Copenhagen: climate deal not climate market

This article is written by Benjamin Mkapa, Member of the Club of Madrid, Former President of Tanzania and Alexander Likhotal, Executive Vice-President of the Gorbachev Foundation of North America (GFNA) and President of Green Cross International.

It is less than six months to the climate summit in Copenhagen. In spite of the long running hot debate of UN, G-8 and the G-20, an adequate global response to climate change appears faltering. With a change of US attitude, there is a new sense of optimism. But the fundamental issues of deep emissions cut, voluntary versus binding commitments, how long developing countries should be waived of such obligations, and mechanisms to adequately fund mitigation and adaptation measures for the latter – are still on the table and very much a part of the first draft text being considered by senior officials in Bonn right now.
With evidence piling up during the last few months of greater melting of polar ice caps and mountain glaciers, it appears that the worst case scenario of climate change is already here while our response is based on 5-7 year old data. The search for solutions needs to be speeded up but there appears to be no sign in the talks leading up to the Copenhagen climate summit in December that the world has come out of its bubble of complacency.
Despite much worthy rhetoric from political leaders worldwide, virtually nothing has actually been done to contain the problem. The stimulus packages of tax cuts, credits and extra spending have been trumpeted for their environmental credentials by the governments proposing them, but a closer look shows that green spending accounts for only a small part of the bigger initiatives. Of the $787.2 billion US economic stimulus package only around $71 billion will be invested in green initiatives – from energy conservation and efficiency to mass transit to environmental cleanup – along with $20 billion in green tax incentives. France and Germany are leading the way in Europe, with a fifth of the $34 billion French package and 13 per cent of Germany’s to be targeted at low-carbon industries.
In the UK, where ministers have promised hundreds of thousands of new green jobs, about 7 per cent will go to environmental goods and services. Meanwhile, Italy will channel only 1 per cent of its planned $100bn to green measures and Poland, which is highly reliant on coal-fired electricity, does not plan for any of its stimulus to be green. Tokyo will devote 2.6 per cent of its spending to green investments, mainly energy efficiency for buildings, out of a total stimulus package of $486bn. New Delhi has no plans to spend any of its $14bn fiscal package on low-carbon activities. China’s $586 billion package includes $50 billion for direct energy efficiency and environmental improvements, $85 billion for investment in rail transport (a lower-carbon alternative to road and air transport), and $70 billion for new electricity grid infrastructure. Globally, green stimulus accounts for roughly 5 per cent of the effort volume. That means that instead of kick-starting the transition to low carbon economy – a must if we take climate change as a clear and present danger – we risk getting locked for many more decades into an unsustainable business-as-usual scenario.
The political scene is glued in place, partly because of vested interest groups’ influence, partly because current leaders do not seem to understand the extent of the challenge or the urgency for action. The overriding paradigm is that conventional economic growth can, and must, continue, and that this is achievable with incremental changes to “business-as-usual”, an approach that is fundamentally flawed on both counts.
Scepticism and low expectations have overtaken all discussions of a post-Kyoto deal despite lip service to matching economic recovery with climate change agenda. What could be trumpeted as positive results are: an improved funding mechanism to pay for climate change adaptation and mitigation in poor nations; more effective transfer of affordable clean-energy technology; and a formal support for a scheme to pay developing nations to preserve rainforests in return for carbon credits or other incentives. But any breakthrough on legally binding emissions curbs is off the radar screen.
The absence of a binding agreement on caps on global emissions by all countries means that in reality such emissions will continue to grow. The industrialised countries do not have a unified position as yet. President Obama has indicated he wants to cut U.S. emissions, either through regulation or legislation, by about 15 percent by 2020, bringing them down to 1990 levels. That is less than the European Union (EU) and what environmentalists would like but they show faith in the US intention to “make up for lost time”. The EU has promised a 20 per cent cut in emissions below 1990 levels by 2020, and has said it would target a 30 per cent cut if other developed nations also pledged to do so. But Australia has delayed its carbon-emissions trading scheme by one year to 2011, on account of the global recession and demands by businesses to soften the carbon regime. Before making clear and strong commitments, countries are waiting for others to take the lead.
Much of the climate discussion revolves around ‘cap-and-trade’ – enlisting the support of the market mechanism to reward those accumulating carbon credits that can be sold to polluters who cross GHG emission limits. But the price of fossil fuels does not reflect the costs of climate change. In order for markets to properly reflect environmental costs, a fundamental tax restructuring is needed. As suggested by a number of experts, tax on carbon emissions should be raised by $20 per ton each year, to exceed $200 per ton of carbon by 2020. This carbon tax growth could be offset with reduction in income taxes.
Major decisions on climate change, in fact, tend to be shaped not by the latest, scientific data but by political compromises dictated by national agendas and watered down by powerful vested interests. Sensible risk management suggests that the target for stabilisation of atmospheric carbon to avoid catastrophic consequences and maintain a safe climate is now a concentration of less than 350ppm of CO2, not the outdated 450-550ppm CO2 that remains the focus in the UNFCCC. This means emission reductions for developed countries must be in the range 45-50% by 2020 and almost carbon-neutral by 2050, rather than the 15-25 per cent by 2020 and 60-80 per cent by 2050 as currently proposed.
Thus, the basis for negotiations for Copenhagen needs to be changed to objectively reflect this science as well as respond to the strategic dilemma facing humanity – combining an effective response to climate change with equitable world development. Left to the market, this will simply not happen. Private capital flows to the developing world are slumping sharply, with net inflows dropping in 2009 to about one-third of the peak $1.2 trillion reached two years ago. Remittances are on the decline, with a fall of at least 5 percent forecast for 2009.
But instead of this focus, a boom is now foreseen in ‘green’ futures and options trade. When the world is going through one of its worst recession on the heels of successive bubble bursts of IT , home mortgage, the stock market and now financial meltdown – there is little to inspire confidence with a green derivatives bubble now to reduce global warming. Not that the market per se is to be blame. The mechanics of those operations and the numerous loopholes they will generate could easily defeat the primary purpose. Moreover, in the ultimate analysis, they are to assist the same energy-intensive industries like coal, oil, steel and electricity to offset their pollution beyond certain limits. That is like coming back to where we started.
A particularly thorny issue that has as yet found no convergence is the reluctance of the developing world to undertake mandatory cuts in greenhouse gas (GHG) emissions. They rightly maintain that they are not responsible for the current accumulation of the GHGs and it would be unfair to ask them to pay a price. While it remains true that on a per capita basis most developing countries are still far behind in terms of their carbon footprint, some are fast catching up. China, for instance, is reported to have overtaken the United States as the largest emitter of GHGs. If China’s per capita income reaches U.S. levels by 2030 and consumption patterns follow, China would need twice current world paper production; more than 1 billion cars, compared to the current world fleet of 860 million; paved area equal to its rice-growing area and more oil than the world currently produces.
But apart from the advanced developing nations, the rest of the developing world has still a long way to go to pose any serious threat as major polluters. If anything, they are among the first candidates that need urgent assistance to adapt to the effects of climate change on agriculture livelihoods and food production. A useful example to illustrate this reality is Africa; which only contributes to almost 4% of total global greenhouse emissions but suffers its impacts the most. As such, least developed countries have are witnessing how climate change has become another obstacle in its way to development. With very poor economic and social infrastructure and fragile political systems they have a very low adaptive capacity, in terms of human resources, institutional technological and financial capabilities.
Above all, the successor to Kyoto after 2012 must have dependable delivery mechanisms – whether of transfer of available green technologies or billions of dollars as a percentage of rich countries’ gross national product for climate mitigation and adaptation measures. It must certainly not go the way of promises on development aid – where most rich countries are still to reach up to 0.7 per cent of their GNP.
It is obvious that the Western economic model – fossil fuel-based, automobile-centered, and a throwaway culture – will not work for the rest of the developing world which wants to catch up with industrial growth. In an integrated global economy, it will no longer work for industrial countries either.
Attempts by governments around the world to boost their economies from the clutches of the gnawing recession are natural and necessary. But political and corporate leaders must recognize that successful resolution of challenges requires transformational leadership, not the incremental managerialism currently in vogue.
There is little point in trying to stimulate the unsustainable, as we are currently doing with economic stimulus packages. Fundamental redesign and redirection of economic and social structures are urgently required. This is the ideal time as traditional constraints that have historically thwarted change are loosened. Given its potential impact on development choices, Copenhagen must seek a strong climate deal and not become a platform to build a market around climate change.

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