The Road To Bali

The subject of Climate Change has come to some prominence over the past couple of weeks. Of course, the focus of much of the discussion has been the UN Convention on Climate Change in Bali, which is a nice place to have a mid-winter convention just before Christmas. The purpose of the convention is to start the process of negotiating a successor deal to the Kyoto Protocol when it expires in 2012. The focus of the discussion is to draft a framework deal that can be ratified at the UN Convention on Climate Change in Copenhagen in 2009.

We covered a couple of lectures prior to the Bali meeting that acted as briefings on the issue for us. The first lecture was given by Michael Mainelli at Gresham’s College in London (see meeting report). It was entitled ‘Stealing the family silver’, and it was about inter-generational wealth transfers. The lecture left two thoughts prominent in my mind. First, that climate change represents a very large wealth transfer from future generations (who will bear the cost of climate change) to present generations (who reap the benefits of the activities that lead to global warming). Second, that climate change also represents a large wealth transfer from the poor (whose development will be retarded if we are to act on climate change) to the rich (who have been able to develop irrespective of the environmental degradation that has been caused by their enrichment).

With these thoughts fresh in my mind, I attended a lecture by Sir Nicholas Stern (soon to be Lord Stern) on the results of the Review Panel on Climate Change (see meeting report). This lecture gave me three points to take away. The first was that the effects of climate change are felt through the water cycle – more intense droughts (and desertification), floods (then epidemics of water borne diseases such as cholera), more violent storms (such as Katrina), and a greater incidence of fires (the corollary of drought). Second, the problem of climate change has arisen due to the failure of the market mechanism to adequately price the environmental externalities of our actions. In plain speak – not ‘economist speak’ – this is a classical market failure that is best corrected by collective action. ‘Socialism’, as some will call it. Third, reflecting the point made by Michael Mainelli, that we can mitigate the effects of climate change if we are prepared to make a sacrifice now on behalf of the future.

It was when we looked at how mitigation could occur and how much it would cost to do so that I became quite pessimistic. To mitigate climate change would require an unprecedented degree of international co-operation between nations that are normally hostile towards each other. It would also require the developed economies to sacrifice their further development (i.e. accept a lower standard of living) in order to moderate the pace of development of the developing nations. It would require magnanimity between nations, in a world that often appears small minded and selfish. The whole prospect, when we reviewed it, seemed beyond our reach.

Since then, the pendulum has started to move in the opposite direction. Encouragingly, the political class in the US appears to have discovered climate change as an issue. For example, our attention was recently drawn to the Presidential Climate Action Project (see web site). From a European perspective, this is an interesting development as it appears to be re-inventing the wheel. There is already an international cap-and-trade scheme in place (see web site). Alternatively, the Pop!Tech Carbon Initiative has just been launched (see web site), where we can buy carbon offsets via e-Bay.

Whilst these initiatives are to be welcomed, I rather feel that they understate the effort that is required. For example, if we are to achieve the reductions in emissions agreed at the G8 conference in Heiligendamm, Europe would have to reduce its emissions by 80% in 2050 and the US by 90%. In the absence of any improvements in energy efficiency, this would mean that only 1 in 5 Britons would be able to use their cars in 2050, compared with 1990. If fuel efficiency were to be doubled (from 35 mpg to 70 mpg), only 2 in 5 Britons could use their cars in 2050, compared with 1990. The numbers are even higher in the US, which is now half a generation (two Presidential terms) behind Europe on this issue. For this reason, I think that I remain pessimistic on this issue.

What do you think?

As a point of interest, we have linked up with Predictify to sample your opinion on whether or not a deal can be reached by 2009. Click here to vote on whether a replacement for Kyoto can be negotiated.