21 February, 2011

Climate change: G20’s meaningful silence

Sergio Abranches

Who can influence the most climate change policies? Top economic policy-makers or environmental authorities? In any country of the world, economic policy-makers have far more power to lead us to a low carbon economy, than environmental policy-makers, both public and private. Hence the silence of Finance ministers on climate change is far more meaningful than the eloquence of environment ministers.

And silence was as heavy as the thickest fog ever in Paris at the close of the G20 finance ministers meeting, on February 19. The final communiqué has not a single phrase regarding either climate change or the economic costs and job destruction associated with of land, air, and water pollution.

The Finance ministers of the larger and most powerful economies of the developed and emerging world have used the word ‘sustainable’ only once, on a catch phrase, and in the wrong context. When interpreted by its proximity to other terms receiving greater emphasis, it becomes clear they were not talking about ‘sustainable’ growth, but about ‘sustained’ growth. They did not take notice of UNEP’s report “Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication”, released to the public today, February 21, one day after the meeting closed in Paris, on Saturday. They have quoted a few ‘interim reports’, but have ignored OECD’s “Interim Report of the Green Growth Strategy: Implementing our Commitment for a Sustainable Future”. The workshop for the preparation of the final report was held in Paris just one week before the G20 meeting. The final report is to be presented to ministers at the OECD Ministerial Council Meeting in May 2011. Perhaps they’ll will be able convey the basic ideas to their cabinet mates and to their leaders at home this time. But there is less than a slim chance that the Finance ministers will, then, come to know a bit more about the synergy between economic recovery, job creation, poverty eradication and the transition to a low carbon, green economy.

The Paris Communiqué has nothing but the following paragraph to say regarding economic growth, and their priorities for economic policy.

“We reaffirm our commitment to coordinated policy action by all G20 members to achieve strong, sustainable and balanced growth. Our main priority actions include implementing medium term fiscal consolidation plans differentiated according to national circumstances in line with our Toronto commitment, pursuing appropriate monetary policy, enhancing exchange rate flexibility to better reflect underlying economic fundamentals and structural reforms, to sustain global demand, increase potential growth, foster job creation and contribute to global rebalancing.”

The communiqué expresses high concern about food price volatility, but sees this volatility as part of the larger movement of commodity prices. Within this broader framing it gives far more importance to price instability of oil, gas, and coal. It also takes a strictly financial viewpoint of food price volatility.

On commodity price volatility, the communiqué says that:

“We discussed concerns about consequences of potential excessive commodity price volatility and asked our deputies to work with international organizations and to report back to us on the underlying drivers and the challenges posed by these trends for both consumers and producers and consider possible actions. Keeping in mind the impact of this volatility on food security, we reiterated the need for long-term investment in the agricultural sector in developing countries.”

Reiteration is just a metaphoric way to admit either that ‘nobody listened when we said it before’, or ‘we never really meant that to happen anyway’. The fact that they are reiterating a position about something that is factual amounts to an implicit admission of failure. By readdressing the need for long-term investment in the agriculture of developing countries they are admitting that this investment has not occurred in spite of their previous recommendation. There is no mention whatsoever to the vulnerability of most of the developing countries’ agricultural activities to climate change as well as to land degradation and water scarcity. The Finance ministers have also failed to see the damage to Africa’s agriculture done by agricultural subsidies in developed countries, especially in the European Union.

There is no indication in the communiqué that the Finance ministers have been informed of the effect of  extreme weather on food prices. Extreme weather has hit major portions of the agricultural areas of North and South America, Africa, and Australia. It is quite hard not to have noticed it, even more so, when there is an explicit concern about ‘food security’.

The communiqué has also disregarded that rising prices of fossil fuels could be a strong incentive to investment in low carbon, clean energy. This investment is a better hedge against fuel price volatility, than any intervention in the oil, gas, and coal markets. This Monday, February 21, the price of Brent oil opened at US$ 104,26 a barrel due to events in Libya. It seems no Finance minister has ever read studies showing how clean investment and clean energy could help to effectively address the financial crisis. Or how high oil prices could help a greener economic recovery. Some say that  US$ 100,00 a barrel is the break-even point to the transition to a low carbon economy.

The G20 Paris communiqué mentions several organizations investigating the drivers of fuel price volatility. But the organizations  that are dedicated to understanding food price volatility are treated by the anonymous collective expression “relevant international organizations”. It seems that they are only worried about speculation with agricultural commodity derivatives. Perhaps as a result of pressure from the french presidency inaugurated on the Paris meeting.

“We welcomed the interim report by the IEF, IEA and OPEC to improve the quality, timeliness and reliability of the Joint Organization Data Initiative Oil (JODI oil) and call for further work on strategies to implement these recommendations to be detailed in their final report. Building on the Riyadh symposium held on January 24th, we encourage the IEF to provide concrete strategies to improve the producer-consumer dialogue at its next meeting on February 22nd 2011. Following our Leaders’ request, we call on the IMF and IEF, as well as IEA, GECF and OPEC, to develop by October 2011 concrete recommendations to extend the G20’s work on oil price volatility to gas and coal. We look forward to discussing at our next meeting the report of IEF, IEA, OPEC and IOSCO on price reporting agencies as well as the interim report on food security currently being undertaken by the relevant international organizations, and IOSCO’s recommendations, and the FSB’s consideration of next steps, on regulation and supervision of commodity derivatives markets notably to strengthen transparency and address market abuses.”

The absence of any concern about climate change, about the effects of economic activity on the environment, as well as about the impact of a damaged environment on economic activity at the center of economic policy design is an indicator of a ongoing conservative setback on global climate policy. It is very worrisome that Finance ministers feel comfortable to disregard  studies like those released by the OECD and UNEP on green economics and the costs and benefits of a transition to a low carbon economy. It is also disquieting that UNEP chose to release its new report on the green economy this Monday, one day after the G20 meeting closed in Paris. This report estimates the transition costs to a green economy at 2% of GDP per year. The ‘green economy’ is defined as “one which is low carbon, resource efficient and socially inclusive”. Far from the vague idea of sustainability adopted by the G20 communiqué.

This difference is even more striking regarding ‘food security’. It would be really great if the G20 leaders were to recommend their Finance ministers to read this:

“As regards to food security, we are seeing neither widespread understanding of the nature of the problem, nor globally collaborative solutions for how we shall feed a population of 9 billion by 2050. Freshwater scarcity is already a global problem, and forecasts suggest a growing gap by 2030 between annual freshwater demand and renewable supply. The outlook for improved sanitation still looks bleak for over 2.6 billion people; 884 million people still lack access to clean drinking water. Collectively, these crises are severely impacting our ability to sustain prosperity worldwide and to achieve the Millennium Development Goals (MDGs) for reducing extreme poverty. They are compounding persistent social problems from job losses, socio economic insecurity and poverty, and threatening social stability.

Although the causes of these crises vary, at a fundamental level they all share a common feature: the gross misallocation of capital. During the last two decades, much capital was poured into property, fossil fuels and structured financial assets with embedded derivatives, but relatively little in comparison was invested in renewable energy, energy efficiency, public transportation, sustainable agriculture, ecosystem and biodiversity protection, and land and water conservation.”

There is a deadly mismatch between what the political commanding heights of the global economy are saying about growth, and the evidence about the outcomes of the present path of global growth. While the major developed and emerging economies of the world insist on short-term, low quality global economic growth, societies are already facing the burden of the lack of sound and working economic strategies for development in the 21st century.

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