the results are specific to SRSO interventions in Northern Sindh and these results are also specific to the weights of interventions in the PMT formula.

Methodology for Evaluation of Sindh Rural Support Organization (SRSO) As mentioned earlier, this paper will take up the Union Council based Poverty Reduction Programme (UCBPRP), the flagship Programme of SRSO in northern Sindh and


Proxy Definition

Dependents = Members meeting the criteria of being under 18 years of age or above 65 years of age in question 17

Level of education of household (HH) head = The highest education level reported in question 21. In case this question is blank, answer to question 25 will be used. If both questions (21 and 25) are blank, then answer to question 20 will be used following the next conditions: If the answer is never attended, then the variables value is 0. - If the answer is the other options, then the variable value is class 6 to class 10 included

Number of children between 5 and 16 years old currently attending school = HH members meeting the criteria of being between 5 and 16 years of age and being also attending school (questions 20 and 21) If the answer to question 20 is blank, then check question 21, and if the answer is also blank, then the answer is not attending. Ratio of rooms = number of rooms (question 26) divided by number of household members (roster).

Kind of toilet used by the Household (question 27)

The household owns durable goods (question 28)


PMT Variable

IF Number of dependents: Less or equal than 2 Then Dependent1*= 1 Else Dependent1*= 0 IF Number of dependents: Equal to 3 or 4 then Dependent2* = 1 Else Dependent2* = 0 Number of dependents: Equal to 5 or 6 Then Dependent3* = 1 Else Dependent3* = 0

Level of education of HH head: Attended less than class 1 to class 5 included Then headedu_com2 = 1 Else headedu_com2 = 0

Level of education of HH head: Class 6 to class 10 included Then headedu_com3 = 1 Else headedu_com3 = 0

Level of education of HH head: Class 11, college or beyond Then headedu_com4 = 1 Else headedu_com4 = 0 Number of children between 5 and 16 years old or All children between 5 and 16 are attending school Then school5_16_rich = 1 Else school5_16_rich = 0

Not all children between 5 and 16 years old in the household attend school Then school5_16_some = 1 Else school5_16_some = 0 Ratio of rooms: Greater than 0.2 and smaller or equal than 0.3 Then room_ ratio3_2 = 1 Else room_ratio3_2 = 0 Ratio of rooms: Greater than 0.3 and smaller or equal than 0.4 Then room_ ratio3_3 = 1 Else room_ratio3_3 = 0 Ratio of rooms: Greater than 0.4 Then room_ratio3_4 = 1 Else room_ratio3_4 = 0

Toilet used: A flush connected to a public sewerage, to a pit or to an open drain Then toilet_flush = 1 Else toilet_flush = 0 Toilet used: Dry raised latrine or dry pit latrine Then toilet_latrine = 1 Else toilet_latrine = 0

The household has: At least one refrigerator, freezer or washing machine Then refr_frez_wash = 1, Else refr_frez_wash = 0.


The household has: At least one air conditioner, air cooler, geyser or heater Then air_cooler = 1, Else air_cooler = 0 The household has: at least one cooking stove, cooking range or microwave oven Then cook_micro = 1, Else Then cook_micro = 0 The household has: At least one TV Then Tv = 1, Else Tv = 0. The household owns cars/tractors and/or motors/scooters (question 28)

The household owns: One car/tractor, or one car/tractor with one motor/ scooter Then car_moto2 = 1, Else car_moto2 = 0.

The household owns livestock (question 29)

The household owns: At least one buffalo or bullock Then animal_buffalo2 = 1, Else Then animal_buffalo2 = 0.

The household owns: One motor/scooter (but no car/tractor) Then only_ motor = 1, Else only_motor = 0.

The household owns: No buffalo or bullock, but at least one cow or goat or sheep Then animal_no2 = 1, Else Then animal_no2 = 0.

The household owns some agricultural The household owns: Some agricultural land but less or equal than 12.5 land (question 30) acres Then agriland_acres_1 = 1, Else agriland_acres_1 = 0.

The household owns: More than 12.5 acres of agricultural land Then agriland_acres_2 = 1, Else agriland_acres_2 = 0.


activities that are synonymous with Balochistan’s culture and socio-economic paradigms. Social Balochistan Rural Support Programme mobilization, human resource development, Balochistan Rural Support Programme (BRSP) drinking water and sanitation, credit and is an autonomous, nonprofit organization which savings, community physical infrastructure began its operations in 1991 with support from and technology development, basic health the Government of Balochistan and the German and education, natural resource management, Embassy. In 2001, BRSP expand its operations peace and security, and women’s empowerment to 13 districts, was inducted into RSPN, and form the crux of BRSP operations. Balochistan, began receiving financial support from Pakistan with its untapped development potential, offers Poverty Alleviation.14 encouraging indicators for BRSP to streamline The operational methodology of BRSP is the development activities in the province in addition same as other RSPs. It is committed to mobilizing to the widespread acceptance of programs by the target population by organizing them rural communities, including women. into Community Organizations (COs). BRSP As of June 2011, following values were found responds to identified needs by carrying out against the decided indicators (see Table 2).15 TABLE 2

Number of CO formed.


Number of CO Members trained.


Number of CO Members.


Amount of CO Savings (PKR Million).


Amount of Micro Credit Disbursements (PKR Million).


Number of Loans.


Number of Beneficiary Households of Initiated Communi- 36, 312 ty Physical Infrastructures Number of Students enrolled in community established schools


Number of traditional birth attendants/health workers trained.



Punjab Rural Support Programme Registered in 1997 under Section 42 of the Companies Ordinance 1984, the Punjab Rural Support Programme (PRSP) operates in 27 districts. Three regional offices based at Faisalabad, Multan, and Sialkot oversee 60 Social Mobilization Teams which have organized over a million households.16

against the decided indicators (see Table 3).18 Sarhad Rural Support Programme Established in 1989, the Sarhad Rural Support Programme (SRSP) was the first RSP that replicated the Aga Khan Rural Support Programme (AKRSP) model. In 2007, another milestone was achieved by SRSP when it extended its operations into Federally Administered Tribal Areas (FATA).19

Apart from engaging in its core programs of social mobilization, training, and micro-finance, PRSP is engaged with projects in the areas of health, education, agriculture, sanitation, renewable energy, environment, and livestock. PRSP is strategically placed to further enhance the capability of already existing linkages, including the strong caste based networks. PRSP is also making efforts to streamline cooperation among donors to reduce the duplication of efforts. Coordination is being extended to governmental line agencies in order to facilitate the implementation of development operations being undertaken by the Community Organizations, Village Organizations, or Local Support Organizations.

After the 2005 earthquake, SRSP, with support of Pakistan Poverty Alleviation Fund, played a significant role in rehabilitation efforts by helping to reconstruct 60,000 housing units.20 Like other RSPs in Pakistan, SRSP has specialized in social mobilization, community infrastructure, education, micro-finance and micro enterprise development, conflict resolution, gender and development, governance, and human resource development. SRSP has developed over a billion Pakistan Rupees worth of community.21 It has also diversified its models of micro-finance into three categories which include rural, urban, and remote rural communities. Micro-finance programs for urban communities are now selfThe Government of Punjab provided the PRSP sustainable and also cross-subsidize the rural with the initial endowment fund. PRSP has worked micro-finance operations. with multiple donors and continues to expand its donor base, which includes Government SRSP is also home to the Energia Network and of Punjab, Pakistan Poverty Alleviation Fund, the KPK Gender Voice Network. The total fund 22 International Labor Organization, RSPN, Plan for SRSP exceeded two billion PKR in 2013. Most prominent of the 24 donor agencies that International, and USAID.17 have worked with SRSP in the past include DFID, As of June 2011, following values were found SDI, CIDA, USAID, World Bank through PPAF TABLE 3

Number of CO formed.


Number of CO Members trained.


Number of CO Members.


Amount of CO Savings (PKR Million).


Amount of Micro Credit Disbursements (PKR Million).


Number of Loans.


Number of Beneficiary Households of Initiated Communi- 709,744 ty Physical Infrastructures Number of Students enrolled in community established schools


Number of traditional birth attendants/health workers trained.





PSC Score


Extremely Poor/Destitute

0 - 11


Transitory Poor

19 - 23

Number of CO formed.


Number of CO Members trained.

Number of CO Members.

Amount of CO Savings (PKR Million).

Amount of Micro Credit Disbursements (PKR Million). Number of Loans.

520,475 124.5

Chronically Poor


Well off/ Non-Poor


SRSO Case Study

Number of Beneficiary Households of Initiated Communi- 1,321,649 ty Physical Infrastructures Number of Students enrolled in community established schools Number of traditional birth attendants/health workers trained.


under the Government of Pakistan, Learning for Life, and IDRF (Canada).

focus of SRSO is to support these grassroots organizations to undertake projects including physical infrastructure, technology development, rural credit, and enterprise development.

As of June 2011, following values were found against the decided indicators (see Table 4).23

A new chapter began with the launch of Union Council Based Poverty Reduction Programme (UCBPRP) in 2009. The UCBPRP was initially implemented in two districts with a total budget of PKR 3 billion, and after the success of these pilot projects, the Government of Sindh agreed to fund the project in another two districts of northern Sindh.25

Sindh Rural Support Organization SRSO is the most recent of all RSPs under consideration in this paper. It was commissioned by the Government of Sindh as a nonprofit organization in 2003, and operates in all nine districts of northern Sindh.24 A personal observation during the fieldwork reveals that SRSO differs slightly from the other RSPs in the manner that it concentrates on the decentralization of the social mobilization approach. It believes in empowering the local community organizations through a broadbased framework of grassroots organizations that are both willing and equipped to carry out development tasks independently. The TABLE 5

Number of CO Members trained.


Amount of Micro Credit Disbursements (PKR Million). Number of Loans.

24 - 100

Number of HHs at the 5th Process Review, February 2012



289 0

113 50





For each of the three districts, Poverty Scores collected from the 371 households during the The case study of Union Council based Poverty baseline survey conducted by SRSO in 2009 Reduction Programme (UCBPRP) of Sindh Rural were matched against the poverty scores Support Programme is based on the most recent collected by the authors for the same 371 process review UCBPRP conducted in 2011. households in 2012. These were segregated on This process review also undertook the Poverty a district by district basis. Score Card (PSC) appraisal of the 24 villages in 16 Union Councils of the three districts in which In order to better understand the unusual UCBPRP is being undertaken: Jacobabad, variation in the poverty score comparison of Kashmore-Kandhkot, and Shikarpur. The total the households in Shikarpur, SRSO was asked number of households included in this appraisal to provide a breakdown of the surveyed on was 371. SRSO divides the households on the the basis of whether they were affected by the basis of Poverty Score Card into four categories 2010 floods. Poverty scores for the households also listed below. Poverty scores are calculated affected by flood in Shikarpur District were using the PMT formula described in the mapped separately. methodology section. It can be seen from Figure 2 that the patterns in

As of June 2011, following values were found against the decided indicators (see Table 5).27 27,723

Amount of CO Savings (PKR Million).


12 - 18

Number of HHs at the start of the UCBPRP, February 2009

SRSO’s main funding comes from an endowment of one billion PKR from the Government of Sindh. Another organization which funds certain activities is PPAF.26

Number of CO formed.

Number of CO Members.


465,292 54.0



Number of Beneficiary Households of Initiated Communi- 96,823 ty Physical Infrastructures Number of Students enrolled in community established schools Number of traditional birth attendants/health workers trained.




Figure 2. Poverty Score Comparison for 32 HH affected by 2010 floods – Shikarpur. 11

poverty score line from 2012 show a significant variation when compared with the poverty score line of the SRSO baseline survey of 2009. In response to the 2010 floods, SRSO started a ‘Village Rehabilitation Programme (VRP)’ for flood affected households. Previously, most of the households did not have a cemented house and did not have access to clean drinking water supply or sanitation including latrines.

The VRP provides each family with a two-room house along with a fully functional sewerage system including latrines.28 Female members of communities participating in the UCBPRP are also awarded Income Generating Grants (IGG) of up to $200 each, which are primarily used to purchase livestock.29 This also is featured in the PMT formula thus leading to an increase in the score. For household 6, 10, and 14, which show

the least or no change in poverty scores, it was found that these households have not yet been covered by a flood relief intervention.

in to the society through the UCBPRP. This assimilation and dialogue between households at the village and community level has led to innovative solutions to common problems. It has Thus, the poverty score comparison for the also led to dispute resolution and created trust Households in Shikarpur where there had been between SRSO and the locals. The assimilations no impact of the 2010 floods was done separately do not only work for the migrants into Sindh but and the 2012 line shows less variation in its trend also for the different castes and ethnicities in the than the figure above which serves to justify the area. consistency in the two lines in Figure 3. The poverty score comparison of households in There is a sense of achievement, ownership, and Kashmore-Khandkot reveals the following trend confidence among the mobilized households. It and as none of the households in the coverage must also be appreciated that SRSO provides area in this district were affected by the flood, a interest free loans to its beneficiaries and that higher consistency is seen in the Figure 4. most of the households have seen a rise in the poverty score since the initiation of the program. A focus group discussion was also organized in Another positive impact of the program has been Kashmore-Kandhkot, Sindh at the local village of integration of different ethnicities and cultures Channa Maula. In Village Organization Channa under the COs and VOs. Many participants Maula, even the children of the village had appreciate the power of collective action. formed their own organization and had a savings account worth PKR 300. This spill-over effect of During the field visit in Kashmore-Kandhkot’s community organization indicates the level of village Kamal Bhangwar, the members of Baloch trust and understanding expressed by the target ethnicity in VO of Kamal Bhangwar were feeling population. The VO members from this village ‘at-home’ in Sindh because of their integration

Figure 3. Poverty Score Comparison for 77 HHs not affected by 2010 floods – Shikarpur.

Figure 4. Poverty Score Comparison for 117 HHs in Kashmore-KandhKot. 12

Figure 5. Poverty Score Comparison for 145 households in Jacobabad. 13


also told the authors that they planned on starting a primary school for girls but the local landlord was against this. VO said that they had talked to SRSO about this; the SRSO staff reassured them that this problem will be taken up with the district administration. In the same VO, women were dominantly represented and showed no sense of hesitation in taking ownership of the development projects that had been started by SRSO in their community.

The paper concludes with a series of recommendations in order of importance as perceived by the author. As Pakistan enters the era beyond Millennium Development Goals (MDGs), it must focus on approaches that have been indigenously designed and implemented. There are several programs which have been initiated by the government in recent past but it All the 145 households in Jacobabad were must be realized that Pakistan as well as other affected by the 2010 floods in Sindh. developing countries must focus on building upon already existing structures. This will not only These results show that there has been augment the impact of current programs such an increase in the scores of almost all the as the RSPs but will also build local human and households in 2012, and the pattern observed financial capital. An endeavor of this kind will only is much more varied than the original poverty increase the broad support for local development scores collected in 2009. All households are approaches. The recommendations for future beneficiaries of SRSO’s UCBPRP and have policy directions are presented below. also received some sort of flood relief goods and services. The interventions by SRSO for these First, being a people oriented setup, RSPs have a 145 households include concrete housing and great potential to introduce effective accountability toilet facilities under the VRP. It was calculated measures within the organizational hierarchies. that more than 80% of the Income Generating Even though monitoring and evaluation is not Grants in District Jacobabad under UCBPRP are independent at present and is carried out by the used to purchase goats which directly increases core staff within RSPs or by RSPN, efforts should the score according to the PMT formula. be made to include independent partners that can carry out monitoring and evaluation for RSPs So far, the primary aim of discussion up to this to ensure greater transparency and accuracy. To point has been to show, through a time series this end, process reviews can be an essential data analysis, that interventions of the RSPs, tool that will help document the outcome and especially those in natural disaster affected the impact of RSP interventions, as has been districts of Sindh, have proved to be instrumental shown through the case study of the Sindh Rural in improving the quality of life for affected Support Organization in this paper. households. The interviews and primary research presented in the case study of UCBPRP is yet Second, the composition of the Board of Directors another evidence of the fact that people-centric for RSPN has been stagnant for many years and, development approaches have had a significant instead, a revolving board must be introduced. positive impact. This is indeed an extraordinary This is necessary for growth of RSPs in terms achievement of the RSPs. However, the RSPs of their operational methodology. Such an must play to their strengths in order to further arrangement will also introduce new approaches expand their impact. The following section which can supplement the current best practices presents a set of recommendations for RSPs in of RSPs. In a time when other federal social Pakistan. support programs have been initiated, such as the Benazir Income Support Programme, it is necessary that the RSPN leads by expanding its networks and establishing combined knowledge centers with such programs. During the course of 14

this research, it was observed that the alignment and coordination between the federal based Benazir Income Support Programme (BISP) and the provincial based RSPs is very weak. While the BISP and RSPs use a similar poverty score calculation methodology, the results and experiences are not shared. Both programs must therefore be strategically aligned to achieve a greater impact.

and donor agencies for RSPs. These linkages between the two have been forged over the course of RSPs existence. However the involvement of political and business leadership, academia, and media has been limited. It is proposed that these linkages be strengthened to expand both the impact and popular support for the RSP approach. However, this strengthening of linkages comes with a caution; stakeholders must remain external to RSPs operations so that Third, RSPs currently carry out baseline surveys they do not become a negative externality as at the outset of RSP interventions but do not has been in the case in other scenarios across administer successive evaluations to measure Pakistan where development interventions have program impact and progress. Although some been used for personal benefits. RSPs must also indicators are measured every year, they are work towards streamlining their linkages with not as relevant to guiding the future of every the public sector as well. It has been reported RSP as there is no comparative value added in various studies on RSPs that they lack a to the work. Most RSPs are only interested in cooperative arrangement with the government, indicating a percentage increase in funds utilized more importantly the line departments. Because and an extension in geographical coverage. the government assumes responsibility for Relying on these limited metrics hinders an in- service delivery programs, the linkages between depth quantitative and subsequent qualitative government and local organized communities analysis. The inability to use the collected data should be institutionalized.31 to produce meaningful research severely limits the effectiveness of RSPs by preventing them Sixth, during the case study of SRSO it was from assessing their impact. Because most of observed that in some areas Computerized the RSPs interventions are aimed at improving National Identity Cards of local population had the livelihoods of target population, a repeated false date of births because of the non-availability collection of baseline surveys indicators would of verification documents from the district enable the RSPs to develop livelihood trajectories administration records. However, some COs/VOs for each intervention. Livelihood trajectories are had taken up the task of listing births and deaths an effective methodology to map specific positive in their area and were maintaining these records contributions for each intervention and these can to solve the problems faced by locals while distill best practices. applying for identification documents. Practices like this can be encouraged in other COs/VOs Fourth, while the RSPs in Pakistan have helped and can be linked with National Database and to create Local Support Organizations (LSOs) Registration Authority records to ensure that as a possible exit strategy, a recent survey on birth dates are correct for the borrowers. This will LSOs revealed that 55% of these organizations save time and increase the efficiency of updating remain reliant on RSPs.30 RSPs should establish government records. specialized planning and policy cells which have a futuristic outlook so that they can develop Seventh, sharing of experiences among the ideas about a definite and sustainable end to RSPs has to be encouraged greatly. This can RSP interventions. These cells should also be be manifested into inter-provincial learning able to create 20-50 year plans for LSOs rather of best practices which will improve capacity than focusing on short term exit strategies. development. In this regard, RSPs in Pakistan must take into account the fact that the majority of Fifth, earlier accounts of RSPs in this paper the target population in rural population does not highlight the importance of international NGOs, have any access to televisions. If the CO and VO 15

members are given distance learning material, they can come up with innovative ideas to uplift their socio-economic conditions. One thing that could be done is to make video presentations on best practices related to RSP products across a single province initially and then showcase these to RSPs in other provinces. The content can be expanded to include national and global examples. This way they can see what practices have which particular benefits and can create the best solutions.

evaluation framework needs to be incorporated within these RSPs which focuses on the constantly evolving multi-dimensional and microeconomic nature of rural development. Muhammad Akbar Ali Malik is a first-year Master in Public Administration student at the Cornell Institute for Public Affairs at Cornell University majoring in Government, Politics and Policy Studies. The author would like to acknowledge SRSO, Sindh, Pakistan and SDPI, Islamabad, Pakistan.

Eighth, the media can be used to create an environment for sharing of best practices through public dissemination. There is a great SOURCES deal of change that has accompanied RSPs 1. Haq Nawaz Anwar, Muhammad Iqbal Zafar, and this change needs to be incorporated into and Shafqat Hussain, “Evaluation of Punjab the greater literature so that more people may Rural Support Program – The Case of Lahore,” Pakistan Journal of Life and Social Sciences 4 learn from this example. Publications based on (2006): 58-62. the research conducted, on case studies, and on 2. Aga Khan Foundation, “Rural Development poverty score trajectories will be instrumental in in Pakistan,” 2014, streamlining the RSPs. The case study approach development/pakistan.asp. should be employed in situations where the 3. Rural Support Program Network, “Annual Report 2010-11,” Rural Support Program scores have shown an increase and a study Network, 2011, may help to determine the economic, social, and uploads/2013/04/rspn-annual-report-2011.pdf. political reasons for this change. 4. Stephen F. Rasmussen, M. Mujtaba Piracha, In all, it is necessary for the provincial governments to take ownership of the RSPs. But the program managers need to be wary of the fact that most social protection and rural development programs are subject to political nepotism which can create an unsustainable environment for future interventions. While the concerns that Pakistan’s Provincial RSPs cannot continue without government support are valid, measures must be put in place to counter undue political influence. However, further discussion on a stable political and social environment for the RSPs is beyond the scope of this paper. The discourse on rural development must move beyond outputs and should begin considering outcomes. As our understanding of development evolves, so should our definitions of success. Methodologies based on outputs are outdated and have failed to produce a sustainable system for improving rural development initiatives. Specifically for this discussion, a monitoring and 16

Rashid Bajwa, Abdul Malik, Aadil Mansoor, “Case Studies in Scaling Up RSPs,” 2004, http://web. PDF/PAKISTAN.PDF. 5. Rural Support Program Network, “Annual Report 2010-11,” Rural Support Program Network, 2011, uploads/2013/04/rspn-annual-report-2011.pdf. 6. Farhan Zaheer, “The quest for Behari identity,” The News on Sunday, 2009, accessed June 1, 2012 nos-18-10-2009/kol.htm#1. 7. “Orangi Pilot Project Research And Training Institute (OPP-RTI),” Orangi Pilot Project, accessed December 5, 2014, http://www. 8. Stephen F. Rasmussen et. al., “Case Study Scaling Up RSPs in Pakistan.” Shanghai Poverty Conference - Scaling Up Poverty Reduction, 2004. Accessed October 20, 2014, http://www. 9. National Rural Support Program, “About NRSP,” 2014, National Rural Support Program, http:// 10. Rural Support Program Network (a), “About RSPN,” 2014, Rural Support Program Network, 11. Rural Support Program Network, “Annual Report 2010-11,” Rural Support Program Network, 2011, rspn-annual-report-2011.pdf. 12. Stephen F. Rasmussen et al., “Case Study Scaling Up RSPs in Pakistan.” Shanghai Poverty Conference - Scaling Up Poverty Reduction, 2004, 22, accessed October 20, 2014, http://www.rspn. org/wp-content/uploads/2013/04/Case-StudyScaling-Up-RSPs-in-Pakistan-2004.pdf. 13. Government of Pakistan, “1998 Census Data,” 1998, 14. Balochistan Rural Support Program, “Annual Report 2010-2011,” Balochistan Rural Support Program, AnnualReport2010-11.pdf. 15. Rural Support Program Network, “Annual Report 2011,” Rural Support Program Network, 2011 http:// 16. Rural Support Program Network (e), “Punjab Rural Support Program,” Rural Support Program Network, 2014, about/our-members/prsp/. 17. Punjab Rural Support Program, “Donors & Sources of Funding,” Punjab Rural Support Program, 2014, 18. Rural Support Program Network, “Annual Report 2011,” Rural Support Program Network, 2011, rspn-annual-report-2011.pdf. 19. Rural Support Program Network (b), “Sarhad Rural Support Program,” Rural Support Program Network, 2014, about/our-members/srsp/. 20. Sarhad Rural Support Program. “About SRSP,” Sarhad Rural Support Program, 2014, http://srsp. 21. Rural Support Program Network (b), “Sarhad Rural Support Program,” Rural Support Program Network, 2014, about/our-members/srsp/. 22. Ibid. 23. Rural Support Program Network, “Annual Report 2011,” Rural Support Program Network, 2011, rspn-annual-report-2011.pdf. 24. Rural Support Program Network (c), “Sindh Rural Support Program,” Rural Support Program Network, 2014, about/our-members/srso/. 25. “Introduction of UCBPRP,” Union Council Based Poverty Reduction Programme, 2014, http://www. 26. Rural Support Program Network (c), “Sindh Rural Support Program,” Rural Support Program

Network, 2014. 27. Rural Support Program Network, “Annual Report 2011,” Rural Support Program Network, 2011, rspn-annual-report-2011.pdf. 28. Sindh Rural Support Organization, “Village Rehabilitation Project Annual Progress Report,” Sindh Rural Support Organization, 2012, http:// 29. Union Council Based Poverty Reduction Programme (UCBPRP) (a), “Characteristics of UCBPRP,” Union Council Based Poverty Reduction Programme, 2014, charac.htm. 30. Shaheen R. Khan and Shahrukh R Khan, “Local Support Organisations: An Exit Strategy for Rural Development NGOs,” Development Policy Review, 30 (2012): 347-367. 31. Ibid., 365.

REFERENCES Aga Khan Foundation. “Rural Development in Pakistan.” Aga Khan Foundation. 2014. rural_development/pakistan.asp. Anwar, Haq Nawaz , Muhammad Iqbal Zafar, and Shafqat Hussain. “Evaluation of Punjab Rural Support ProgramThe Case of Lahore. “Pakistan Journal of Life and Social Sciences, 4 (2006): 58-62. Balochistan Rural Support Program. “Annual Report 20102011.” Balochistan Rural Support Program. http://www. Government of Pakistan. “1998 Census Data.” 1998. http:// Institute of Public Policy. State of the Economy: Devolution in Pakistan. Lahore, Beaconhouse National University (BNU). 2011. Khan, Shaheen R. and Shahrukh R. Khan. “Local Support Organisations: An Exit Strategy for Rural Development NGOs.” Development Policy Review. 30 (2012), 347367. Murray, Colin. “Livelihoods Research: Some Conceptual and Methodological Issues.” Chronic Poverty Research Centre. 2001. http://www. Murray.pdf. National Rural Support Program. “About NRSP.” National Rural Support Program. 2014. htm. Official Web Portal of City District Government Karachi. 2011. Accessed June 7, 2012. cdgk/Home/Towns/GulshanTown/tabid/217/townid/4/ default.aspx. “Orangi Pilot Project Research And Training Institute (OPP-


RTI).” Orangi Pilot Project. Accessed December 5, 2014.

Zaheer, Farhan. “The quest for Behari identity.” The News on Sunday. 2009. Accessed June 1, 2012. http://jang. htm#1

Pasha, Hafiz A., Aisha G. Pasha, and Muhammad Imran. 2010. Budgetary Consequences of the 7th NFC Award. In: PIDE(Pakistan Institute of Development Economics), 26th Annual General Meeting and Conference. [o Pakistan. 28th-30th December, 2010. Islamabad: PIDE. agm26/day1/Hafiz%20A.%20Pasha.pdf.

Punjab Rural Support Program. “Donors & Sources of Funding.” Punjab Rural Support Program. 2014. http:// Rasmussen, Stephen F. et. al. “Case Study Scaling Up RSPs in Pakistan.” 2004. archive/website00819C/WEB/PDF/PAKISTAN.PDF.

Khyati Malik

Rural Support Program Network. “Annual Report 2011.” Rural Support Program Network. 2011. http://www.


Emissions Trading Systems (ETS) have been an effective tool for reducing greenhouse gas emissions in the European Union. This paper develops an economic model to discuss international emissions trading. In the absence of distortions in the economy, the model shows international emissions trading to be an effective method of reducing overall emissions. In the presence of distortions, however, international emissions trading may not decrease emissions levels. Furthermore, emission trading between countries with significantly different distributions of energy resources and pricing may reduce the policy’s effectiveness in limiting overall emissions. When it is cheaper for all industry players in a buyer country to buy carbon credits rather than shift their preference from a cheap but polluting fuel to a less polluting but expensive fuel, carbon trading would be detrimental to the overall economy of the buyer country. In this case, industry players would now have to bear the additional cost of buying carbon credits, which may lead to governmental policies that exacerbate the emission rate. This paper applies these arguments to the possibility of an emissions trading system in India. International emission trading is not a one-formula-fits-all solution. For international carbon trading to efficiently curb emissions, the prices of different fuels must be regulated at the international level.

Rural Support Program Network (a). “About RSPN.” Rural Support Program Network. 2014. index.php/about/our-history/. Rural Support Program Network (b). “Sarhad Rural Support Program.” Rural Support Program Network.2014. srsp/. Rural Support Program Network (c).” Sindh Rural Support Program.” Rural Support Program Network. 2014. srso/. Rural Support Program Network (d). “National Rural Support Program.” Rural Support Program Network. 2014. Rural Support Program Network (e). “Punjab Rural Support Program.” Rural Support Program Network.2014. prsp/.


paths more sustainable.5 Socio-economic development goals, however, may affect the One of the largest global environmental ability of countries to achieve sustainable challenges humanity faces is climate change.1,2 environmental goals. In particular, the socioThe earth’s climate system has demonstrably economic and technological characteristics of changed on both global and regional scales different development paths will strongly affect since the pre-industrial era,3 and most of emissions, the rate and magnitude of climate the change observed over the last 50 years change, climate change impacts, and the is anthropogenic.4 Climate change forms capability of countries to adapt to and mitigate part of the larger challenge of sustainable the effects of climate change.6 development. Therefore, we can expect climate policies to be effective only when consistently There is a dire need for all countries to embedded within broader strategies designed cautiously evaluate the roles of national to make national and regional development and global institutions in supporting climate

Sarhad Rural Support Program. “About SRSP.” Sarhad Rural Support Program.2014. report.pdf. Sindh Rural Support Organization. “Village Rehabilitation Project Annual Progress Report.” Sindh Rural Support Organization.2012. spcl_rpt/PCR-VRP.pdf. Union Council Based Poverty Reduction Programme (UCBPRP). “Introduction of UCBPRP.” Union Council Based Poverty Reduction Programme. 2014. http:// Union Council Based Poverty Reduction Programme (UCBPRP) (a). “Characteristics of UCBPRP.” Union Council Based Poverty Reduction Programme. 2014.

An Emissions Trading System as a Policy Option in India



change mitigation programs. Both sustainable development and greater equity through development can be promoted through appropriately designed programs.7,8 Because the consequences of climate change in ecological and socio-economic systems are irreversible,9 world leaders cannot afford to remain inert. A number of opportunities to exercise adaptation and mitigation policies may be lost if action is delayed. Thus, targets and timetables must be fixed. The important questions facing all countries are: Who will take the measures essential for moving towards an effective solution to this problem? By how much must emissions be reduced? When should emissions be reduced? Although there is an atmosphere marked by lack of trust between developing and developed countries,10 the limited time available means it is immensely important for all countries to answer these questions. It is imperative to consider mitigation and adaptation policy tools that not only limit climate change and its severe impacts, but also ensure that implementation is not hindered by the limited capacities of developing countries.11 It is in this light that this paper concentrates on examining the effectiveness of emissions trading as a policy tool in India.

The European Union’s ETS (EU ETS) is the world’s first cap-and-trade program and the European Union’s primary tool for reducing Green House Gas (GHG) emissions.16 EU ETS is a flagship measure through which member states of the EU are able to ensure compliance with their commitments under the Kyoto Protocol. The first trial of EU ETS began in 2005, before the Kyoto Protocol was legally binding, and it is likely to be pursued irrespective of the future of EMISSIONS TRADING AND EUROPEAN the Kyoto Protocol.17 EU ETS is guided by the UNION EMISSION TRADING SYSTEM principle of ‘cap and trade’ wherein cap signifies the limit on the amount of GHGs that companies The Kyoto Protocol laid the foundation of are allowed to emit. Guided by this cap, all international carbon markets.12 The primary companies receive allowances. Each allowance mechanisms comprising the carbon markets represents the right to emit one ton of carbon were Emission Trading Schemes (ETS) and dioxide or an amount of another GHG contributing Joint Implementation (JI) in industrialized to global warming. Hence, the total number of countries (referred to in the protocol as “Annex I” allowances caps the amount of emissions legal countries) and Clean Development Mechanism under EU ETS. Companies are permitted to in developing countries (referred to in the protocol trade these allowances with other companies. In as “Non Annex I” countries).13 New mechanisms the case that a company will emit more than the of carbon trading such as International Emissions amount of emissions for which it has allowances, Trading (IET), and proposals for extending the it must buy extra allowances from some other primary mechanisms of the carbon markets company. If it is unable to do so, it will face heavy to Non Annex I countries are currently being penalties at the end of the year. Similarly, if a considered.14 Proponents of this system claim company is able to reduce its emissions, it can that its successful implementation in developing use spare allowances to cover its needs in the nations generates fair economic returns15 which future or to sell to another company. The cap can be utilized to redistribute income and on the total number of allowances available tackle social and economic challenges while

makes them valuable. Hence, this cap-and-trade as well as reductions in emission levels. An system instills a level of flexibility which works to example of pre-existing distortions is an economy cut emissions with the least amount of cost.18 where taxes on fuels are not proportional to their environmental impact. In such a scenario, primary The allocation of allowances is done on the gains from IET may be offset by secondary costs. basis of the National Allocation Plans (NAPs). The authors discuss two pre-existing distortions NAPs specified the exact amount of allowances possible in an economy: (a) the tax –interaction based on GHG emission that the member states effect, and (b) the terms of trade effect.22 granted their companies in the first trading period (2005-2007) and the second trading The Tax-Interaction Effect of IET period (2008-2012). Before the beginning of If a tax is imposed on an activity or a good then each trading period, member states decide the the price of that service or that good rises, which total number of allowances to be allocated in the leads to an increase in the cost of consumption trading period and the total number of allowances and a reduction in the real wage. This is called to be received by each emitting facility covered the tax-interaction effect. Analysis of different by the system. At present, this system covers environmental policy instruments has shown 30 countries with companies emitting carbon that the cost of pollution abatement rises in the dioxide; in some countries emissions of nitrous presence of distortionary taxes. In the presence oxide are also covered. The scheme also began of distortionary taxes, the efficiency cost of covering the airline industry in 2012. The EU environmental policies comprises the primary ETS system began covering petrochemicals, costs and the cost impact of pre-existing taxes. ammonia, and aluminium industries during the The cost impact of the taxes includes the ‘taxbeginning of the third trading period.19 The EU interaction effect’ and the ‘revenue-recycling ETS system forms a basis for a global system effect.’ Usually, the distortionary taxes raise the and involves other industrialized countries as costs of a given tax since the tax interaction effect well as developing nations. The system has dominates over the revenue-recycling effect. evolved to derive a transparent price on tradable carbon dioxide emission allowances, develop The Terms of Trade Effect of IET a functioning market for trading allowances, Immiserizing growth is a situation in which and further develop proper systems of registry, economic growth results in a country being monitoring and reporting, and verification. Would worse off than before the growth. IET may be it be possible to extend this system to a country immiserizing for a seller country if the primary like India? To answer this question, we need gains from permits outweigh the negative terms to understand if emissions trading will always of the trade effect. be beneficial to a country or not. If not, under Gains from Trading – The No Distortion what circumstances will emissions trading be Case detrimental? Do such circumstances exist in Let us first understand how IET is beneficial when India? there is no distortion in the economy. Consider INTERNATIONAL EMISSIONS TRADING IN A two countries, country 1 and country 2. Marginal abatement cost (MAC) is the marginal cost of SECOND BEST SETTING reducing emissions. For simplicity, let us assume Babiker et al.20 argue that when the economies of that the marginal abatement costs (MAC) for different countries have pre-existing distortions country 1 and country 2 are proportional to Q. and market imperfections, an International That is, (MAC)1 = K1Q and (MAC)2 = K2Q. This Emissions Trading (IET) may decrease welfare. simplifying assumption does not change the final Welfare refers to the level of social benefit or result of our analysis, but makes the analysis good achieved in a particular state. In this paper, mathematically amenable. The overall cost of I use the term welfare to include economic gains maintaining the emissions at level Q is given



Figure 1. Interplay between different industry players and regulators in carbon trading regime. contributing to the global goal of climate change mitigation.

a buyer of carbon allowances, a firm will reduce its total cost of emission reduction by area A in the figure. The reduction in secondary costs due to distortions is given by area (C+D). Hence, the overall increase in the welfare of the country is given by the area (A+C+D), which is positive.

by C(Q) = 1/2 KQ2 (that is, area under the MAC versus Q curve). Let K1 > K2. Now, let us look at the case when there is no IET but emission trading is permitted within a country. Let the country i (where i = 1, 2) needs to reduce its emissions to Qi and Q1 = Q2. Cost for country i will be C(Qi) = 1/2 KiQi2. Now, let us assume that IET is permitted between the two countries. Let the carbon price be P. The two countries will reduce their emissions in such a manner that P = (MAC)1 = (MAC)2.

Figure 2. Marginal abatement costs with distortions (MAC) and without distortions (MAC)n for a buyer country.

That is,

P = K1Q1T = K2Q2T (1)

Where QiT is the emission reduction by country i for the case when IET is permitted. Also, Q1T + Q2T = Q1 + Q2 = 2 Q1

Emissions Trading – The Pre-Existing Distortion Case Now, let us consider an economy that has preexisting distortions.23 Let (MAC) and (MAC)n be the marginal abatement costs in the presence and the absence of pre-existing distortions, respectively for a buyer country. The marginal welfare cost (MWC) measures the secondary costs of pre-existing distortions, such as the tax – interaction effect and the terms of trade effect. (MAC) = (MAC)n + (MWC).


Equations (1) and (2) can be solved for Q1T and Q2T to give, Q1T = 2K2/(K1+K2) Q1 (3)

Q2T = 2K1/(K1+K2) Q1 (4)

Country 1 will buy (Q1 – Q1T) number of carbon permits from country 2. Q1–Q1T=Q2T–Q1 = (K1–K2)/( K1+K2)Q1 (5) The overall change in cost of emission reduction upon permission of IET for country 1 is given by, ΔC1 = ½K1Q1T2+(Q1 – Q1T) P – ½ K1Q12 (6)

Figure 2 shows the (MAC) and (MAC)n curves for a buyer country. In the absence of IET, the emission reduction is at Qd. Assuming that IET is permitted, the carbon price is at PI. The emissions in the country are reduced to Q*. As

Substituting equations (1), (3), (4) and (5) in (6) we get, ΔC1=2K12K2Q12/( K1+K2)2– ½ K1Q12 This, upon simplification becomes,

ΔC1 = – K1(K1 – K2)2Q12/( K1+K2)2, which is always negative. Hence, there is an overall reduction in the cost of emission reduction for the buyer country when IET is permitted. Similarly, for country 2, the change in the cost of emission reduction upon permission of IET, ΔC2 is given by, ΔC2 = ½ K2 Q2T2 – (Q2T – Q2) P – ½ K2Q22 This, upon simplification becomes, ΔC2 = – K2(K1 – K2)2Q12/(K1+K2)2, which is also always negative. Hence, IET is profitable for both the buyer and the seller countries when there are no distortions in the economies.

Figure 3. Marginal abatement costs with distortions (MAC) and without distortions (MAC)n for a seller country. 22

a scenario, the government may feel obliged to subsidize the cost of the fuel A, thereby making a shift to fuel B even more economically unviable. LINKAGE PROBLEMS

Several linkage issues can also be foreseen for IET. The first issue pertains to sector and GHG Now, let us examine a seller country. coverage of the scheme. Different constellations Figure 3 shows the (MAC) and (MAC)n curves of gases may need to be included depending for a seller country in the event that the IET is upon the emission profiles of varying countries. permitted. The country goes beyond its emission If there are diverging treatments of sectors in target of Qd to Q*. The total cost of the extra different trading regimes, questions may be reduction in emissions is given by area B, and raised regarding competitive disadvantage and the gain from permits trading is given by area discrimination. The second issue pertains to the (A+C). However, the increase in secondary costs definition and recognition of trading units, which is given by area (A+D). Hence, the net welfare is pivotal in these linking negotiations. If credits is given by the area (C-D), which can be either from carbon sinks are not recognized under one positive or negative, depending on the size of scheme, it is possible that facilities in another the distortion. Hence, IET may not be beneficial scheme that accepts this unit may utilize these to a seller country. credits to sell to facilities covered under the first scheme. Such trade would undermine the first In some scenarios, a carbon emission tax may scheme’s protocols about the recognition of not change the behavior of industry players, specific trading units.24 but may simply burden the economy. For example, consider two fuel alternatives, A and The type of target adopted by schemes is another B. Let the cost of fuels A and B be CA and CB, potential source of problems. There can be two respectively, and their emission levels be EA and types of targets – targets which limit the total EB, respectively. Let CA < CB and EA > EB. Hence, amount of emissions during a specified period, A is the cheaper but more polluting fuel. Let the such as absolute caps, and relative targets permitted amount of emissions be Q, such that which are defined based on the emissions per EB < Q < EA. If the emission levels are less than unit of output or activity. Linking two schemes Q, the carbon credits can be sold to another with different types of target can lead to liquidity player who has emission levels greater than Q. problems. In case of relative targets, allocations Let the carbon emission tax or penalty be CP would happen at two levels: an initial allocation per unit amount of emission. An industry player would take place on the basis of the projected would prefer fuel B over fuel A if, output or activity. An adjustment would be made once the real output or activity defining the CA + (EA – Q) CP > CB – (Q – EB) CP emissions was known. Or, CB – CA < (EA – EB) CP Or, CP > (CB – CA)/ (EA – EB) The process of adjustment may lead to equity (7) concerns. Companies covered by a system with relative targets would receive a subsidy If eqn.(7) is not satisfied, then all industry players for increasing their output which increases would prefer to use the more polluting but less the overall number of trading units available. costly fuel A and buy carbon credits or pay Subsidies would incentivize countries to relax penalty for emissions above the permissible their overall targets to assume the position of net levels. In this case, emission levels will not sellers in this integrated market.25 decrease, but because of the extra carbon credit or penalty burden, the economy will suffer. In such The distribution of allowances is also related 23

to linkage problems. Allowances may be allocated for free in one system and auctioned in another. Companies that receive allowances for free would get a lump sum subsidy, whereas the emitting facilities subscribing to a system where allowances are auctioned would not have access to the subsidy. Further, in terms of temporary flexibility, banking allowances from one trading period to another provides emitters with an incentive to over achieve their targets in case of a situation where it is expected that the price of the allowances will be higher in the future. Banking of allowances provides an ability to handle uncertainties arising in the future pertaining to production levels. When schemes are linked, having the banking of allowances under one scheme makes banked allowances available for companies under all schemes. If there is over-allocation, banking makes it more difficult to correct the situation.

look at the price cap is that after the payment of penalties the emitting facilities are exempt from submitting the allowances. The other option is the establishment of a ‘safety valve’ by the regulators. Under this option, once the market price for allowances rise beyond a certain level, the regulator commits towards selling allowances at a predetermined price, irrespective of whatever quantity of allowances are demanded. This way, the regulator is able to limit the overall costs to the market participants to the safety valve level. When a system with a safety valve is linked to a system with strict penalties, the safety valve sets the overall cap for the entire system, which may jeopardize the ultimate goal of reducing emissions.27

Although the issues pertaining to design elements of systems can be harmonized, harmonization depends upon to what extent countries are willing to work together to contribute towards One option is borrowing allowances from future reducing emissions. If reducing emissions is a trading periods and delaying the reduction top priority for a country, the system would be measures undertaken in the future. This is not guided by strict targets, strict penalties, and preferable from an environmental perspective, reliable monitoring, verification and reporting as there is a possibility that mitigation measures systems. Linking strict systems to those with will not be undertaken in future periods. Even if less stringent requirements will have a loosening they are, the emitting facility can lobby for softer effect on all systems. Because the EU ETS aims targets as they can exhibit high compliance cost for stricter targets and emission trading systems curve in that particular trading period when all in developing countries like India may not be the delayed mitigation measures were finally prepared for such level of stringency, linking undertaken. The result is above average costs these systems may bring the overall stringency for the period because of the accumulation of levels of EU ETS down as well. the costs related to mitigation measures. Linking systems with the options of borrowing to systems THE CASE OF INDIA without that option would lead to availability of From 1850 to 2006, India was the ninth largest the borrowing option for all the systems. Such GHG emitter. India, however, occupies a much availability would affect the environmental measures adversely.26 Finally, there is also an issue related to monitoring, reporting and verifying provisions. Provisions lend credibility to ETS by determining whether each trading unit corresponds to one ton of emissions. Suspicions pertaining to under-reporting, misreporting of emissions can undermine the confidence in system of monitoring, reporting and verification of the combined trading system. Also, the other way to

Figure 5. Annual average concentration of SO2 in four mega cities of India.

If we consider the overall emissions by sector, the energy sector is contributing the largest proportion of emissions to the total emissions in India. The energy sector is comprised of electricity, transport, residential, and other sub-sectors. The emissions from land use and forestry have decreased, highlighting the efforts undertaken to protect the existing forest-base and enhance the overall tree-cover. Emissions from agriculture have remained the same. Overall, as shown in Table 1, the total carbon dioxide emissions have grown from 1228.54 million tons in 1994 to 1727.71 million tons in 2007.

lower rank for per capita emissions as compared to developing economies.28 Its carbon dioxide emissions were measured at 1.5 ton per capita as compared to the world average of around 5.8 tons per capita.29 While the Indian government

Table 1. Comparison of India’s GHG emissions by sector between 1994 and 2007 (million tons of carbon dioxide).32 Electricity




Other Energy Cement

Iron & Steel Agriculture Waste

Total without Land Use and Forestry


India’s Emission Profile The graph below exhibits the trend of emissions of particulate matter (<10 micron) for sulphur dioxide and nitrogen dioxide in four Indian megacities: Delhi, Mumbai, Kolkata, and Chennai.31

Figure 6. Annual average concentration of NO2 in four mega cities of India.

Other Industry

Figure 4. Emissions trend of particulate matter of India.

recognizes the fact that climate change would aggravate India’s development challenges, at present, economic development of the country remains the main priority for the government considering that out of India’s current population of 1.16 billion nearly 35% is living on less than a dollar a day. While the GDP in India is rising at about 8% annually in the last five years, India’s emission intensity (GHGs per unit of GDP) has declined by more than 30% during 1994-2007.30

Land Use and Forestry

Total with Land Use and Forestry



353.03 (28.4%)

719.30 (37.8%)


78.89 (6.3%)

137.34 (7.2%)


80.28 (6.4%)

142.04 (7.5%)

78.93 (6.3%)

100.87 (5.3%)

60.87 (4.9%)

129.92 (6.8%)

90.53 (7.2%)

117.32 (6.2%)

125.41 (10%)

165.31 (8.7%)

344.48 (27.6%)

334.41 (17.6%)

23.23 (1.9%)

57.73 (3%)








4.5 1.9 6 2


-0.2 7.3 3.3


CAGR (%)

Mitigation Policies of India Although ensuring economic development remains India’s the top priority, the Indian government has implemented several policies contributing to mitigation or avoidance of GHG emissions altogether. The National Tariff Policy of 2006 mandated that State Electricity Regulatory Commissions must purchase a minimum percentage of power from renewable sources. Also, the establishment of the Bureau of Energy Efficiency (BEE) has enhanced energy efficiency by adopting various measures like standards and labelling for household appliances. Furthermore, the twin goals of economic development and limiting climate change have been pursued through the release of the National Action Plan on Climate Change (NAPCC) in 2008. The NAPCC has eight national missions which concentrate on specific areas in which to enhance India’s contribution towards climate change. The Jawaharlal Nehru National Solar Mission has already been released with the objective of having 2000 MW of off-grid solar applications by 2022 and 20000 MW of utility-grid power by 2022. Similarly, the National Mission for Green India aims to enhance carbon sinks. Furthermore, the National Mission on Enhanced Energy Efficiency has provided an incentive to use trading schemes in the future by issuing targets to specific entities.33

pertaining to renewable and energy efficiency. CDM projects also have proven less beneficial for small and medium industries, and they also garner less technology transfer support than expected from Annex I countries.36 In addition, the nature of the CDM process can be bureaucratic, and there are some unclear expectations pertaining to price etc. Enhanced Energy Efficiency and the Role of PAT One of the key focuses of the Indian government is to promote energy efficiency through markets. This can be done by introducing an energysaving certificate trading scheme through which large energy intensive energy users will be able to meet mandatory efficiency requirements. This is also known as Perform Achieve and Trade (PAT). The PAT scheme involves setting up a specific energy consumption target for each plant, depending upon the level of energy intensity of that plant. Further, as per the specified target the consumers make efforts to reduce their energy intensity. Those consumers who succeed in achieving their specific energy consumption targets will be credited with tradable energy permits which can be sold to those customers who failed to achieve their targets. The customers who failed to achieve their targets would be compelled to buy these permits. In case of failure to either achieve targets or buy permits, these customers may have to pay heavy penalties.

Carbon Market in India Judging by the number of Clean Development Mechanisms (CDM) introduced, the local carbon market in India can be considered a success story for promoting climate protection.34 India is the second largest supplier of Certified Emission Reductions (CERs) in the world after China.35 The CDM projects are related to wind, mass, hydro, and energy efficiency. Factors such as the Indian government’s preparedness to implement such projects, the economic benefits accruing to the industries, and increased awareness of the CDM projects have helped promote their usefulness in India.

The PAT scheme is more in line with tradable white certificate schemes as it is focused on energy end use, its targets are expressed in energy units, and the certificates are tradable. Although it covers those sectors that are covered under emission trading schemes, a significant point of difference is that while PAT is based on emission intensity targets and trade in energy saving certificates, emission trading schemes are based on absolute emission reductions and trade in emission reduction certificates. At the same time, implementation of PAT would provide some important lessons that may form a base for implementing an emission trading scheme in future.37 Overall, this emphasis on enhanced energy efficiency also includes

Despite the popularity of CDM projects in India, carbon markets continue to struggle with the inability to generate large scale projects 26

provision of partial-risk guarantees to financial institutions in order to extend commercial loans to energy service companies and introduction of fiscal signals, in order to promote demand management initiatives.

industries in India will not shift from coal to diesel. Therefore, introduction of carbon credits in India would not reduce its overall emissions but would significantly add to the cost of production, hurting the economy.


In EU, the cost of coal is USD 82 per ton, whereas the cost of diesel is USD 21.50 per ton. Similarly Whether ETS is a feasible option for India can analysis gives the value of C = USD 5 per ton be examined from three distinct perspectives: of coal, or USD 1.75 per tonP of coal, which is economic, political, and institutional. Although, as only 2.3% of the cost of a ton of coal. Therefore, demonstrated above, introduction of an ETS can industry players in EU can easily shift to diesel have decreasing welfare effects in the presence and can become sellers of carbon credits to Indian of distortions, in the light of India’s evolving industries. Therefore, if the Indian Government environmental policy as well as international decides to introduce ETS, its industry players climate negotiations the atmosphere in India would prefer to buy carbon credits rather than may be conducive to the implementation of an change their fuel choices. The additional cost of ETS. buying carbon credits would increase the prices of the commodities produced and would hurt Economic Perspective In order to analyse the economic viability of carbon the economy. In order to negate these effects, credits in India, let us compare two popular fuel the Government may introduce popular policies, such as a partial subsidy on coal, which would alternatives in India: coal and diesel.38 only act to exacerbate the rate of pollution. Coal: Political Perspective Cost = 20 USD per ton At present, India’s political priorities revolve Calorific value = 2 J / Kg around maintenance of a high growth rate, Emissions = 2.86 Kg CO2 per Kg fuel Cost of producing 1 J of energy from coal = Cost provision of electricity to its large population, employment generation, controlling inflation, etc. / Calorific value = USD 0.01 Amount of CO2 produced for 1 J of energy from The Indian government does not have a very keen attitude to adopt limits on economy-wide or coal = Emissions / Calorific value = 1.43 Kg sector-wide emissions. Despite playing an active Diesel: role in the international climate negotiations, Cost = USD 1163 / ton India continues to support the “developing Specific gravity = 0.832 Kg/litre countries block” by stating that as historical Calorific value = 45 J / Kg polluters, developed nations should bear the Emissions = 3.2 Kg CO2 per Kg fuel responsibly related to mitigation and adaptation Cost of producing 1 J of energy from diesel = strategies.39 Although, it is quite possible for Cost/Calorific value = USD 0.026 the country to move towards a cap and trade Amount of CO2 produced for 1 J of energy from system, as many Indian companies have the diesel = Emissions / Calorific value = 0.071 capability of improving their emission intensity, in some sectors improvement of efficiency is Using equation (7), the cost of carbon credit difficult because of competing priorities. below which the industry would prefer coal over diesel is CP < (CB – CA)/ (EA – EB), which gives CP Thermal power plants utilizing fossil fuels are < USD 11.6 per ton of CO2. This comes out to be the prime producers of electricity in India, and USD 4.0 per ton of coal used, or 20% of the cost in the last few years electricity generation has of a ton of coal. Therefore, unless the carbon contributed to the increase in emissions by credits are more than 20% the cost of coal, the 10 percent.40 Hence, if the electricity sector is 27

included in the ETS because of its increased contribution towards overall emissions, then it may defeat the government’s goal to provide electricity to all. Similarly, in order to enhance efficiency, companies may opt for capitalintensive technologies which may impact the government’s goal of employment generation. A cap on emissions may also translate into a rise in costs of end products. Considering inflation is a political issue in India, having an ETS may not be an attractive proposition to the Indian government. Lastly, all the political parties in India have adopted a unanimous reluctance in assumption of any sort of targets for India. Although there are plans of having certain pilot ETS in India in Maharashtra, Tamil Nadu and Gujarat.41 Overall, it seems difficult for the government to assume ETS related measures at present.

emissions under ETS. Hence, here it depends upon the pricing of CERs and credits under ETS if the company has to utilize one to fulfil its need for the other. Further, it may decide to sell extra 20 CERs into the ETS depending upon the price of the credits in ETS. This example illustrates that an entity can be a buyer and seller in two different systems and can lead to distortions like oversupply of credits under ETS.

reduction of emissions happens at the point of emission production, such as manufacturing industries. This approach induces liquidity and flexibility as a higher number of emissions sources are covered. It is preferable for India to follow an upstream approach considering that these entities are not covered by the PAT scheme. It will be easier for India to implement ETS in that section.

Relationship between ETS and PAT As mentioned above, a significant point of difference is that while PAT is based on emission intensity targets and trade in energy saving certificates, emission trading schemes are based on absolute emission reductions and trade in emission reduction certificates. While PAT schemes can provide some implementation lessons for ETS, the system is not free from problems. As PAT essentially covers most of the Institutional Perspective sectors covered under EU ETS, implementation Under this view point, it must be considered that of ETS in India along with PAT may lead to the introduction of ETS should not hamper other issue of double counting. An entity may claim mitigation policies adopted by India. This implies energy saving certificates, while utilizing the examination of the relationship of emission same action to substantiate its efforts to meet trading with CDM, PAT scheme and Nationally targets under ETS.43 Appropriate Mitigation Actions (NAMAs).42 KEY DESIGN CHALLENGES Relationship between CDM and ETS ETS and CDM are guided by two different The success of implementation of ETS in India principles towards the attainment of a common is dependent upon two factors. The first factor goal of emission reduction. While CDM is an is the complications associated with linking to incentive-based, project-oriented mechanism, ETS to various other mitigation mechanisms ETS is inclined towards imposing constraints introduced or considered suitable for India. on various sectors. Introduction of ETS in India These complications involve addressing trading, will be feasible if the complexities arising out of competition, and double-counting due to the the overlap of the existing CDM regime and ETS operation of several schemes. Second is the can be handled as it is important that entities design of ETS. The design of ETS is further covered in both regimes are different or there are governed by three factors – point of regulation, and choice of established and well monitored linkages in place GHG emissions and sources 44 for connecting these two systems otherwise permit allocation method. it may lead to some serious distortions. For Point of Regulation instance, suppose an entity is covered by the ETS can be implemented at the upstream level, CDM and ETS mechanism and gets a credit which involves trading of emissions at the level of of 120 CERs under CDM for assuming energy the fuel providers, such as mining industries. This efficient measures. At the same time it needs approach would allow simple operations, easier 100 extra credits under ETS in order to cover monitoring, and less administration because its emissions for that year. It may decide to there would be fewer targets set. The alternate utilize the CERs under CDM to cover up its extra approach is a downstream approach, where the 28

Information about GHG Emissions and Their Sources It is absolutely essential to have robust and consistent GHG emissions data across several years for a successful implementation of ETS in India. The data will help establish the baseline, determine the number of allowances to be introduced in the system, specify the liabilities of the defaulters, and decide the scope and type of target. It may also help determine coverage of various sectors at different stages.45 In order provide better data, sulphur dioxide and nitrogen dioxide are now also included in the estimation of GHG emissions.46 Few Indian companies have been actually accounting for their emissions. The success of initiatives like Carbon Disclosure Project and GHG protocol has been quite limited as well. These issues are obstacles to the implementation of ETS. Further efforts should be made to encourage measurement of emissions at the corporate level. Lessons learnt during the implementation of other mitigation mechanisms like CDM can also prove useful while implementing ETS.

India, as an upstream approach has been suggested for the point of regulation, thereby implying few players, initially it would be better to have a free allocation of permits in order to avoid collusive behaviour amongst few players and to garner acceptance for this scheme in the country. From there on, the system can gradually move towards the auctions-based approach. CONCLUSION

Based on the above mentioned analysis, it is evident that ETS is not a feasible option in the near future for India from the political viewpoint, considering the development priorities of the government. It is also not feasible from a purely economic perspective because of the difference in pricing of coal and diesel in India versus the EU. ETS would not cause the Indian industry to move away from coal to other less polluting options, such as diesel or gasoline. Hence, the Indian Government would see ETS as an additional burden on its industry. In order for ETS to be economically viable internationally, it would require the pricing of different fuels to be regulated at the international level, as country fluctuations in the fuel prices would make carbon trading uneconomical. Apart from the economic perspective, ETS will also be challenged by the institutional perspective, considering a significant overlap with the mitigation mechanisms already implemented in India. However, in the long run, it can prove to be a useful mitigation mechanism if its existing conflicts with other policy tools as well development priorities can be resolved by Method of Allocation of Permits implementing it for certain categories of entities There has been further debate regarding only, tackling its design issues, and establishing whether the allocation of permits should be done and monitoring proper linkages amongst all the through auctioning or free distribution. Earlier, systems in India. these permits were allocated freely considering past output per unit of emissions or provision Khyati Malik is a student in the Master of of compensation to safeguard the companies Public Administration program at the London from the adverse impacts of emission trading. School of Economics and Political Science. However, auctioning of these permits is now considered a better option, considering the SOURCES purpose of environmental effectiveness was 1. Martin L. Parry et al., “Effects of Climate Change being defeated by the free allocation of permits. on Global Food Production under Sres Emissions It is preferable to have frequent auctions initially and Socio-Economic Scenarios,” Global and then move towards a single auction. For 29

Environmental Change 14, no. 1 (2004): 55-64. 2. Intergovernmental Panel on Climate Change, “Climate Change 2007: Impacts, Adaptation and Vulnerability,” Genebra, Suíça (2001): 5-7. 3. Susan Solomon et al., “Irreversible Climate Change Due to Carbon Dioxide Emissions,” Proceedings of the national academy of sciences 106, no. 6 (2009): 1706-1708. 4. Thomas J. Crowley, “Causes of Climate Change over the Past 1000 Years,” Science 289, no. 5477 (2000): 275-276. 5. Noreen Beg et al., “Linkages between Climate Change and Sustainable Development,” Climate Policy 2, no. 2 (2002): 131-132. 6. Richard J.T. Klein, E. Lisa F. Schipper, and Suraje Dessai, “Integrating Mitigation and Adaptation into Climate and Development Policy: Three Research Questions,” Environmental Science & Policy 8, no. 6 (2005): 10-12. 7. Noreen Beg et al., “Linkages between Climate Change and Sustainable Development,” Climate Policy 2, no. 2-3 (2002): 129-143. 8. Richard J.T. Klein, E. Lisa F. Schipper, and Suraje Dessai, “Integrating Mitigation and Adaptation into Climate and Development Policy: Three Research Questions,” Environmental Science & Policy 8, no. 6 (2005): 2-10. 9. Michael Grubb, Thierry Chapuis, and Minh Ha Duong, “The Economics of Changing Course: Implications of Adaptability and Inertia for Optimal Climate Policy,” Energy Policy 23, no. 4 (1995): 420-427. 10. Navroz K. Dubash, “Copenhagen: Climate of Mistrust,” Economic and Political Weekly (2009): 8-9. 11. Barry Smit and Olga Pilifosova, “Adaptation to Climate Change in the Context of Sustainable Development and Equity,” Sustainable Development 8, no. 9 (2003): 881-905. 12. Warwick J McKibbin et al., “Emissions Trading, Capital Flows and the Kyoto Protocol,” The Energy Journal (1999): 1. 13. Edwin Woerdman, “Implementing the Kyoto Protocol: Why Ji and Cdm Show More Promise Than International Emissions Trading,” Energy Policy 28, no. 1 (2000): 29-38. 14. Christoph Böhringer and Andreas Löschel, “Market Power in International Emission Trading - The Impacts of US Withdrawal from the Kyoto Protocol,” (2001): 1-8. 15. Dennis Tänzler and Sibyl Steuwer, “Cap and Invest,” 2009, accessed April 20,2012, http://www. pdf/cap_and_invest_july_2009.pdf. 16. Ibid, 7. 17. Ibid, 7. 18. Ibid, 1-21. 19. European Commission, “Emission Trading


System,” accessed April 23, 2012, http:// 20. Mustafa Babiker, John Reilly, and Laurent Viguier, “Is International Emissions Trading Always Beneficial?,” The Energy Journal (2004): 3. 21. Ibid, 3-5. 22. Ibid, 5-6. 23. Ibid, 8-11. 24. Sterk, Wolfgang and Florian Mersmann. “Domestic Emission Trading Systems in Developing Countries - State of Play and Future Prospects.” Wuppertal Institute (2011). Page 4, 25. Ibid, 5. 26. Ibid, 6. 27. Ibid, 7. 28. International-Energy-Statistics, “US Energy Information Administration International Energy Statistics,” accessed 23 April 23, 2012, http:// cfm?tid=90&pid=44&aid=8. 29. Subodh K. Sharma et al., “Greenhouse Gas Inventory Estimates for India,” Current Science 101, no. 3 (2011): 407. 30. Ibid, 413. 31. Indrani Gupta and Rakesh Kumar, “Trends of Particulate Matter in Four Cities in India,” Atmospheric Environment 40, no. 14 (2006): 2553-2562. 32. Subodh K. Sharma et al., “Greenhouse Gas Inventory Estimates for India,” Current Science 101, no. 3 (2011): 411. 33. Harshal T. Pandve, “India’s National Action Plan on Climate Change,” Indian Journal of Occupational and Environmental Medicine 13, no. 1 (2009): 17. 34. Gudrun Benecke, “Varieties of Carbon Governance: Taking Stock of the Local Carbon Market in India,” The Journal of Environment & Development 18, no. 4 (2009): 346. 35. Ibid, 350. 36. Stephen Seres, Erik Haites, and Kevin Murphy, “Analysis of Technology Transfer in Cdm Projects: An Update,” Energy Policy 37, no. 11 (2009): 7. 37. Prabhat Upadhyaya, “Is Emission Trading a Possible Policy Option for India?,” Climate Policy 10, no. 5 (2010): 560-574. 38. United States Environmental Protection Agency, “Average Carbon Dioxide Emissions Resulting from Gasoline and Diesel Fuel,” accessed May 1, 2012, help/420f05001.pdf. 39. Navroz K. Dubash, “Copenhagen: Climate of Mistrust,” Economic and Political Weekly (2009): 9. 40. Subodh K. Sharma et al., “Greenhouse Gas Inventory Estimates for India,” Current Science 101, no. 3 (2011): 411. 41. Indrani Gupta and Rakesh Kumar, “Trends of Particulate Matter in Four Cities in India,”

Atmospheric Environment 40, no. 14 (2006): 2553-2562. 42. Prabhat Upadhyaya, “Is Emission Trading a Possible Policy Option for India?,” Climate Policy 10, no. 5 (2010): 560-574. 43. Ibid, 560-574. 44. Ibid, 560-574. 45. Subodh K. Sharma et al., “Greenhouse Gas Inventory Estimates for India,” Current Science 101, no. 3 (2011): 406-407 46. Ibid, 413.

88. McKibbin, Warwick J, Martin T Ross, Robert Shackleton, and Peter J Wilcoxen. “Emissions Trading, Capital Flows and the Kyoto Protocol.” The Energy Journal (1999): 287-333. Pandve, Harshal T. “India’s National Action Plan on Climate Change.” Indian Journal of Occupational and Environmental Medicine 13, no. 1 (2009): 17. Parry, Martin L, Cynthia Rosenzweig, Ana Iglesias, Matthew Livermore, and Gunther Fischer. “Effects of Climate Change on Global Food Production under Sres Emissions and Socio-Economic Scenarios.” Global Environmental Change 14, no. 1 (2004): 53-67.

RESOURCES Babiker, Mustafa, John Reilly, and Laurent Viguier. “Is International Emissions Trading Always Beneficial?” The Energy Journal (2004): 33-56.

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Beg, Noreen, Jan Corfee Morlot, Ogunlade Davidson, Yaw Afrane-Okesse, Lwazikazi Tyani, Fatma Denton, Youba Sokona, et al. “Linkages between Climate Change and Sustainable Development.” Climate Policy 2, no. 2 (2002): 129-44.

Sharma, Subodh K, Asim Choudhury, Pinaki Sarkar, Subhashis Biswas, Anil Singh, Pradeep K Dadhich, Ajay K Singh, et al. “Greenhouse Gas Inventory Estimates for India.” Current Science (Bangalore) 101, no. 3 (2011): 405-15.

Benecke, Gudrun. “Varieties of Carbon Governance: Taking Stock of the Local Carbon Market in India.” The Journal of Environment & Development 18, no. 4 (2009): 346-70.

Smit, Barry, and Olga Pilifosova. “Adaptation to Climate Change in the Context of Sustainable Development and Equity.” Sustainable Development 8, no. 9 (2003): 9.

Böhringer, Christoph, and Andreas Löschel. “Market Power in International Emission Trading-the Impacts of Us Withdrawal from the Kyoto Protocol.” (2001).

Solomon, Susan, Gian-Kasper Plattner, Reto Knutti, and Pierre Friedlingstein. “Irreversible Climate Change Due to Carbon Dioxide Emissions.” Proceedings of the National Academy of Sciences 106, no. 6 (2009): 1704-09.

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Grubb, Michael, Thierry Chapuis, and Minh Ha Duong. “The Economics of Changing Course: Implications of Adaptability and Inertia for Optimal Climate Policy.” Energy Policy 23, no. 4 (1995): 417-31.

Upadhyaya, Prabhat. “Is Emission Trading a Possible Policy Option for India?” Climate Policy 10, no. 5 (2010): 560-74.

Gupta, Indrani, and Rakesh Kumar. “Trends of Particulate Matter in Four Cities in India.” Atmospheric Environment 40, no. 14 (2006): 2552-66.

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The Relationship Between Health Insurance, Service Utilization, and Health Outcomes Joseph Liss


The 2010 Affordable Care Act (ACA) expanded insurance coverage in an effort to pool the risk of younger, healthier populations with that of older, sicker ones.1 Purchasing insurance is a potential cost saver as it increases patients’ ability to receive preventative treatments and their access to costly health care services. Given the competing claims that health coverage increases and decreases costs, this paper examines the relationship between having insurance coverage, health care usage, and outcomes, using the National Longitudinal Survey of Youth (NLSY), 1997. I measure health care use in terms of annual checkups and self-reported physician access when NLSY participants are sick. As well, I measure health outcomes in terms of body mass index (BMI) and self-reported health status. While prior studies, pioneered by the RAND Corporation’s famous 1971-1982 Health Insurance Experiment (HIE), have examined the effects of having insurance on usage and health outcomes, few have focused exclusively on the 18-25 year-old population that the ACA targets. Previous studies have indicated that having health insurance has a positive relationship with usage and a positive, although weaker, relationship with health quality. My findings indicate that having health insurance coverage is related to more health care service usage, but only weakly related to health outcomes. Being insured in at least half of the years studied is unrelated to BMI, though it and being insured for the full study length are related to self-reporting good health. Moreover, being insured in all and, separately, in more than half of the years from 2002 to 2011 is positively correlated with the proportion of years in which a person had an annual checkup and sought out treatment when sick. In an unexpected finding, insurance coverage has a positive, though weak, relationship to being sick and not seeking out treatment. This raises the possibility that those who are sick may be more likely to purchase insurance. Policymakers should consider the potential cost impacts of insuring more of America’s young adult population. The government may not be able to rely upon cost savings from improved health outcomes due to insurance coverage expansion. CURRENT CONTEXT AND INSURANCE RESEARCH


of GDP in the next two decades, nearly every other federal program will shrink as a percentage of GDP.2 In 2012, Medicare, The United States spends 16.4 percent of which was rapidly growing, and other health gross domestic product (GDP) on healthcare. programs made up 23 percent of the federal The Congressional Budget Office estimates budget, according to the Heritage Foundation.3 that, while federal spending on Medicare and As a result, the 2010 Affordable Care Act Medicaid will constitute a greater percentage 32

(ACA), which greatly expanded insurance coverage, implemented a series of policies that created programs, such as Accountable Care Organizations and Patient-Centered Medical Homes, meant to increase quality and reduce cost. These programs were built to limit patient use of costly emergency medical infrastructure.4 Particularly, the Barack Obama Administration hopes that young Americans will purchase insurance, so as to pool the risk of younger, healthier populations with older, sicker ones and reduce the latter’s insurance costs.5 Inherent in this strategy is the risk that youth who purchase insurance, often with government subsidies, do not get any healthier but still use more health care system resources.

school students increased student satisfaction with health and improved other indicators of good health, such as physical exercise.8

Other studies, however, have not found a link between having insurance and overall health. In Oregon, slots were given away in a lottery for the state’s low-income health insurance program, Medicaid.9 Researchers used this naturally occurring randomized experiment to examine the effect of receiving Medicaid coverage on health service usage and other health outcomes. Experiment participants who received Medicaid had a clear increase in use of health services and were much more likely to be diagnosed with chronic conditions, such as diabetes; however, there was no statistically significant effect on Prior studies have examined the effect of having health outcomes.10 Health care delivery reformers health insurance on general health outcomes have targeted the use of expensive emergency and on service usage. In 1971, the RAND room services by patients with chronic conditions Corporation conducted a nationwide randomized and argued that those with an assigned primary study on health care use and health outcomes.6 care provider, due to having health insurance, RAND assigned participants to full-coverage will seek out the emergency room less often. and various cost-sharing plans. While those who In Oregon, those randomized into receiving had to pay a portion of health costs showed a Medicaid actually used more emergency room decrease in appropriate and inappropriate care services, a significant indicator that increasing usage, there was little identifiable differences in the number of individuals insured will increase health outcomes between those sharing costs health care costs.11 While the Oregon case and those with full insurance. Since that initial provided a rare opportunity to experiment with breakthrough, a series of studies have emerged health insurance, the applicability of results to on the topic. other contexts were limited by its geographic focus and the very low-income population that it More recent studies have established a link examined. between youth insurance coverage and both increased health care service utilization and Some previous studies have examined young improved health quality outcomes. The Institute adults, but they have primarily focused on the of Medicine (IOM) conducted a systematic connection between health care usage and review of the current literature relating health insurance status. Callahan and Cooper (2005) insurance to usage and health outcomes in found that young adults with insurance were 2009.7 They found that children and adults more likely to have a normal primary care without insurance use fewer services and have physician and were less likely to report barriers worse health outcomes. For children, those to accessing care.12 Anderson, Dobkin, and with insurance missed fewer days of school, Gross (2012) exploited the sharp decrease in the had more timely diagnosis of serious issues, number of insured young adults once they are and received appropriate basic care services, no longer eligible for coverage under a parent’s such as asthma and dental care. McNall, Lichty, health insurance plan. Their study found that, and Mavis (2010) found that having teams of among those young adults who “age out” of the medical professionals deliver primary care and insurance plan, there is a 40 percent decrease preventive services to middle school and high in emergency room visits and a 61 percent 33

decrease in inpatient hospital admissions.13 However, neither set of authors considered the effects of insurance on health outcomes for young adults.

whether the individual had coverage in at least half of those years. The controls included the individual’s Armed Services Vocational Aptitude Battery (ASVAB) test score, a measure of cognitive ability, the individual’s biological and residential The limited evidence around health outcomes mother’s level of education, and the proportion for young adults may stem from the greater of years during which the individual lived in an policy relevance of elderly and youth populations urban area. As well, average household income - which receive many more programs explicitly and the log of average household income were targeted towards them - and from the difficulty used as controls. The two key outcomes were of obtaining useful health outcomes data. whether the individual used more health care Nevertheless, this young adult population is services and whether the individual was, in fact, vital to the ACA’s implementation and deserves healthier. As measures of care usage, I used thorough analysis. Young adults, who are often the following: the proportion of years in which an healthier and work more demanding, entry-level individual got an annual check-up, the number of jobs, may behave differently when they receive times an individual sought treatment when they insurance, as compared to young children and needed it, and the number of times an individual the elderly. In this paper, the relevant population did not seek treatment despite being sick. The had a mean age of about 29 and an age range individual’s average BMI from 1997 to 2011, and of 27-31 in 2011, the final year of the study. As 2002 to 2011, and the individual’s self-reported measures of overall health, I use self-reported level of health served as proxies for actual level health outcomes and Body Mass Index (BMI), of health. For BMI, all values not between 15 and which is a commonly accepted measure of 45 were treated as anomalies, given how far they height-to-weight ratio. As well, NLSY provides a are from the normal BMI range.15 Some outcome nationally representative sample of young adults variables use the complete available time horizon in the United States, which allows the study - 1997-2011 - despite the insurance coverage results to be highly generalizable. variable only being available from 2002-2011 (see Tables 1 and 2). Having insurance in all STUDY METHODS years between 2002 and 2011, however, is likely I primarily used multivariate regressions and a good indicator of having insurance coverage then examined the data with propensity score prior to 2002. matching. While propensity score matching is a controversial technique,14 I use it here to support To construct the multivariate regressions, I ran findings from the multivariate regression model. the binary regression of the independent variable Similar results across models offer stronger on the outcome variable and then ran the regression with each control variable separately support for the study’s final conclusions. as seen below. The independent variables were binary measures Outcomei = Constanti + of whether an individual had health insurance (Equation 1) coverage every year from 2002 to 2011, and β1Indepenti + β2Controli + ui Table 1. Explanatory Variables Variabe


Sample Size


Standard Deviation


Participant has insurance 5 or more years from 2002-2011 = 1





Participant has insurance from 2002-2011 =1




For those control variables that were significant in the single control regression, I included them in the multivariate regression with full controls. When both average household income and the log of average household income were significant, I ran them separately to avoid collinearity. All of the significant single control regression results and the complete multivariate regression with full controls results are reported in the results tables below. NLSY’s 2011 sample weights, which correct for oversampling among certain minority groups, were applied to the regressions.

overlapping region, in which propensity scores ranged from zero to 0.78. The results for this technique largely matched those of the logistic regression version.

Then, I estimated having insurance in all years of the study on the complete set of controls using the logistic model. The controls included time living in urban areas, the education of an individual’s mother, the individual’s ASVAB cognitive test score, and household income. To assure that the propensity score matching would work properly, I dropped 1275 observations For the matching pairs design, I ran both an for which the propensity score – the predicted author-constructed propensity score matching values from the logistic regression – was missing model using an ordinary least squares and fewer than 20 observations for which the regression model, and a version using Stata’s propensity score was near-zero. I then ran 1-tologistic-based propensity score matching model. 1 propensity score matching for all outcome For the author-constructed model, I regressed variable pairs with having insurance in all years the binary treatment variable - whether the as the independent variable of interest. I again individual had insurance in all study years - kept household income and log of household on the full set of controls. I used the predicted income separate, although answers were similar values as propensity scores. Subsequently, I across both versions. regressed each outcome on the treatment and propensity scores, which captured the complete set of controls, but restricted the sample to the Table 2. Outcome Variables Variabe




nottreated avgbmi avgbmi02 positivehealth




Standard Deviation

Times sick and sought 8984 care (limit 4 per year)



Proportion of years in which person had a checkup, 2002-2011

Sample Size 8630



Times sick and seek care (limit 4 per year)




Body mass index, 1997-2011 (restricted between 15 and 45)




Body mass index, 2002-2011 (restricted between 15 and 45)




Health reported “excellent”, “very good”, or “good”, 1998-2009 =1




Health reported “excellent”, “very good”, or “good”, 2002-2009 =1





SERVICE USAGE AND HEALTH OUTCOME RESULTS The data point to a strong relationship between having health insurance and receiving more health care services, even when controlling for household income, an individual’s innate cognitive abilities, urban environments, and mother’s education. However, the relationship between having insurance and actual health was weak. The proportion of years in which an individual got a check-up and the number of times the individual sought treatment were both highly correlated with having insurance. Having

insurance for all study years was correlated with an 18 percent increase in the number of years with an annual check-up (P < .001) and an additional 2.4 instances of seeking treatment when sick during the years examined (P < .001). Propensity score matching confirms these results (see Tables 6-8). However, having insurance for all years examined was correlated with an additional 1.1 instances of being sick and not seeking treatment (P < .05) and the correlation is even stronger with having insurance in at least half of the years of the study (P < .001) (see Tables 9 and 10). Propensity score matching confirms the result for having insurance in all study years (see Tables 15 and

Table 3. Unweighted Bivariate Regressions.

Table 4. Weighted Bivariate Regressions.


































.173515 (P = .137)






-.1531059 (P = .275)














Legend: * = P < .001; ** = P < 0.05; *** = P < .1

Insured ASVAB





Urbanicity Constant




Half-Insured ASVAB



.2398977*** -.000729***













H. Insured ASVAB



Legend: * p<0.05; ** p<0.01; *** p<0.001








-.63258716*** -.0101704***





















Legend: * p<0.05; ** p<0.01; *** p<0.001

Table 9. Number of Times the Individual Did Not Seek Treatment (nottreated). Insured ASVAB




.5220824* .03429***









Log Avg. Inc. 8.3689***








-.00071902*** .05976721***





Table 10. Number of Times the Individual Did Not Seek Treatment (nottreated). Half-Insured ASVAB




1.7208797*** .03007907***

Urbanicity Constant



Legend: * p<0.05; ** p<0.01; *** p<0.001



Legend: * p<0.05; ** p<0.01; *** p<0.001








.0326*** 1.184***





Legend: * p<0.05; ** p<0.01; *** p<0.001


Avg. Income


Table 8. Number of Times the Individual Sought Treatment (gottreated).

Constant (6)



Log Avg. Inc.

Legend: * p<0.05; ** p<0.01; *** p<0.001

Table 6. Proportion of Years with an Annual Check-up (docvisitspr)


Avg. Inc.

Results above reflect a binary regression of all dependent variables of interest on “insured” and “halfinsured”. Weights used throughout are the 2011 NLSY sample weights, which correct for oversampling among certain minority populations.

Table 5. Proportion of Years with an Annual Check-up (docvisitspr).


Legend: * p<0.05; ** p<0.01; *** p<0.001

Legend: * = P < .001; ** = P < 0.05; *** = P < .1


I also constructed an interaction term between having insurance and not seeking treatment. The interaction term had no statistically significant relationship with being sick and getting treatment, even though both having insurance and not seeking treatment did have a statistically significant relationship (P < .001). If less healthy individuals were more likely to get insurance, then we would expect the interaction term to account Table 11. Average BMI (1997 – 2011) (avgbmi) (Half-Insured is not statistically significant).



associated with 0.6 additional instances of being sick and seeking treatment (P < .001).

Table 7. Number of Times the Individual Sought Treatment (gottreated).



16). One potential explanation is that people who have insurance are simply more aware of their health. Alternatively, those who are more sick and, therefore, value insurance more highly may be are more likely to get health insurance. If so, this study may under-report the positive health effects of insurance, since those with insurance would start at a lower average baseline of health. There is some evidence in the data for the less concerning health awareness explanation. Even with a full set of controls, an additional instance of being sick and not seeking treatment is











for some of the relationship between not seeking and seeking treatment when sick. Instead, it is likely that there is a positive relationship between acknowledging that you are sick, or health awareness, and having insurance. A randomized design would better address this issue.

ordinary least squares-regression based model still showed a relatively strong relationship between having insurance and positive selfreported health (P < .001) (see Table 16).

Having insurance for all study years is correlated with a 0.63-point decrease in BMI (P < .001) and The results for measures of actual health are a 0.51-point decrease in BMI when looking only more mixed. Having insurance for all study years at BMI from 2002 to 2011 (P < .001) (see Tables is correlated with an 8.4 percent increase in the 11 and 12). However, having insurance for at number of years the individual reports that they least half of the study years is uncorrelated with are in good health (P < .001) (see Table 13). BMI. Using propensity score matching, I find no Having insurance for half of the study years is significance for either average BMI in all study correlated with a 4.9 percent increase in reporting years or average BMI from 2002 to 2011 (see good health (P < .001) (see Table 14). Propensity Table 15). While obesity is a significant concern score matching using a logistic-based model, yet in the United States – and the average BMI in the showed a weaker relationship, especially when study was above 25, or above the healthy target average household income, rather than the log range – having too low a BMI is also a health of average household income, is used as a concern. Consequently, the flat BMI measure control (see Table 15). The author-constructed, does not adequately capture the potential health Table 12. Average BMI (2002-2011) (avgbmi02) [Half-Insured is not statistically significant]. Insured ASVAB




-.64926*** -.01127***

Avg. Inc.








Log Avg. Inc. Constant




Table 13. Youth Reports Good Health (positivehealth). Insured









Avg. Inc.

27.586*** (38)+


1.9e-06*** .65294***












Sought Treatment 2.853052*** .3894231


Sought Treatment 2.755502*** .373547


Not Treated

1.244461*** .3407408


Not Treated




Good Health




Good Health

.0652698*** .0175254


Good Health (0211)




Good Health (0211)





Avg. BMI




Avg. BMI






Avg. BMI (02-11)






Avg. BMI (02-11)






.08368*** .00175***

1.3e-06*** .82509***





+Biological mother’s highest level of education and residential mother’s highest level of education included as controls in models (38), (40), (44), and (46).

Table 14. Youth Reported Good Health (positivehealth). H. Insured ASVAB




.08251*** .00254***

Avg. Inc.








Log Avg. Inc. Constant




Legend: *** = P < .001; ** = P < .01; * = P < .05



individuals. However, insuring more individuals may increase health care service usage, a possibility many budget forecasters are beginning to consider.16 This study supports that concern with increased health care service usage, as more young Americans sign-up for insurance under the ACA. Also, this study indicates that While having insurance is highly correlated having insurance may not be correlated with with receiving more health care, the results actual health improvements, although less for actually improving health are more mixed. healthy individuals signing up for insurance Considering the positive relationship between may be creating a bias in the results. Therefore, having insurance and not seeking treatment, a policymakers should not rely on improved health phenomenon of less healthy individuals being to reduce government health care costs. more likely to have insurance would mask the true relationship between insurance coverage The two most significant flaws in this study and health. are its observational design and limited health outcome variables. An observational study will POLICY IMPLICATIONS AND LIMITATIONS conflate treatment with significant differences in The United States continues to confront the baseline health. In this particular study, the only problem of increasing health care costs. A goal measures of health available were BMI and selfof the Obama Administration’s solution was reported health, for which different individuals moving younger people into the health insurance may have different scales. Those two measures system, so as to spread the risk of older, sicker do not capture family history, chronic diseases, childhood ailments, and other potential health concerns. Both the inability to control for these Table 15. Propensity Score Matching Design issues and the inability to measure the effect (Average Treatment Effect). of having insurance on baseline health status Coefficient AI Robust Income Std. Error reduce the significance of this study’s results. The use of a randomized design would address Annual Check-up .2051745*** .0116314 Reg (%) both of these concerns. .2051896*** .0116027



Log Avg. Inc. Constant


issues contained in the BMI measure. However, only 795 individuals had an average BMI below 20, a healthy range, and only 108 individuals had an average BMI below 18. This indicates that the low BMI effect was likely not substantial when focusing on the 15 to 45 BMI range.





Annual Check-up (%)

Legend: *** = P < .001; ** = P < .01; * = P < .05

Table 16. Author-Constructed Propensity Score Matching. Variable


Annual Check-up (%) .180751***

Robust Std. Error .0094836

Sought Treatment

2.447139*** .2708443

Not Treated


Good Health

.0621668*** .0138028

Avg. BMI



Avg. BMI (02-11)




Legend: *** = P < .001; ** = P < .01; * = P < .05

NOTE: The controls used in the two tables above are ASVAB score, percentage of time in an urban area, biological mother’s highest level of education, and residential mother’s level of education. For household income, log(household income) and household income were used separately and are indicated.


The potential combination of increased costs due to greater health services usage and unclear levels of health savings due to individuals not experiencing any health improvements indicate the need for other cost cutting measures. Structural changes to health care delivery systems, rewarding high-quality care, or simply reducing the number of services paid for and the amount paid for services can all reduce costs. When aiming to resolve America’s health care budget crisis, lawmakers would benefit from examining these options, rather than relying solely on health improvements resulting from having insurance.

obamacare-deadline-more-young-people-signedup-in-march/. 6. “The Health Insurance Experiment,” RAND Corporation, 2006, accessed November 16, 2014, RB9174/index1.html. 7. Lawrence Lewin et al., “America’s Uninsured Crisis: Consequences for Health and Health Care.” Institutes of Medicine, February 23, 2009. Files/2009/Americas-Uninsured-CrisisConsequences-for-Health-and-Health-Care/ Americas%20Uninsured%20Crisis%202009%20 Report%20Brief.pdf. 8. Miles A. McNall, Lauren F. Lichtey, and Brian Mavis, “The Impact of School-Based Health Centers on the Health Outcomes of Middle School and High School Students,” American Journal of Public Health, 100, no. 9 (2010): 1604–1610, http://www. 9. Katherine Baicker et al., “The Oregon Experiment - Effects of Medicaid on Clinical Outcomes,” New England Journal of Medicine, 368, no. 18 (2013): 1713-1722, web. 10. Ibid. 11. Sarah Taubman et al., “Medicaid Increases Emergency Department Use: Evidence from Oregon’s Health Insurance Experiment,” Science Magazine, 343, no. 6168 (January 2014): 263168, web. 12. S. Todd Callahan and William O. Cooper, “Uninsurance and health care access among young adults in the United States,” Pediatrics, 116, no. 1 (2005): 88-95, web. 13. Michael Anderson, Carlos Dobkin, and Tal Gross, “The Effect of Health Insurance Coverage on the Use of Medical Services,” American Economic Journal: Economic Policy 4, no. 1 (2012): 1-27, web. 14. Jeffrey A. Smith and Petra E. Todd, “Reconciling Conflicting Evidence on the Performance of Propensity Score Matching Methods,” American Economic Association Papers and Proceedings, 91, no. 2 (May 2001): 112-118, web. 15. “About BMI for Adults,” Centers for Disease Control and Prevention, September 13, 2011, accessed April 21, 2014, healthyweight/assessing/bmi/adult_bmi/. 16. Avery Johnson, “Expect Health Insurance Premiums to Rise,” Wall Street Journal, March 22, 2014, 1424052702304756104579449153495552222.

Joseph Liss is a second-year Master of Public Policy at the Batten School of Leadership and Public Policy at the University of Virginia. He serves as the Senior Online Editor for the Virginia Policy Review and one of the founding editors of VPR’s blog, The Third Rail. SOURCES 1. Jason Millman, “Facing Obamacare deadline, more people signed up in March,” The Washington Post, April 4, 2014, http://www.washingtonpost. com/blogs/wonkblog/wp/2014/04/04/facingobamacare-deadline-more-young-people-signedup-in-march/. 2. Julie Topoleski, “Federal Spending on the Government’s Major Health Care Programs Is Projected to Rise Substantially Relative to GDP,” Congressional Budget Office, September 18, 2013, accessed November 16, 2014, http://www. 3. Romina Boccia, Alison Acosta Fraser, and Emily Goff, “Federal Spending by the Numbers, 2013: Government Spending in Trends, Graphics, Tables, and Key Points,” Heritage Foundation, August 20, 2013, research/reports/2013/08/federal-spending-bythe-numbers-2013. 4. Centers for Medicare and Medicaid Services, “Accountable Care Organizations,” March 22, 2013, accessed November 16, 2014, http://www. 5. Jason Millman, “Facing Obamacare deadline, more people signed up in March,” The Washington Post, April 4, 2014, http://www.washingtonpost. com/blogs/wonkblog/wp/2014/04/04/facing-


The United States and Vietnam: The Path to a Modern Relationship Alexander Perschall


This paper traces the relationship between the United States and Vietnam from World War II to the present and it offers recommendations for improving cooperation between the U.S. and Vietnam. This paper begins by detailing the major shifts in the U.S. approach to Vietnam through the lens of changing presidential administrations. This analysis devotes particular attention to the development of a military relationship between the U.S. and Vietnam over the past two decades. This paper concludes by presenting three recommendations for the development of a stronger military partnership between the U.S. and Vietnam: 1) Lifting the U.S. arms sale ban; 2) Conducting training exercises with the Vietnamese military; and 3)Assisting in greater war aftermath cleanup in Vietnam.


military presence in Japan and South Korea. Since the end of the Cold War, Washington has In January 2012, President Obama announced remained committed to Asia while emphasizing a “Pivot to Asia” in the Defense Strategic economic development and trade. However, Guidance.1 At the time, it was touted as a the terrorist attacks of September 11, 2001 historic change in the United States’ foreign would shift the focus of U.S. foreign policy to policy. While the Middle East dominated the fighting terrorism and the Middle East. early 2000s, Asia and the Pacific have been important to U.S. foreign policy since the One remarkable area of U.S. foreign policy Spanish American War and especially since in Asia has been the case of Vietnam. In the end of World War II. With the United States’ 1975, Saigon fell and U.S. supported South victory over Imperial Japan, Asia became Vietnam ceased to exist. Despite the bitter crucial to U.S. strategic interests. As the Cold war and the continued rule of the Communist War developed, the United States undertook Party, relations between the U.S. and Vietnam a policy of containment to halt the spread normalized twenty years later in 1995. Today of Soviet Communism. The containment Vietnam is the U.S.’s 27th largest trading would undergo changes as each successive partner with $26.9 billion in trade.2 Strong ties administration came into office, but the overall with Vietnam is key to the U.S.’s strategy in Asia. objective remained constant. Under the policy In order to continue building their relationship of containment, the U.S. fought large wars in with Vietnam, the U.S. should ensure the Korea and Vietnam while maintaining a robust completion of the Trans Pacific Partnership 41

to enhance their economic ties. Additionally, to of communism on all fronts through a massive build the military to military relationship the U.S. buildup of the military to support this effort.7 should lift its arms sale ban, increase training, Following World War II, Washington supported and increase efforts in war aftermath cleanup. the French’s efforts to re-establish colonial rule in HISTORICAL POLICY SETTING Indochina and to fight against communist forces. Indochina communist forces had fought against At the height of their power during World War Japanese occupation and then continued their II, Japan controlled most of East Asia including armed resistance against the French. With China, Korea, French Indochina (modern day the election of President Eisenhower in 1952 Laos, Cambodia and Vietnam), British Hong and the end of hostilities in Korea came a new Kong and Malaya (modern day Malaysia and permutation in the strategy of containment. The Singapore), Dutch East Indies (modern day administration undertook a planning exercise Indonesia), and the United States’ Philippine known as Operation Solarium that produced Islands. A post war occupation framework in the what was called the “New Look.” At the heart of Pacific was not well formulated because it was the New Look was the idea that the U.S. could believed that Japan would fight well into 1946 not sustain the cost of a military large enough to and maybe even 1947. This changed when resist communism on all fronts. The “New Look” Japan unconditionally surrendered on August called for restrained use of conventional forces 14, 1945 following the dropping of atomic bombs but a higher reliance on deterrence afforded by on Hiroshima and Nagasaki.3 the use of nuclear forces in retaliation. It also At the conclusion of World War II it became placed an emphasis on resisting communism apparent that the new threat to the United States in vital areas of American interest. Under would be the expansionist desires of the communist the auspices of the “New Look,” President Soviet Union. In territories that the Soviet Union Eisenhower decided not to deploy the U.S. liberated, they established communist regimes military in support of the French in Indochina, 8 that were sympathetic to Moscow. Over the despite the threat of spreading communism. next few years the United States developed and On May 7, 1954, French forces surrendered to implemented a “containment” strategy, which North Vietnamese Communist forces, signaling endured throughout the Cold War. the end of French involvement in the region.9 Following the French exit, Vietnam was divided, similar to Germany and Korea, along the 17th parallel. Communist Ho Chi Minh led North Vietnam while anti-communist, Ngo Dinh Diem, led South Vietnam. Diem required extensive support from the U.S. in order to maintain his power and prevent a rise of communism in the South.10

The origins of containment began with a diplomatic cable on February 22, 1946 from the U.S. embassy in Moscow to the State Department written by George F. Kennan.4 Kennan, a Russian expert working in the U.S. embassy in Moscow,5 recommended strength and firmness to counter Soviet influences.6 Kennan stressed that the Soviet Union could be splintered and defeated with a strong, positively structured alternative message.

Upon taking office in 1961, President Kennedy also sought to redefine the strategy of containment. He believed that the Eisenhower administration had become too reliant on nuclear weapons. With an emphasis on “flexible responses,” Kennedy’s administration could respond to threats of spreading communism without resorting to nuclear warfare.11 As differences between China and the Soviet Union became apparent, the

The detonation of the Soviet Union’s first atomic weapon, the fall of China to communism, and the invasion of South Korea led the Truman administration to reevaluate the methods Kennan had advocated. This produced what became known as National Security Council-68 (NSC-68). NSC-68 sought to prevent the spread 42

new administration no longer saw communism as a cohesive unit.12 Kennedy had criticized the Eisenhower administration during his campaign for allowing a “missile gap” to emerge, and set out to close this perceived “missile gap” between the U.S. the Soviet Union.13 The U.S. intervention in Vietnam grew out of the idea of the need to resist the spread of communism on all fronts. With the additional conventional means that Kennedy had implemented, he was able to intervene short of nuclear war, starting first with military advisors. In South Vietnam, the Diem regime was under pressure from communist forces which led to a harsh domestic crackdown. On November 1, 1963, a U.S. prompted coup overthrew the Diem regime but left the country weaker than it already was.14 1964 signaled the ‘Americanization’ of the war when President Johnson expanded the U.S. war effort by increasing ground troops and strategic bombing campaigns in North Vietnam.15 The February 1968 North Vietnamese Tet offensive, while tactically a complete defeat, signaled a turning point in the war as U.S. domestic support dramatically waned as casualties increased. Later that year President Johnson announced a desire to end the war through a peace settlement.16

countries included Indonesia, Malaysia, the Philippines, Singapore and Thailand. ASEAN’s focus was on economic growth and partnership as well as advocating peaceful means to settle disputes in the region. ASEAN expanded in 1984 with the inclusion of Brunei, then again in 1995 with Vietnam, Laos and Myanmar in 1997, and finally Cambodia in 1999. A key requirement to join ASEAN is that the country must be located in Southeast Asia, therefore outside powers such as China and the United States cannot belong to ASEAN.18

Following the embattled Carter administration, President Reagan returned to a strategy of containment. The U.S. sought to “forc[e] the U.S.S.R. to bear the brunt of its economic shortcomings, and to encourage long-term liberalizing and nationalist tendencies within the Soviet Union and allied countries.”19 Reagan saw that the Soviet economic system could not survive and in time there would be an opportunity to reverse the spread of Soviet influence. Eight months later he explained that the U.S.’s primary task was “to contain and, over time, reverse Soviet expansionism by competing effectively on a sustained basis with the Soviet Union in all international arenas -- particularly in the overall military balance and in geographical regions of priority concern to the United States.”20 In order After being sworn into office in 1969, President to meet this goal of competing with the Soviet Nixon set out his own interpretation of Union, Reagan started the buildup of nuclear containment by formulating a policy known and conventional forces, similar to what was as détente. Nixon placed a higher priority on proposed in NSC-68 thirty years earlier. negotiating with the Soviet Union than previous administrations as seen through the Strategic With the ascension of Mikhail Gorbachev Arms Limitation Talks (SALT). Nixon’s strategy as the General Secretary of the Communist was to open a relationship with China as a way Party of the Soviet Union, things started to reduce the power of the Soviet Union. Finally, to change. Gorbachev came from a new Nixon pushed to withdraw the U.S. military from generation of political leaders and he saw the Vietnam while advocating a focus on protecting structural problems that existed in his country. vital U.S. interests, primarily those in Western He introduced the policies of glasnost and Europe. With the successful exit of American perestroika that would lead to the breakup of its forces in 1973, South Vietnam fell to communist empire and the fall of the Soviet Union by 1991.21 forces in 1975 and Vietnam became united.17 This transformed the international system that had existed for the previous forty years. Unlike During the Vietnam War, a new organization was in Europe, however, it did not lead to political formed known as the Association of Southeast change in Asia as communist regimes remained Nations (ASEAN) in 1967. The founding in the People’s Republic of China, Vietnam, and 43

North Korea.22 With the fall of the Soviet Union went the strategy of containment which had been the guiding principle behind U.S. foreign policy for the previous four decades.

relationships in the region.

With the demise of the Soviet Union, President George H.W. Bush saw an opportunity to establish a “new world order” by having a peace dividend that would reduce the size of the U.S. military. In Asia, he recognized that without the support of the Soviet Union, the communist regimes which remained in the region could be destabilized, especially Cambodia, Vietnam, and North Korea. Despite the Tiananmen Square incident, the Bush administration continued its relationship with the People Republic of China (PRC) so that they would not be driven into further isolation.24

Following the war, the U.S. established a trade embargo and provided no foreign assistance to Vietnam for almost two decades.27 Given their historical animosity and distrust, Vietnam could not garner support from China following the war. This left Vietnam to rely on its traditional sponsor, the Soviet Union. Both countries shared a communist orthodoxy, especially regarding to the idea of a command economy.


As previously stated, the withdrawal of U.S. Another economic organization was formed in troops from Vietnam in 1973 led to South Vietnam 1989, the Asia-Pacific Economic Cooperation falling to North Vietnam in 1975. Communist (APEC). Membership includes twenty-one forces succeeded in their struggle to have a countries from Southeast and Northeast Asia, united country free of occupation. This long North, Central and South America, China, Taiwan, struggle, however, left Vietnam in shambles and and Russia. APEC is focused on free trade and it would take dramatic changes within Vietnam, investment in order to grow the economies of the the region, and among the world’s superpowers to help bring it into the modern era. Asia-Pacific.23

Events at the end of the 1970s would further isolate Vietnam. In 1978, Vietnam invaded neighboring Cambodia and ousted the Khmer Rouge regime, which expanded the embargo With the election of President Obama, national already in place by the U.S. to other countries. invasion security policy again took another turn. Obama One year later, China conducted an 28 Despite announced a “pivot,” or “rebalancing” of U.S. along Vietnam’s northern border. efforts to build industry in the North and to priorities to Asia after almost a decade of focusing on the Middle East. The return to Asia transition the South into the socialist model, a stagnating economy by shifted its focus to economic factors and away these events formed 29 from the military-first approach of the previous the early 1980s. administration. His policy was also a shift away The stale economy prompted new thinking within from unilateralism, arising from a desire to work the leadership of Vietnam. There was a realization through international and regional organizations that the command economy was not working and to achieve U.S. objectives.25 that reform was needed. In 1986 at the Sixth As stated in the 2012 Defense Strategic Guidance, Party Congress, the idea of doi moi, or economic in order to bring a series the United States is committed to Asia and the renovation was adopted 30 of reforms to Vietnam. These reforms included Pacific. The U.S.’s goal is to “protect freedom of access throughout the global commons.”26 parts of the market economy, such as the private The global commons are areas beyond national sector, but ensured that the Communist Party jurisdictions, primarily the air and sea. Global would maintain power and leadership over the commons are important for the transportation of state. The Sixth Party Congress also established goods that the world economy relies upon. To that economic development, not military security, achieve this goal, the United States aims to work would be the priority of Vietnam. Implementation through existing alliances while building new of doi moi was slow until the dramatic events of 44


would look was also in its own region through the Association of Southeast Asian Nations The fall of the Berlin wall in 1989, the subsequent (ASEAN). Vietnam’s desire to join ASEAN was dismantling of the Soviet Union, and the fall spurred primarily by economic reasons, but also of other communist regimes in Europe sent to “oppose Chinese hegemony”36 in Southeast shockwaves through Vietnam. Not only had it Asia. Vietnam’s path to membership was not lost its largest benefactor, but Vietnam also lost easy given the animosity and distrust that both the block of countries it depended upon for trade. sides developed during the Cold War. This was Vietnam had the choice to either look inward to also compounded by other legacies of the Cold maintain communist orthodoxy, as North Korea War. English had become the common language did, or expand its partnerships in the world.32 and the language that business was conducted Vietnam withdrew from Cambodia in 1989 in by ASEAN. However, at the end of the Cold primarily due to decreasing aid from the Soviet War, Vietnam did not have English speakers in Union and the reprioritization given to economic its political elite and struggled to keep up due 37 development over military security.33 The events to translation issues. Despite apprehension on of 1989 laid the groundwork for the Vietnam both sides, Vietnam joined ASEAN in July 1995. that would emerge after the end of the Cold While Vietnam was seeking to join ASEAN, it also War. The leaders of Vietnam realized that they aimed to improve relations with the United States. must reform themselves because the communist Given the United States’ close relationship with world no longer existed. Most importantly, they ASEAN and the fact that it was the remaining made the decision that economics had higher superpower, it was logical for Vietnam to seek importance than military power.34 a partnership with the United States. A change With the loss of its main patron, Vietnam had to look for other partnerships to survive in the new world. The first place it would look would be to its own region, starting with China. Relations with China had been strained by the invasion of Cambodia and continuous border incursions. With its withdrawal from Cambodia, Vietnam sought to normalize relations with China. Within Vietnam’s leadership, several factions saw this normalization as an opportunity; some saw this as an opportunity to rebuild the communist world with China at the helm, while other factions saw the economic benefit of trading with China given their large population and geographic proximity. The final faction was weary of closer relations with China for fear that they would come to dominate Vietnam. In the end, relations with China were normalized in 1991 but not upon ideological terms of solidarity among the few remaining communist regimes, nor with strong economic ties. The relationship would proceed cautiously with limited initial benefit to Vietnam.35

would have to first take place in the United States for this relationship to take hold. Vietnam’s invasion and occupation of Cambodia was the main reason for the United States’ continued sanctions and lack of diplomatic ties. Vietnam’s withdrawal from Cambodia did not improve relations because the U.S. desired Vietnam’s cooperation with finding American Prisoners of War and Missing in Action (POW-MIA).38 By 1994, the U.S. felt Vietnam had made sufficient improvement on the POW-MIA issue that it lifted the economic embargo and normalized diplomatic relations in 1995.39

After joining ASEAN and normalizing relations with the U.S., Vietnam’s next goal was to join the World Trade Organization (WTO). A significant step in joining the WTO is negotiating bilateral trade agreements (BTA) with all member nations. Negotiations with the U.S. started in 1997 and continued until an agreement was made in 2000. As part of the BTA, Vietnam agreed to “undertake a wide range of market-liberalization measures.”40 Given the limited success in building a relationship During this time, there was fear within Vietnam’s with China, Vietnam decided to build partnerships government that further integration into the world with its previous enemies. The next place it economy would cause the Communist Party 45

to lose control over the country. The reformminded leaders prevailed due to a common “fear of falling behind”41 its neighbors and the rest of the world. The United States granted permanent normal trade relations to Vietnam in 2006 which paved the way to joining the WTO in 2007.42

issues in the region as well as preventative diplomacy. Unlike ASEAN, ARF includes countries that are outside of Southeast Asia, like those from Northeast Asia, Central Asia, the European Union, Russia, and the United States.48 Like ASEAN, ARF is a forum that operates through consensus building.

While Vietnam was able to come to an agreement with China on their shared border in 1999, territorial disputes continued over competing claims to island chains in the South China Sea. These island chains are important because of their extensive fisheries, energy reserves, freedom of navigation, and ideological reasons. Vietnam has advocated for multilateral negotiations to resolve these disputes while China will only negotiate bilaterally.43

To build on their efforts in ARF, ASEAN created the ASEAN Security Community (ASC) in 2003. The ASC, later renamed the ASEAN PoliticalSecurity Community (APSC), was established as a subordinate community under the broader ASEAN Community which seeks establishment by 2015. APSC’s goal is to foster deeper integration between member states and the world through the promotion of peace and stability in the region. “APSC envisions three characteristics: VIETNAM’S MILITARY RELATIONS (1) A Rules-based Community of shared values While doi moi forced the Vietnamese military to and norms; (2) A Cohesive, Peaceful, Stable take a backseat to the economy, it has remained and Resilient Region with shared responsibility important to their overall strategy. Vietnam’s for comprehensive security; and (3) A Dynamic defense strategy turned towards building closer and Outward-looking Region in an increasingly 49 ties with regional partners and the United States integrated and interdependent world.” APSC while maintaining a close eye on its relationship has provided a mechanism for ASEAN to grow closer together in the security realm as it seeks with China. to build an expansive community. While keeping their defense expenditures low, Vietnam has put emphasis on building its military In 2006, ASEAN held its first annual ASEAN relationships. Vietnam’s military expenditures Defense Ministers Meeting (ADMM). Similar to as a percentage of GDP have been estimated at APSC, ADMM is a level defense meeting that 2.2%, 2.4%, and 2.3% for 2011, 2012, and 2013, is about building regional peace and stability respectively.44 In comparison, the United States between member nations. ADMM has resulted spent 4.35% while China spent 1.99% in 2012.45 in increased cooperation, especially with regards This level of expenditure is in stark contrast to humanitarian assistance and disaster relief. to the pre-doi moi era in which Vietnam spent Additionally, ADMM decided to establish the 7.1%, 7.7%, and 7.9% in 1988, 1989, and 1990, ASEAN Defense Industry Collaboration (ADIC) respectively.46 Russia, its historical benefactor, in 2011. The establishment of a regional defense remains Vietnam’s primary supplier of arms. industry will reduce ASEAN’s dependence Despite its limited budget, Vietnam continues on foreign military sales, standardize military to invest and modernize its military, including force, reduce the cost of arms, and lead to ordering its first submarines from Russia with technological developments that can be used outside of defense.50 expected delivery in 2015-2016.47

closer together. Going forward, the relationships that Vietnam maintains with ASEAN, the United States, and China will remain vitally important.

further military cooperation by committing to help Vietnam remove landmines left over from the Cold War.58 Later in 2006, U.S. President George W. Bush visited Vietnam, which was hosting the annual APEC conference, and together with Vietnamese President, Nguyen Minh Triet, expressed satisfaction in the progress of their relationship including military ties.59 At the end of the year, President Bush signed an executive order allowing the U.S Department of State to furnish “defense articles and defense services” to Vietnam.60

A GROWING U.S.-VIETNAM MILITARY RELATIONSHIP The U.S.’s desire to improve relations with Vietnam in the late 1980s and early 1990s centered on a military matters, specifically POWMIA. The goal of bringing home all Americans from the war allowed for diplomatic channels to be opened. Without progress on this issue, diplomatic relations between the countries would not have materialized. Having sufficiently made progress on the POW-MIA issue, relations were normalized in 1995 which lead to many of the precepts previously discussed.

Since joining ASEAN, Vietnam has grown closer with its regional partners as ASEAN has made In 1994, when Vietnam was seeking membership security matters just as important as economics to ASEAN, the ASEAN Regional Forum (ARF) and diplomacy. The building of the ASEAN was established to address political and security Community will continue to bring the region

In 2008, the first annual Political, Security and Defense Dialogue was held between the U.S. Department of State and Vietnam’s Foreign Ministry, discussing areas that could further strengthen their relationship, including potential 61 51 Eventually making its first port call in 2003, the arms sales. In 2010, the U.S.-Vietnam Defense U.S. Navy increased its presence in Vietnam Policy Dialogue, an exclusive high-level military 62 with three different ships, including the aircraft forum, took place. carrier U.S.S. John C. Stennis, making port calls At the second Defense Policy Dialogue, a in 2009.52 Additionally, the U.S. Military Sealift Memorandum of Understanding was signed Command salvage ship U.S.N.S. Safeguard which had five focus areas, including “the underwent repairs, a first.53 This cooperation establishment of a regular high-ranking dialogue continued in 2010 with more port calls and mechanism between the U.S. Department of the repairing of two additional non-combatant Defense and the Vietnamese Defense Ministry, ships.54 2010 also saw the first joint U.S.- sea security, search and rescue, studying and Vietnamese naval exercise on the U.S.S. John exchanging experience in the United Nations S. McCain, a destroyer, while focusing on non- peace keeping activities, and humanitarian combat missions.55 The following year, exercises aid and disaster relief.”63 The Memorandum of built upon the previous year and included two Understanding concretely lays out a road map U.S. guided missile destroyers, a rescue, and for future cooperation between U.S. and Vietnam salvage ship. The training exercise was also militaries. more complex, including search-and-rescue missions along with other noncombat roles.56 In 2012, the U.S.-Vietnam military relationship grew closer with the signing of an agreement On the occasion of Vietnam’s Prime Minister between the Oregon National Guard and the Phan Van Khai’s official visit to Washington, D.C. Vietnamese military. Vietnam became the 65th in 2005, the U.S.-Vietnam military relationship country in the Guard State Partnership Program, initiated the signing of a crucial agreement for which allows closer ties between Vietnam’s Vietnamese senior military officers. This new military and the Oregon National Guard.64 This agreement allowed Vietnam to participate in the is an important first step since it is the first U.S. International Military Education Training agreement dealing with non-naval forces, and program, which focuses on medical and English provides a mechanism for a broader relationship language training.57 between the countries. Reinforcing this move, The following year, U.S. Secretary of Defense U.S. Secretary of Defense Leon Panetta made Donald Rumsfeld visited Vietnam and discussed a historic visit to Vietnam. He visited Cam Ranh




Bay, the former deep water port of the U.S. continue stabilizing the region. Its relationship during the war.65 with Vietnam has blossomed since diplomatic relations were normalized two decades ago, in In 2013, President Obama welcomed 1995. Continuing to foster this relationship will Vietnamese President Truong Tan Sang to the be key to the United States’ strategy in Asia. White House for an official state visit which led to a new Comprehensive Partnership. In defense A recent article in The Diplomat titled matters they “agreed to work more closely “America’s ‘Military First’ Asia Pivot,”70 makes to counter terrorism; enhance maritime law the argument that the U.S. military has led the enforcement cooperation; combat transnational charge in President Obama’s Asia focus while crime including piracy, and narcotics, human, other instruments of American policy such as and wildlife trafficking; and address high-tech diplomacy, economics, and politics, have lagged crime and cyber security.”66 President Obama behind. This observation has been particularly further pledged U.S. assistance in training germane to Vietnam. As the U.S. military is through the Global Peace Operations Initiative, likely to remain in the lead in developing relations an organization comprised of Vietnam’s with Vietnam, there are several ways for the peacekeepers supporting United Nations U.S.-Vietnam military-to-military relationship to operations.67 expand. In August 2014, the U.S. Chairman of the Joint Chiefs, Army General Martin Dempsey, made a historic visit to Vietnam, becoming the first Chairman to visit since the war. General Dempsey commented: “I said to General Ty that ‘I spent the first four years of my military career preparing to fight you.’ There’s something profound about being here now trying to build a relationship on the basis of common interests.”68 General Dempsey’s quote exemplifies the great strides that have been made in the last decade between the U.S. and Vietnam.

The first means to improve the military relationship between both countries is to lift the current ban on the sale of arms to Vietnam, as Ambassador Ted Osius recommended in his confirmation hearing before the U.S. Senate Foreign Relations Committee in June 2014.71 Since Russia remains the primary supplier of Vietnam’s arms, allowing the sale of U.S. arms to Vietnam will show the U.S.’s commitment to Vietnam. U.S. arms training should accompany arms sales. Increased training will allow for better understanding and operability between the two countries. Arms sales remain prohibited Since starting relations over the desire to find all because there are continued fears of human POW-MIA, the U.S. and Vietnam have expanded rights violations in Vietnam. While these are valid their military-to-military ties at both the strategic concerns, with close monitoring and a deliberate level, through dialogues and agreements, as well selection of arms, they can be mitigated. as the tactical level, through training exercises and repair visits. This relationship is important To build on the sale of arms, the U.S. should to Vietnam as it balances potential threats at its increase supplemental training opportunities with border with China. Vietnam. In 2005, the first Vietnamese officers were trained in the United States in English U.S. POLICY RECOMMENDATIONS language and medical skills. It will be important to As General Dempsey said in an interview during expand this effort and invite Vietnamese officers his most recent trip to Vietnam, “By 2050, if the to attend middle and senior level education in projections are correct, there will be nine billion the United States such as the Command and people on the planet. Seven billion of them will General Staff College and the various services’ live in the Indo-Pacific region.”69 As Asia-Pacific War Colleges. These educational opportunities will remain important, the United States must will provide Vietnamese officers a broader nurture its relationships with regional powers to understanding of the U.S. military. Additionally, 48

the exchange would allow Vietnamese officers to provide unique insights about the region to American officers.

to increase its support of U.N. operations.

While naval power continues to be important to Vietnam as it looks to resolve disputes in the South China Sea with China, the United States should also offer training for Vietnam’s land forces. Training land forces provides a deeper human interaction than naval or air forces. Human interactions build understanding between the parties, especially with regards to language and culture. This understanding will be important to build upon if the U.S. and Vietnam are going to work together closely in the future.


Finally, to demonstrate the U.S.’s commitment to Vietnam, a greater effort should be undertaken to Beyond education, a broader training exercise cleanup more of the Cold War aftermath. There program should also be undertaken. While there remains environmental and health problems have been bilateral naval training exercises since from the U.S.’s use of Agent Orange and other 2010, Vietnam has not been included in larger defoliants during the war. Since 2007, $110 multilateral training exercises. This year saw the million74 has been devoted to this effort, but more first inclusion of China into the biannual RIMPAC can be done. In addition to Agent Orange, there multinational naval exercise hosted by the U.S. still remains unexploded ordnance and land Navy Pacific Fleet. Including Vietnam into this mines from the war. These pose a significant exercise not only allows them to work with the threat to the population of Vietnam, especially United States, but it also exposes them to working farmers. Allocating more resources to these with regional partners such as Brunei, Indonesia, efforts will show Vietnam how serious the United Japan, Malaysia, South Korea, the Philippines, States is in building a stronger relationship. and Singapore.72 Like Vietnam, many of these Additionally, putting more resources to these countries are in sovereignty disputes with each efforts will reduce its impact and it will no longer other and China over islands in the South China be a topic for future engagements between the Sea. Training together could lead to a reduction countries so that other pressing issues may be in tensions over these valuable islands. discussed. Asia and the Pacific has been important to the United States since defeating Imperial Japan in World War II. Following WWII, the U.S. undertook a policy of containment to prevent the spread of Communism. While this policy was adjusted as each administration took office, the overarching principles stayed in place for over three decades until the Berlin Wall fell and the Soviet Union dissolved. During the Cold War, the United States fought wars in Korea and Vietnam while maintaining military garrisons in Japan and South Korea.

Ground force training would contribute to Vietnam’s goal of supporting more United Nations Peace Keeping Operations (UNPKO). This year saw the first deployment of two Vietnamese officers in support of UNPKO.73 Most UNPKO involve ground forces deployed to reduce tensions in or between states throughout the globe. UNPKO provide an opportunity for Vietnamese forces to learn from other countries and bring these lessons back home. Selected officers would learn how to operate in a multinational force, which is drastically different from operating in one’s own country. As agreed to in 2013, the U.S. must continue to support these efforts through training and encourage Vietnam 49

As the Cold War was ending, Vietnam realized that it must implement change to “not fall behind.” Therefore, Vietnam introduced doi moi, or economic renovation, which helped transform its economy from state controlled to capitalist. Since implementing doi moi, Vietnam has experienced extraordinary economic improvements including annual growth in GDP between 4.7% and 9.6%. In addition, Vietnam was able to weather two economic downturns, in 1997 and 2008, better than most other countries in the region. Vietnam has accomplished most of this growth through extensive trade which was

valued at 156% of GDP in 2012. However, it still III College. lags behind other countries in the region in terms The views expressed in this paper are those of per capita GDP, with PPP just over $5,000 in of the author and do not reflect the official 2013. Over the last couple of years, Vietnam’s policy or position of the Department of the economy appears to be stagnating. In order to Army, Department of Defense, or the U.S. build on past success, Vietnam must undertake Government. new reforms and investments, especially with its state owned enterprises and infrastructure SOURCES development.

1. Barrack H. Obama and Leon Panetta, “Sustaining U.S. Global Leadership: Priorities for 21st Century Defense,” The White House and The Department of Defense, January 2012, http://www.defense. gov/news/Defense_Strategic_Guidance.pdf. 2. Michael F. Martin, “U.S.-Vietnam Economic and Trade Relations: Issues for the 113th Congress,” Congressional Research Service, April 14, 2014. 3. Roger Buckley, The United States in the AsiaPacific Since 1945 (Cambridge University Press, 2002), 7-15. 4. John Lewis Gaddis, Strategies of Containment (New York: Oxford University Press, 2005), 18-19. 5. Ibid., 14. 6. George F. Kennan, “Telegram to James Byrnes [Long Telegram]” Department of State (February 22, 1946), http://www.trumanlibrary. org/whistlestop/study_collections/coldwar/ documents/index.php?documentdate=1946-0222&documentid=6-6&studycollectionid=&pagenu mber=1. 7. Ibid., 87-124. 8. Ibid., 143-161 9. Ibid., 85-97. 10. Roger Buckley, The United States in the AsiaPacific Since 1945 (Cambridge University Press, 2002), 85-97. 11. Ibid., 200-204. 12. Ibid., 209-212. 13. Ibid., 216-219. 14. Ibid., 124-128. 15. Ibid., 133-136. 16. Ibid., 145-146. 17. Ibid., 153-157. 18. Association of Southeast Asian Nations, “Overview,” accessed July 14, 2014 from http:// 19. Ronald Reagan, “National Security Decision Directive 32,” The White House (May 20, 1982), 2, 20. Ronald Reagan, “National Security Decision Directive 75,” The White House (January 17, 1989), 1, index.html. 21. Ibid., 362-377. 22. Ibid., 181-184. 23. Asia-Pacific Economic Cooperation, “History,”

After the implementation of doi moi, Vietnam’s military expenditures took a dramatic downturn. Today they only spend 2.3% of GDP on their military. However, their security engagement remains important. Vietnam has invested intelligently to build mechanisms for discussing regional security with partners in forums like the ARF and ADMM. At the same time, Vietnam has been developing stronger military ties with the United States. While this relationship initially grew out of the aftermath of the war between the two countries, the relationship has deepened to include tactical training events and high level ministerial meetings. Finally, Vietnam’s military sees the threat of China increasing as China continues to flex its muscles in the South China Sea as demonstrated with the most recent placement of an oil rig in May 2014. The United States will continue to be an influential power in Asia-Pacific for the foreseeable future. As a cornerstone of continuing to enhance this relationship, negotiations for allowing Vietnam to join the Trans Pacific Partnership (TPP) must be completed and the TPP ratified. Not only will the TPP open markets for U.S. goods and bring additional goods to the U.S. market, it is a mechanism to deepen relationships with key Asia-Pacific partners, specifically in this case, Vietnam. Combining this strategy with the previously discussed military-to-military tactics, Vietnam could eventually serve as an incredible example on how to overcome postwar conditions. Alexander Perschall is a second-year Master of Public Policy and Administration student at Carnegie Mellon University’s H. John Heinz 50

accessed July 14, 2014 from About-Us/About-APEC/History.aspx. 24. George H. W. Bush, “National Security Strategy of the United States,” The White House (August 1991). 25. Barrack H. Obama and Leon Panetta, “Sustaining U.S. Global Leadership: Priorities for 21st Century Defense” The White House and The Department of Defense, January 2012, news/Defense_Strategic_Guidance.pdf. 26. Ibid., 3. 27. Mark E. Manyin, “U.S.-Vietnam Relations in 2013: Current Issues and Implications for U.S. Policy,” Congressional Research Service (July 26, 2013), 5. 28. Ibid. 29. David W.P. Elliott, Changing Worlds (New York: Oxford University Press, 2012), 49-51. 30. Elliott, 27. 31. Ibid., 51-57 & 62. 32. Ibid., 60-63. 33. Ibid., 63-64. 34. Ibid., 78-81. 35. Ibid., 87-123. 36. Ibid., 141. 37. Ibid., 146-147. 38. Elliott, 143 and Manyin 5. 39. Manyin, 5. 40. Ibid., 6. 41. Elliott, 195. 42. Manyin, 5-6 and Elliott, 189-195. 43. Manyin, 7-9. 44. Data from “Military Expenditure Database,” Stockholm International Peace Research Institute (SIPRI), accessed August 17, 2014 from http://www. 45. Data from “The World Factbook”, CIA, accessed August 17, 2014 from https://www. rankorder/2034rank.html?countryname=Vietnam &countrycode=vm&regionCode=eas&rank=33#vm. 46. Data from “Military Expenditure Database.” Stockholm International Peace Research Institute (SIPRI), accessed August 17, 2014 from http://www. 47. Jon Grevatt, “Vietnam and US Review Potential Military Sales and Lifting of Embargo.” Jane’s Defence Weekly 48, no. 38 (Sep 07, 2011), docview/888230405?accountid=9902. 48. ASEAN Regional Forum, “About Us,” accessed July 14, 2014 from about.html. 49. “ASEAN Political-Security Community Blueprint,” ASEAN (2009), archive/5187-18.pdf. 50. ASEAN ADMM, “Overview,” accessed August 12, 2014 from asean-political-security-community/category/ overview-5.


51. Tini Tran, “Navy Ship Ends Visit to Vietnam; First U.S. Vessel to Call at Port Formerly,” Oakland Tribune, Nov 23, 2003, docview/351911257?accountid=9902. 52. Sam LaGrone, “US and Vietnamese Medics Join Forces to Heal Old Wounds,” Jane’s Navy International 116, no. 7 (Sep 01, 2011), http://search.proquest. com/docview/885986393?accountid=9902. 53. Ibid. 54. Ibid. 55. Thayer, “Vietnam’s Defensive Diplomacy.” 56. Patrick Barta, “U.S., Vietnam Begin Naval Exercises Amid Tension with China.” Wall Street Journal (Online)(Jul 15, 2011), docview/876861613?accountid=9902. 57. Ellen Nakashima, “Vietnam, U.S. to Improve Intelligence, Military Ties; Premier Discusses Goals before Visit,” The Washington Post, Jun 17, 2005, docview/409828624?accountid=9902. 58. Susan Krause, Rumsfeld Says U.S. and Vietnam Plan to Strengthen Military Ties, Lanham: Federal Information & News Dispatch, Inc, 2006, docview/189973833?accountid=9902. 59. Joint Statement between the Socialist Republic of Vietnam and the United States of America, Lanham: Federal Information & News Dispatch, Inc, 2006, docview/190615669?accountid=9902. 60. Eligibility of Vietnam to Receive Defense Articles and Defense Services Under the Foreign Assistance Act of 1961 and the Arms Export Control Act - Memorandum for the Secretary of State, Lanham: Federal Information & News Dispatch, Inc, 2007, docview/190081128?accountid=9902. 61. US, Vietnam Hold First Political-Military Dialogue, Lanham: Federal Information & News Dispatch, Inc, 2008, docview/190471106?accountid=9902. 62. Carlyle A. Thayer, “Vietnam’s Defensive Diplomacy,” The Wall Street Journal Asia (Aug 20, 2010), docview/745646455?accountid=9902. 63. “Vietnam: Vietnam, US Hold Second Defence Policy Dialogue.” Asia News Monitor (Sep 23, 2011), docview/893611632?accountid=9902. 64. “Oregon National Guard Begins Historic Partnership with Vietnam,” National Guard 66, no. 12 (12, 2012): 18, docview/1268699025?accountid=9902. 65. “During Historic Stop in Vietnam, Panetta Sends Message to China,” Telegraph - Herald (Jun 04, 2012), docview/1018430274?accountid=9902. 66. Barack, H. Obama. “Joint Statement by

President Barack Obama and President Truong Tan Sang of Vietnam.” Daily Compilation of Presidential Documents (Jul 25, 2013): 1-5, docview/1443693181?accountid=9902. 67. Ibid. 68. Jim Garamone, “Dempsey Building Trust in Vietnam,” DoD News, Defense Media Activity, August 15, 2014, newsarticle.aspx?id=122935. 69. “US Committed to Ties to ‘Strong’ VN,” Viet Nam News, updated August 18, 2014, http:// 70. Zachary Keck, “America’s ‘Military First’ Asia Pivot,” The Diplomat, August 16, 2014, http:// 71. Manyin, 22. 72. Commander, “Participants,” U.S. Pacific Fleet RIMPAC 2014, accessed August 18, 2014 from 73. Tuoi Tre, “Vietnam Arm Officials Join UN Peacekeeping Mission for 1st Time,” Tuoitrenews, May 29, 2014, http://tuoitrenews. vn/features/19930/vietnam-army-officials-join-unpeacekeeping-missions-for-1st-time. 74. Manyin, 23.


Heinz Journal, Vol. 12, Issue 1