A New Direction for Climate Negotiations
The Copenhagen climate summit ended six months ago in what was widely seen in the clean tech and environmentalist communities as a major disappointment. Now, six months later, at the conclusion of yet another climate negotiation in Bonn, Germany, optimism for a climate agreement this year is no brighter than in those dark days of December. Nonetheless, the outlines of a pragmatic new approach are beginning to emerge.
As the founder of an investment business focused on the opportunities that will arise from the transition to low-carbon energy, I was hoping that Copenhagen would mark a decisive response that would signal the transformation of the world's carbon-reliant energy systems toward cleaner, more secure infrastructure. European delegations committed wholeheartedly to a single-track objective: a legally binding international treaty with legally binding reduction commitments for all industrial countries, which, let's face it, is a very compelling goal. But the Europeans just did not pick up the signs that were there long before the conference in Denmark. Neither the United States nor China - the world's largest emitters - were going to sign such an agreement.
The United Nations climate regime, heavily influenced by the European view of the capacity of international law to order and direct behavior worldwide, is now seriously challenged. We have no option but to commit to a multilateral process. It is the most intelligent way to respond to a global collective action problem. And yet we must critically analyze the model for international agreements that the world has been following during the past two decades. In Copenhagen, we had not one, not two - but three! - negotiating documents. Now we are managing all three, and the latest approach, known as the Copenhagen Accord, is gaining in political power.
We do have a problem: we have to commit to multilateralism - to abandon it would be irrational-and yet in its current form it is not working effectively and therefore cannot fulfill its mission. That means that we need to reform what we have and to seriously contemplate alternative institutions in order to achieve our agreed-upon objective. We must find a way to organize collective action in a manner that manifests mutual interests. We must look for new ways of acting that are more effective. We have to oblige ourselves to save ourselves.
Collective Action for Mutual Interests
A generation of diplomats has become well practiced in making arguments that do not even approach real-world fact. They have created an alternative reality for the international climate debate, and it is almost impossible to alter it from within. It has to be challenged from the outside. The fact of the matter is that there is no difference between the U.S. interest, Chinese interest, or Indian interest in solving this problem. You could not put a rice husk between them. There is a difference in capacity and in means, but none that justifies inaction.
A low-carbon economy would reduce national security risks, lessen reliance on expensive foreign fuels, reduce local air and water pollution, and avoid investment risks for agricultural development and urban planning that will result from a warmer world. But we carry so much useless baggage in our heads about what our national interest is. We still want to run an "I win, you lose" negotiation process. We still think there are material economic trade-offs here. "After you" strategies benefit no one if climate risk goes unabated.
To deal with the clear mutual interest in avoiding the consequences of unabated climate change, we need only ask: where are the resources to solve the problem, and how do we as a society consciously direct ourselves to using these human, financial, and technological resources more widely. As of yet, we are not properly valuing the cooperation that is necessary to solve this problem in the interest of every nation and every human. Meanwhile, we still exaggerate the costs of the transition. There are costs, but they appear manageable and there are economic benefits associated with investments that move us away from fossil fuels.
The rapidly developing countries, led by China, are now dominating the growth in global emissions, but they have held fast to the notion that the already-industrialized countries must sharply reduce emissions before the developing countries commit legally to domestic reductions. The energy systems of these high-growth economies need to be as least carbon-intensive as is humanly possible, and this must be achieved in a relatively short period of time.
Fortunately, the emerging Asian countries have two advantages when it comes to thinking about who might solve this problem. They have a high-savings culture and they have the capacity to deploy those savings possibly for the first time ever in their own countries, at significant scale, to solve this collective action problem.
These same countries also have enormous brainpower and rapidly advancing educational systems that can fuel the tremendous innovation needed to address this vast and complicated problem. Where are GE's biggest research facilities? They are not in Schenectady, New York, but in Bangalore and Shanghai. Where are the engineers of tomorrow being produced in vast numbers? Where are the solar Ph.D's emerging in huge numbers? This idea that all of the answers lie with those who created the problem is absurd.
Embracing "Wealth Transfers"
Historic polluters need to take action, as well, for their own self interests. I have always said that if there was one country best suited to implement the Kyoto Protocol targets without economic harm while encouraging economic development, it was the United States of America. No nation was in a better place to display credentials on the capacity to connect innovation with business development and investment than America.
The problem for North America, Europe, and Japan is that they are now deeply indebted nations - we have over-spent and over-borrowed - and we are in an economically vulnerable position today. The effect is clearly visible in the clean tech sector. While these economies recover, China is taking over the market, investing more than ever before - China deposited $6.5 billion in renewable energy during the first quarter of 2010.
We have an even-more troubling problem in our language. It is so difficult to talk about investment in China or India, in particular, without it becoming characterized as a "wealth transfer," with the idea of a wealth transfer as a bad thing. Yes, I say that a wealth transfer is a good thing. It's good for solidarity. It's good for solving the problem. And it's good for building a world with lower risk in pretty much every area of human activity.
If I try to have an investment conversation, I can only get so far in Washington, D.C. or Ottawa or Canberra because there is something in the psyche of my opponents' minds that cannot believe that a "wealth transfer" investment provides profitable return. To me, it's obvious: the investment creates wealth if done well, and it delivers an environmental benefit that we share. The moment we build a wind farm in China or capture methane from a coal mine in India or put a waste-heat recovery system in a cement factory in South Africa, there is an immediate environmental benefit to a European or American citizen whether they know it or not.
Whether we get a financial return depends on whether our government maintains a system that creates demand for reducing emissions and whether the UN, with all of its faults, can issue a new type of currency (a carbon credit) that only has value because it represents the public interest. Meanwhile, development in China, India, or South Africa does not suffer. These countries get money they would not otherwise have received, and their industry still produces - but in a more efficient process.
For high-carbon producers in Europe, such as a steel manufacturer, there is a cost to emission-reduction obligations, and that cost is later invested in competing steel-manufacturing industries in places such as China. The cost is manageable by most. Some producers in some sectors suffer - those who compete directly with the manufacturers who receive subsidies for improving efficiency. Some call this unfair. I call it a bargain: we build trade relationships with the high-growth sectors of emerging economies in order to help our economies prosper; we increase the chances that those countries will soon develop comparable policies (this is already happening); those countries see value in more efficient growth; we incentivize our key economic sectors to move toward cleaner, safer technologies; and we soften the blow of this economic transition. We lower costs and we reward co-operation.
A Plurilateral Climate Agreement
The Copenhagen summit did provide a few positive developments that could be the framework for a successful new climate agreement. Amid the confusion over whether delegates would maintain the Kyoto Protocol, craft a new treaty, or settle instead for a political declaration, President Obama intervened, and there would have been no agreement at all if he hadn't.
In my view, there are good elements to the resulting Copenhagen Accord that do point toward a better, future agreement. The Copenhagen Accord championed by the United States has begun a process focused exclusively on outcomes and what resources are available, anywhere in the world, to achieve those outcomes. There is no longer the absolute distinction between developed and developing countries that was enshrined in the Kyoto Protocol - a distinction that no longer reflects economic or political reality. The Accord also firmly endorses a 2-degree Celsius upper limit for the amount of global warming that will be permitted, a sensible way to add a concrete goal to the 1992 UN Framework Convention on Climate Change (UNFCCC) collective-action objective of avoiding "dangerous interference with the climate system."
It's also positive that the Accord includes a commitment to securing significant new financial resources to help poor countries cope with climate change - though believe me, we have no idea what that really means in practice. The $30 billion committed for international assistance for 2010-2012 looks very much like a collection of previous commitments, amalgamated, not coordinated, not streamlined, and probably overlapping. As for the $100 billion a year commitment from 2020 onward, it doesn't take long to realize how thin that offering is. At least 50 percent of the financing is supposed to come from the carbon market, and the carbon market only works if aggressive, binding reduction targets are set, which most countries are still resisting.
The climate change problem forces us to recognize our humanity over our nationality. But we just have not learned to behave like that yet, which is why we cannot give up on our multilateral institutions. We cannot give up on the national process either, and we must work hard at every other level too, including provinces, cities, municipalities, and individuals.
The Copenhagen Accord is a new start. Sooner rather than later, however, we need a new, tougher structure than Copenhagen: a plurilateral agreement that would initially focus on a small group of countries that have genuine interest in solving the problem, but also have the resources that can be channeled to technologies that can flourish, given the right incentives.
Such an agreement would begin by calling for the stabilization of concentrations of greenhouse gases at levels safe for future generations not just to survive but to thrive and prosper. The UNFCCC already articulates a clear over-arching stabilization goal "at a level that would prevent dangerous anthropogenic interference with the climate system. Such a level should be achieved within a time-frame sufficient to allow ecosystems to adapt naturally to climate change, to ensure that food production is not threatened, and to enable economic development to proceed in a sustainable manner." It is a rational scientific response to a scientifically based problem. There's one atmosphere, a single system. It doesn't matter where a ton of carbon is produced; it doesn't matter where it's taken out.
Such an agreement would also state that we have a collective action problem that we can solve more quickly and more effectively at lower costs if we act together. The pragmatic way forward today is to allow differences to emerge via commitments that individual countries offer on their own. When combined within their territories, this approach can be made into a passable patchwork quilt of demand for carbon reduction. The UNFCCC can still convene, connect science and policy, and develop regulatory standards (a definition of one ton of carbon reduced, for instance). The bulk of obligations would be left for national and regional governments.
The sum of all these efforts must be to reduce the risk to societies from climate change and increase opportunities to invest in the low-carbon economy of the future. To that end, there will need to be specific sectoral targets for the major fossil fuel, extraction, and manufacturing industries. The World Trade Organization has the power to oversee trade provisions that would liberalize the markets in green technology, remove subsidies for fossil fuels, and oversee the orderly use of broader tax adjustments.
It might take years to negotiate all that, but a plurilateral agreement could allow for a more specific plan directed to technology solutions. We know that we can create demand globally from national schemes - that is what the European Union has already done with its Emissions Trading Scheme. We know that we can have a hodgepodge of domestic schemes all driving the price of carbon, and that capital markets could cope with the diversity. Twenty years later these markets will converge because that is what markets like to do. We also have the G20 emerging as a potential permanent institution that offers opportunities to test plurilateral deal-making on climate change.
Our hopes were very high for Copenhagen. Now we will be very sensible with how we proceed in the years ahead. Now is the time to form a new conversation. Instead of becoming completely depressed and nihilistic, now is the time to think out of reflection. Now is the time for gloomy creativity. With laziness and inertia continuing to prevent humanity from acting in its best interests, we need some imagination and, most of all, we need to show some guts.
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