Image Author: mike_is_scrumptious

Assume a robust global deal on climate and the world’s cities will have to transform their infrastructure, economies and societies in little more than a generation.

Assume uncontrolled emissions growth and they face growing impact from a less hospitable and more volatile climate.

Either way – big changes are on the way. Few cities’ leaders grasp the scale of the challenge, especially in developing countries, where towns and cities will have an additional 1.5bn residents to cope with by 2030.

This new think piece has been prepared as part of the British Council’s Climate and Cities programme. Download the pdf (which has full references) or read the full text below the jump.

A Tale of Two Cities
29 January 2009

A think piece for the British Council’s Climate and Cities programme

“It was the spring of hope, it was the winter of despair,
we had everything before us, we had nothing before us”

Charles Dickens

The Best of Times

The World in 2030 – Take 1

Imagine a world where governments agree a robust global deal on climate change. 

The 2009 Copenhagen agreement is the first step, setting out a broad framework for emissions control. A green ‘new deal’ helps the world tackle the global economic downturn and pushes investment in clean tech into top gear. By 2012, detailed negotiations have triggered a wave of institutional innovation, at global, regional, national and local levels.

From that date onward, a price for carbon is set and emissions are traded globally. Growing numbers of countries take on binding targets, with carbon markets providing finance to help poorer countries develop along a low carbon pathway. Forests and other sinks receive investment in return for the ecosystem services they provide. Adaptation funding is used to make countries more resilient to all the climatic threats they face.

As a result, global emissions are already ten years past their peak in 2030, and have fallen to more than 10% below today’s levels. The world is gradually converging on equal per capita emissions. By mid-century, the average American is projected to emit a tenth of the carbon they do today, and Chinese per capita emissions will have fallen by half. Meanwhile, Brazilian emissions will have risen for a time, but then fallen back to 2009 levels, and the average Haitian will still be below the global average, but receiving some cash in recompense.

There’s been some friction along the way. In 2030, the carbon market is big business, trading over $5 trillion annually, as part of a global financial system extensively remodelled after the depression. But the price has been volatile, creating systemic instability that the International Carbon Fund struggles to contain. In spite of this, the US, European Union and Japan have managed to maintain some unity within an increasingly assertive G20, while the new powers (China, India, Brazil) have assumed enhanced rights and responsibilities on the global stage.

Non-state global networks, meanwhile, have continued to grow in influence, while a new commitment to subsidiarity has strengthened the hand of provincial and local actors. The nation state has not disappeared, but it has a growing number of rivals on the international stage.

The climate, of course, is still warming. The IPCC has just published its eighth assessment report, with a headline finding that emissions will stabilize around 465ppm CO2e, leading to eventual warming of 2.6ºC above pre-industrial levels. By 2030, the world has already warmed by about 1ºC (a rise locked in by 20^th century emissions). The impact of this is obvious for all to see. The climate has become less dependable; floods, famine and drought have all increased in frequency and severity.

In general, however, communities have proved surprisingly resourceful and innovative – both in reducing emissions, and in coping with a changing climate. Top down political action has been met and matched by an effective bottom-up response. The 20^th century’s climate legacy may have presented the world with its greatest market failure, but the 21^st century seems to up to the task of designing and implementing a collective response.

Low Carbon City

In this world, what will the future city look like?

Here’s what we know:

• It will be bigger… Today, 3.3 billion people live in the world’s towns and cities. By 2030, this figure will have leapt to 5 billion. There will be eight ‘hypercities’ with more than 20 million inhabitants; another nineteen ‘megacities’ with at least 10 million citizens, and 48 or so large cities where more than 5 million people live.
•  …or smaller... Half the world’s urban dwellers live in a ‘long tail’ of towns of less than 500,000 inhabitants. These towns are too numerous to be counted, but by 2030 there will be at least 700 million more people living in them (that’s twice the population of the USA).
• …but considerably poorer. Even if economies grow strongly, 2030′s average urbanite will have a lower standard of living than he or she does today. Cities in rich countries will barely grow over the next twenty years and some will shrink. But developing countries will have 1.4 billion more urban dwellers, with the very poorest cities growing fastest of all.

But while tomorrow’s towns and cities face massive challenges, they still act as dynamos in the global economy. Even poor cities have huge economic importance, with a country’s largest city commonly accounting for 20% of its GDP. As the World Bank points out, “No country has developed without the growth of its cities. As countries become richer, economic activity becomes more densely packed into towns, cities and metropolises.” Not only do cities offer residents the chance of a better life, over time the benefit tends to spread to the surrounding countryside as well.

But tomorrow’s city must perform a tricky balancing act. It will have to grow at breakneck speed, while providing both services and economic opportunity to its people. And it must do this in a world with severely constrained access to the carbon-rich energy sources that underpinned the twentieth century’s complex urban environments.

This will require a revolution in energy use:

• At present, towns and cities account for 67% of the world’s energy consumption and 71% of energy-related CO2 emissions.
• Assume business as usual, and urban emissions will grow by 55% over the next twenty years – equivalent to double the US’s current emissions. Almost 90% of this growth will be in the developing world.
• Under this scenario, cities and towns in 2030 will be using 70% more coal, 60% more gas, and 35% more oil than they are today. Fossil fuels would make up 85% of all urban energy use, virtually unchanged from current levels.

But the world we have described is one where such rapid emissions growth has been made impossible, where fossil fuel use is below current levels, and where carbon constraints on trade will have changed the relationship between a city and its hinterland.

By 2030, then, the future city will have substantially reconfigured its energy and transportation systems. It will have found a way to house, feed and clothe a growing population using materials that have drastically reduced levels of ‘embedded carbon’. And it will have set new standards for energy efficiency (low hanging fruit that have accounted for over a third of its decarbonisation).

The Worst of Times

The World in 2030 – Take 2

Now imagine a world where things don’t work out so well, where 2009 is remembered as the high water mark of global interdependence – the year that globalization began a slow and painful retreat.

Copenhagen produces a deal, but it’s simply Kyoto II – delivering short term targets, with patchy coverage. The treaty is hard to ratify, poorly implemented, and has negligible impact on global emissions. Developed countries continue to relocate their energy intensive industries to countries without targets. They produce a little less carbon, but – once imports are taken into account – consume even more than before. Subsequent talks tighten the regime a little, but by 2030 it’s clear that there’s little chance of stabilization below 650ppm.

At the same time, there is a broader loss of confidence in international cooperation. A deep and persistent global depression triggers increasingly nationalist and protectionist responses the world over. The result is a demographic disaster. Rich countries struggle to cope with their retiring baby boomers, while poor countries produce growing numbers of workers, but have decreasing numbers of jobs to offer them. The news is not universally bad, but most countries in most years see their economies perform at levels well below their theoretical potential.

To make matters worse, a nasty scarcity dynamic creeps up on policymakers while their attention is focused elsewhere. Energy, food, water, land and, to a lesser extent, emissions, become increasingly constrained, as the world’s population rises towards 8 billion. Oil production peaks (partly as a result of chronic underinvestment), and alternative energy sources continue to underperform. Food prices are driven up by increased demand, competition for land, water scarcity and the rising cost of energy. Conflict over water becomes increasingly common – both between and within states.

The consequences of this are toxic. On the one hand, economic growth tends to trigger, and then be limited by, a series of resource price shocks. On the other, successive waves of resource nationalism do little to enhance prospects for global co-operation. Tit-for-tat is now the dominant force at the heart of the international system, as nations and regions jostle and compete for the resources the world has left.

By 2030, climate change is beginning to accelerate all of these problems. Rich countries have been hit, but poor countries have suffered worst. In the coming decades climate change may push the number of displaced people in the world up to one billion. With conflict on the rise, a remodelled UN Security Council is spending a growing proportion of its time on climate security.

But the worst of the impacts are yet to come. Within another fifty years, 600 million more people are likely to be acutely malnourished; 1.8 billion people will suffer from water shortages; 200 million will experience coastal flooding; each year and up to 400 million more people will be at risk from malaria.

In 2030, then, this future is an increasingly bleak one for hundreds of millions and perhaps billions of people. And for their children and grandchildren, things are by now certain to get much worse.

The Feral City

So what are the prospects of the future city in this darker world?

The underlying demographic drivers, of course, will not have changed. Urban areas will see the same surge in population (or perhaps an even greater one, given that poverty tends to keep birth rates high). But with the global economy stagnating, people will no longer be pulled into cities by economic opportunity. Instead, they’ll be pushed out of the countryside by disaster, war and famine.

Worse still, new arrivals will often be moving to the wrong places. 13% of the world’s urban population lives in coastal areas that are less than 10 metres above sea level. Today, there are over 3,000 cities and many more smaller towns close to the waterfront – a figure that will have risen substantially by 2030. As sea levels rise by a metre or so, Buenos Aires, Rio de Janeiro, Los Angeles, New York, Lagos, Cairo, Karachi, Mumbai, Kolkata, Dhaka, Shanghai, Osaka-Kobe, Tokyo and thousands of smaller towns and cities will all come under threat.

By 2030, many, if not all, urban areas will have experienced a gradual intensification of their current vulnerabilities. Natural disasters reveal how fragile modern cities can be. Katrina shut down New Orleans, causing $80 billion damage, and costing 1,836 lives. But by 2030, there’s a good chance that the US will have experienced its first $500 billion hurricane. The winds won’t need to be any stronger – poor planning and pressure to build in vulnerable areas will have inexorably driven up the level of risk.

Nor does the breakdown of a city have to be so dramatic. In Europe, the heat wave of 2003 killed 35,000 people, most of them old and living in urban apartments. Families had abandoned the city centres for the beach, while hospitals were short staffed. No-one realised that the region’s worst peacetime disaster was underway. By 2030, the world can expect to see a doubling of heat related deaths.

But the threat from climate will be at its most acute in the chaotic, sprawling, endless cities of the developing world. Today, 800 million urban dwellers live in slums, and most of them lack proper water, sanitation and housing. By 2030, without rapid economic growth, that number will have grown by 50% or more.

These cities will be beset by a growing ‘dirty’ environmental burden. At present, 800,000 people die each year from urban air pollution and many more suffer from ill health. Indoor air pollution is prevalent in slums and shanty towns, where many women cook using wood fuel and dung, often in poorly ventilated rooms. Uncollected waste and sewage is another pressing problem, and causes at least as many additional deaths. Slums also tend to be built in the most hazardous places, with little or no drainage, where the risk from flooding is high.

Without economic growth and better planning, these problems will steadily worsen, making the future city a dangerous and unpleasant place to live. The result will be an inevitable wave of crime, social unrest and, at worst, conflict. Some cities will be simply unable to cope, and will fail in the face of an insupportable social, environmental and economic burden.

These will be tomorrow’s feral cities. No longer a driver of growth and increasing prosperity, but “a vast collection of blighted buildings, an immense petri dish of both ancient and new diseases, a territory where the rule of law has long been replaced by near anarchy in which the only security available is that which is attained through brute power.”

The City of the Imagination

Signals from the Future

Climate change presents cities with an immense challenge.

Assume the best of times (a rapid, co-ordinated effort to stabilize the climate) and they must undergo revolutionary transformation in little more than a generation. Very few city leaders grasp the scale, depth and speed of the changes that will be required.

Assume the worst of times (uncontrolled emissions growth, with three, four or five degrees of warming on the way) and cities will lose their place on the cutting edge of an advancing civilization. All will struggle to adapt. Some are certain to fail.

Which path we take depends on signals from the future. The tipping point is a psychological one, with actions taken today being influenced by what people believe the future holds:

• If politicians, investors and citizens expect a rapid transition to a low carbon world, then their incentive is to act now – locking in leadership in emergent industries, while avoiding decisions that make meeting future targets more painful and expensive than they need to be.
• If however, they think the change is going to come slowly, or not at all, then their incentive is to delay action and free ride where possible. Countries then have a strong incentive to block global agreements. The logic is circular: why should a state take on targets now that it is so poorly positioned to meet them?

A strong signal from the future, then, promotes a self-fulfilling cycle of action, co-operation, and binding international enforcement. With weak signals, the logic turns vicious, leading to intense and equally self-fulfilling zero sum competition.

That’s why today’s policy disconnect is so corrosive. Citizens are highly sceptical that their leaders will ever make, implement and enforce a robust global deal. That belief, while understandable, further erodes the political conditions needed to make a deal possible.

So what role can cities play in breaking this double bind? As the world’s creative hubs, they bear much of the burden of developing fresh approaches and innovative solutions. The example they set (or fail to set), the way their citizens think about and tackle the climate problem, and the advocacy of their leaders will have a huge influence on the future direction of their countries. Without leadership from cities, climate stabilization will not happen quickly, or at all.

A New Cosmopolitanism

In the coming years, the need for greater innovation will be great. Cities must:

• Revolutionise their economies, squeezing four or five times as much value out of every tonne of greenhouse gas they emit, and pioneering new ways to meet global consumer demand.
• Rebuild their infrastructure, investing in new energy and transportation systems, and buildings that are massively more frugal in their use of resources.
• Develop the political, regulatory, and financial institutions needed to track, control and price national emissions with sufficient transparency and accuracy to satisfy international standards.

The scale of what’s required goes far beyond developing a few new technologies. Innovation will need to reach deep into both formal and informal economies, with the latter certain to remain critical in developing country cities throughout much, if not all, of the twentieth first century.

But the challenge is more than just an economic one. For the climate to be stabilized, cities must be at the head of a profound cultural, social and psychological transformation, one that touches all aspects of their citizens’ lives, changes the way people think and behave, and creates a world that is different in many unanticipated ways from the one we live in today.

And this shift must happen across most (and probably all) major cities. Climate change, as Scott Barrett has argued, depends on the aggregate efforts of all rowers in the boat. Pioneers will find their effort is wasted, unless they share their experience widely, and in particular with the sprawling megacities of the developing world.

Climate, meanwhile, will be only one of many challenges that cities face. As we have seen, urban centres of all sizes will continue to grow at a staggering rate, with population, power and influence shifting steadily from the developed to the developing world. Resources will be tight, while global systems are likely to struggle under the demands that are placed on them. Even optimists expect the road to 2030 to be a rocky and uneven one.

Cities must therefore also invest in resilience – the capacity of a system to “absorb disturbance and reorganise while undergoing change.” Many of today’s urban centres are brittle and over-centralized, and have worryingly few reserves. It’s as if citizens believe their city is immune to the impact of climate change, and that the brunt of the impact will be felt somewhere else (by the poor, in the countryside, in other countries etc.).

Cities are perceived by their population as immune to the impact of a changing climate, with the worst consequences thought to lie somewhere poorer and more rural.

Increasing resilience is thus not simply about being ready for the occasional natural disaster, but about a broader effort to build a coherent, long-term and inclusive response to a range of risks. That means mobilising urban networks and communities, and building a new understanding of risk all the way from a city’s government to its grassroots.

Resilience may have to substitute for innovation, if global co-operation on climate breaks down. But the two will be stronger if they go hand in hand, with resilient cities better able to respond in creative and dynamic ways to the climate challenge. Taken together then, they provide a recipe for a new cosmopolitanism – one that brings the energy of cities to bear on the most complex problem the world has ever faced.

For references, see the PDF

(Todd) Stern has set out a fairly clear road map for US engagement in the climate process (nb. these are his personal pre-appointment views, not those of Obama or Clinton). He thinks the US should:

• Start with domestic policy - get the National Academcy of Sciences to recommend (and review on regular basis) a stablization target; legislate cap and trade, not a carbon tax; supplement with regulation on energy efficiency and tex incentives for R&D.
• Use domestic policy as a lever in the international arena – negotiating first with a core group of countries (the ‘E8′ – Brazil, China, EU, India, Japan, Russia, South Africa and the US); then building a post-Kyoto framework on the back of their agreement, with binding long-term targets for all developed and ‘as many advanced developing countries as possible,’ and a built-in mechanism to ratchet those targets up over time (and as scientific findings dictate).

Stern is fairly tough on China. The country needs to accept targets (calculated on what basis is a question he does not address), but he makes lots of positive noises. Joint action on a climate can form the basis of a new strategic partnership between the 800-pound gorillas, but only if it is elevated from “traditional place in the second tier of mutual concerns.”

Throughout, of course, he has an eye on the US Senate and ratification. Bottom up targets and sectoral agreements should be deployed if they can suck more countries into a climate deal, as this will shut up antsy Senators. Access to carbon markets should be used as another tool that creates an incentive for developing country participation.

But there needs to be a stick too, Stern believes – and that stick is trade. Unilateral tarrifs on carbon-intensive goods would be ‘profoundly alienating’ and ‘a prescription for mutual recrimination, not progress’, especially after the US has spent so many years in the climate wilderness. But:

Considered in a mutilateral context…the idea…is more interesting. Today, the carbon content of goods is not captured in their price…If the premise of a climate regime were that countries must capture those social costs by putting a price on carbon, whether by means of a cap-and-trade program, a carbon tax, or equivalent policies to cut emissions, tarrifs could then be imposed on the exported products of any country that lacked such policies.

The Europeans will welcome Stern’s appointment with open arms – the Brits in particular.  John Ashton, the UK’s climate envoy, gets name checked by his new US counterpart – and it wouldn’t surprise me to see the two working hand in hand…

From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets.

Oil markets have had their sharpest-ever spikes and their steepest drops this year, all within a few months. Now, with a global recession at hand and oil consumption falling, the market’s extreme volatility is making it harder for energy executives to plan ahead. As a result, exploration spending, which had risen to a record this year, is being slashed.

The precipitous drop in oil prices since the summer, coming on the heels of a dizzying seven-year rise, was a reminder that the oil business, like those of most commodities, is cyclical. When demand drops and prices fall, companies curb their investments, leading to lower supplies. When demand recovers, prices rise again and companies start to invest in new production, starting another cycle.

Now for Dan Drezner, all this poses a question:

So, let me see if I have this right:

If oil prices are sky-high, the energy sector explains that it will be slow to develop new fields, because exploration requires massive fixed investments and no one knows what the price of energy will be 5-10 years from now;

If oil prices are low, the energy sector explains that it is unprofitable to develop new fields because… energy prices are low.

Well, actually that is more or less the long and the short of it; as I argued back in July, the oil price is set to continue its recent yo-yoing for as long as we continue without a clear ‘signal from the future’ about the long term demand outlook for oil. After all, if you were an investor considering ploughing money into oil fields that were only profitable above $60 or $70 a barrel, and which would take many years to recoup the capital cost, wouldn’t you apply a pretty big risk premium if you saw prices collapsing to below $50 from a high of $147 less than six months earlier, with the potential in the background for future climate policy to cause demand to plummet?

Problem is, though, that without that new investment, we’re on track for a serious price crunch at some stage, as both the IEA and Chatham House have argued.  So how to square the circle?  Well, Nick Butler – who was John Browne’s chief of staff at BP and now heads the chairman of the Centre for Energy Studies at Cambridge’s Judge Business School -has a proposal in the FT yesterday. He writes:

If the energy ministers want to stabilise the market they should begin by commissioning a detailed, independent analysis of what went wrong. They should then develop the stabilising mechanisms that would limit the possibility of any repetition of 2008.

The most effective mechanism would be agreement on a broad target range for prices – say, between $50 and $75 a barrel – backed by a strategic stock holding to be augmented or deployed when prices diverged from the range. To support such an agreement trading would be limited to those with a direct physical interest in the market.

From a new base of relative stability ministers could consider the longer-term issues that will shape the energy market: the huge need for infrastructure investment ($350bn a year according to the International Energy Agency) and climate change.

This idea of a price band is clearly starting to gain ground in the energy think tank world – I heard a very similar idea mooted by an attendee at a Shell / Economist energy breakfast in London last month. But I’m not so sure.  While Nick Butler’s clearly right to refer to the need to integrate energy security with climate change, why not go one step further – and use a comprehensive climate framework to provide the long term oil price stability that’s needed to bring the right amount of new investment on stream?

Think about it.  Imagine a climate regime in which the emission targets are sufficiently long term (i.e. multi-decade rather than in 5-yearly increments as under Kyoto), and which is based on a quantified stabilisation target, which therefore means that all major emitters have binding caps. (You can argue about political feasibility in the current political climate, but the fact remains that a global deal on climate that actually solves the problem will have to satisfy these conditions anyway – and sooner rather than later if we’re to limit warming to two degrees C.)

What such a regime would also achieve, with no extra work needed, is to provide long term predictability on how much fossil fuel will be being consumed – for decades ahead.  True, it wouldn’t tell you exactly which fossil fuels – coal versus oil, for instance – but since they’re used in different markets (oil mainly for transport, coal and gas mainly for power generation and heat), you could make a pretty good guess.

And now imagine again that you’re the potential energy investor we met earlier.  All of a sudden, you can invest with much more confidence – and what’s more, knowing the level of demand will enable you to watch what other investors are doing too, so that more or less the right amount of new oil is brought on stream to meet projected demand, within the context of a global deal for climate.

Oh, and there’s one other advantage: given that a global deal on emissions is primarily an agreement between energy consumers, you can worry just a little bit less about OPEC’s congenital inability to stop itself from cheating…

Update: meanwhile, “OPEC oil ministers meet on Wednesday to remove a record 2 million barrels per day from oil markets as they race to balance supply with the world’s collapsing demand for fuel … Saudi Arabia, the world’s biggest oil exporter, has led by example — reducing supplies to customers even before a cut has been agreed to help push prices back toward the $75 level Saudi King Abdullah has identified as “fair.”"

The climate talks in Poznan were never going to be a dazzling success – but, away from the nitty gritty of text, three big things need to happen for a reasonable result to be achieved.

First, the Europeans have to set out their stall (again) – but this time show that they can match aspirational targets with domestic delivery. Second, the Americans need to be begin the process of re-engaging: some sense has to emerge of what the post-Bush era should look like. And finally, we desperately need the emerging economies to begin to talk openly about where they think they fit into climate control. What does a good deal look like for them – not just between now and 2020, but over the next generation or two?

Unfortunately, the news doesn’t look good on any of these fronts. The Europeans – staggeringly, unbelievably – have allowed squabbles over their own climate package to spill over into the broader international negotiation. How’s this for showing united leadership to the rest of the world?

French President Nicolas Sarkozy failed to end deadlock with ex-communist European Union states on an EU climate package on Saturday but predicted a deal would be reached by a December 11-12 summit.

“Things are moving in a good way … I am convinced we will arrive at a positive conclusion,” Sarkozy, whose country holds the rotating EU presidency, said after meeting Polish Prime Minister Donald Tusk and eight other east European leaders.

Poland, which relies on high-polluting coal for more than 90 percent of its electricity, has threatened to veto an EU plan to cut greenhouse gas emissions by 20 percent below 1990 levels by 2020 unless Warsaw wins fossil fuel concessions.

“There is still a lot of work ahead of us” before the summit, Tusk said after the talks in the Polish port of Gdansk.

Poland argues it needs until 2020 to curb carbon emissions, for example by using more efficient boilers and carbon-scrubbing equipment and possibly building its first nuclear plant.

Tusk said Sarkozy and the EU Commission agreed to extend a period limiting mandatory purchases of greenhouse gas emissions permits for east European coal plants, in an offer which would need the backing of all EU leaders.

And Tusk hinted at a willingness to compromise at the summit. “At the very end, maybe at the very last minute, we may decide this is a solution we may accept,” Tusk said.

Meanwhile, the American negotiating team appear not to have even talked to the Obama transition team (h/t Andrew Kneale). If true, this is worse than stupid:

As I’m sure the Obama Administration transition team is aware, Poznan, Poland is currently hosting a very important UN-sponsored climate change conference. At stake is nothing less than the next round of emissions reduction commitments (a Kyoto successor) — which Barack Obama has said he wants the U.S. to participate in.

If they haven’t already, the Obama folks need to make contact with the U.S. delegation in Poznan immediately. One would think that the U.S. Del. would take the initiative itself, but I’m getting word that they feel that the ball is in Obama’s court.

Apparently, current U.S. delegation members — mostly career people with honorable intentions and a willingness to continue to serve (with some notable exceptions) — are waiting for the call. This is no time to fight about protocol, or who is supposed to call who. It’s time to start turning the ship around.

Things are going to slow down for the weekend and then pick up again on Tuesday. The framework that comes out of this week can still be quite ambitious and, at the same time, workable in the U.S. and in the Senate. The Obama people have from now until Tuesday to make their goals for Poznan clear, but the sooner, the better.

Finally, as I posted a few days ago, developing countries seem resistant to even talking about the long-term – even though they have the most to lose through lots of itsy bitsy short term deals…

Happy days.

(For more, see all GD’s Poznan posts, our broader coverage on climate, follow the #poznan feed on Twitter or check out benkamorvan’s list of Poznan related blogs and other sites.)

The developed countries are seeking to set up a shared vision on long-term goal for emission cuts, saying that such a goal will set the direction for future actions.

Some industrialized countries believe that a 50-percent cut of emissions against the 1990 level by 2050 is necessary for the goal of preventing rising temperatures.

The developing nations, however, rejected such a global goal at this stage, arguing that such a vision is not feasible since there are no concrete plans for providing finance and technology required by the developing countries.

But really, it should be the other way round. Given that:

• A limited emissions ‘cake’ is available between now and, say, 2050 (assuming an eventual attempt to stablize atmospheric GHG concentrations).
• And that rich countries are consuming disportionate shares of that cake on every year.
• Then poor countries are likely to receive a smaller slice the longer it takes to start negotiating a comprehensive allocation.

Short term deals (Kyoto, Kyoto 2, Kyoto 3 etc) suit developed countries. A full-term deal would allow developing countries to understand then try and protect their long-term interests…

The world economy will witness a $2,000bn shift in wealth and power from oil-consuming countries to members of the Organisation of the Petroleum Exporting Countries as oil prices rise to $200 a barrel by 2030. 

The IEA says that Opec oil reserves are big and cheap enough to increase production and cap oil prices, but it warns: “Investment by these countries is assumed to be constrained by several factors, including conservative depletion policies and geopolitics. “There remains a real risk that underinvestment [bet-ween now and 2015] will cause an oil supply crunch” the report states…

In its report, the IEA sees oil prices reaching $200 by 2030, almost doubling last year’s forecast of $108 by the same year. The report suggests that current oil prices – below $70 a barrel and less than half their peak summer level – are a temporary effect of the economic crisis.

The $200 a barrel figure is the same one mooted by a Chatham House report on oil published in August, which shared the IEA’s concern that the investment needed to bring new production on stream just wasn’t happening fast enough.  The IEA was already worried about that point when it published last year’s Outlook, remember – the fact that prices have crashes to less than half their peak level since then will hardly have helped to bring new investment on stream.

Exactly as with food prices, then, it’s the recent fall in prices that represents the blip – and the recent highs that represent the start of a long term trend.  The IEA’s report is just the latest in a series of very good reasons why policymakers need to get their act together quickly on agreeing collective approaches to resource scarcity issues while the political heat on them is – for a little while – off.

But to repeat what I said in July, massive investment in new oil production just can’t be squared with what needs to happen on climate change.  The global deal that we really need for managing energy security and competition for oil resources is a global framework for climate policy that manages the problem over the full term of its lifecycle – not just the next few years, as with Kyoto, as this is far too short term to give real investment certainty – and that has targets for all countries, not just developed ones.

That, of course, takes us straight back to David’s recent question on developing country participation.  More on that in another post shortly…

Belatedly, the talk is online – either as a pdf, or you can read the full text after the jump.

A Low Carbon World – Pathways to a Global Deal
Talk to the UNU G8 Symposium: Innovation and Entrepreneurship in the Time of Climate Change
David Steven, 4 July 2008

Main themes

In my talk today, I am going to focus on the politics of a climate change deal – exploring the dynamics that make co-operation on climate more or less likely.

My assumption is that before any actor – whether government, investor or advocate – can seek to influence the climate debate, they need to understand the drivers of that debate. Furthermore, that a lack of clarity about the politics of climate change favours those who would prefer inaction and who, for one reason or another, do not believe that climate stabilisation is a priority.

There are two interlinked systems in play here. On the one hand, we have the global climate. We have long recognised that knowledge and information about this physical system is a public good and have invested heavily in providing this good – in particular through the IPCC.

On the other, we have the human system that has disturbed the climate and may be able to stabilise it. Knowledge of this system, I believe, is also a public good, and one that is currently in very short supply. As the UNU’s new Rector, Konrad Osterwalder put it this morning, “what is the point of solving the scientific problem if the political side does not follow?”

I am therefore going to use my talk to focus on climate politics. This being a university, however, I am going to suggest a framework for helping us think about the problem, focusing in particular on the incentives countries have to co-operate or compete on climate change.

Negative sum dynamic

Let’s start with a simple distinction: between zero sum and non-zero sum games.

• In a zero sum game, the size of the cake is fixed. If I take a bigger slice, your slice will be correspondingly smaller. Winners are balanced by losers.
• In a non-zero sum game, the size of the cake changes. It can either grow – a positive sum game, with more winners than losers. Or shrink – a negative sum game, with more losers than winners.

So which of these three games – positive sum, negative sum, zero sum – most closely matches the world’s climate challenge?

Clearly, unchecked climate change is a negative sum game. According to IPCC WGII:

Impacts of climate change will vary regionally but, aggregated and discounted to the present, they are very likely to impose net annual costs which will increase over time as global temperatures increase.[i]

In other words, there will be winners, but there will be more losers – possibly many more. And the predicament intensifies as the temperature rises. Above a certain level – 2-3ºC according to IPCC WGII – it is believed that all regions “will experience either declines in net benefits or increases in net costs.”

Moreover, we have heard today from Jim Hansen that the IPCC may be conservative in its assessment of impacts. Its consensus reflects a snapshot of the science that, given the pace of research into the issue, inevitably dates quickly. Recent work has continued to highlight the potential for (relatively) sudden, irreversible and highly disruptive climate change – with impacts that could be much more serious than previously thought.

The downside, in other words, could be quite considerable.

Positive sum dynamic

But there is a potential upside.

Many analysts believe that a rapid transition to a low carbon economy offers potential to limit these losses, while inventing new industries, institutions, lifestyles, and social modalities.

Nick Stern is the man most strongly associated with this view. His review argued that:

In broad brush terms, spending somewhere in the region of 1% of gross world product on average forever could prevent the world losing the equivalent of 10% of gross world product for ever.[ii]

In this case (and leaving aside, arguments over the estimates that Stern made), the cake can be made bigger, and there can be many more winners and fewer losers.
A transition to a low carbon economy, then, would be a positive sum game.

But this outcome:

• Can only be delivered collectively – through action to cut global emissions drastically. No country will act alone. Nor will it make any difference if one did.
• Becomes harder to achieve the longer we wait, as current emissions ‘lock in’ future temperature rises, while long-term investment decisions commit us to continuing along a high-carbon economic pathway.

Nested zero sum games

So, if decision-makers accept the consensus position on the science of climate change, then they have very powerful incentives to act together, forcefully and, above all, rapidly. So what’s likely to stop this happening?

The answer, of course, is that, within the broader non-zero sum dynamic, are nested a number of zero sum games. These competitive games are played:

• Between countries - which compete between each other for a larger share of scarce future emissions.
• Between citizens within countries - who want others to bear the costs of any agreement.
• Between generations - with current generations deferring action at the cost of future ones.
• Between incumbents and new entrants - with firms rallying to protect existing high carbon business models, at the expense of a new wave of low carbon innovators.

This competitive logic:

• Exerts a powerful psychological attraction - from early childhood, human beings are capable of competing fiercely for scarce resources.
• Is self-sustaining - one fierce competitor will encourage others to mobilise to protect their interests.
• Has immediacy on its side – contrasting tangible benefits with more distant and less easily calculated costs.

As a result, even agents who are predisposed to cooperate find it easy to get locked into a spiral whereby competition becomes more likely. Players become increasingly fixated on the free-riding of others. They come into conflict because they have competing views of what is fair. In the worst case, they will be prepared to tolerate an absolute loss if this helps them preserve a relative gain.

In other words, we all do badly, but at least I’ve stopped you doing better than me.

The trade talk dynamic

We can see this dynamic playing out in trade talks where parties tend to:

• Accept that free trade will lead to net benefits (informed by an expert consensus among economists).
• Therefore adopt a positive sum strategy that makes it relatively easy to agree the broad principles that should guide agreement.

However, over time, they become more aggressive in their advancement of self-interest, fighting tooth and nail to protect their ‘red lines’, egged on by powerful lobbies from incumbent interest groups. These zero sum tactics make it painful, time-consuming and sometimes impossible to move from a broad framework to a full agreement. The devil is in the detail of an agreement painful, time-consuming, and often impossible to achieve.

Think of the sad fate of the Doha trade round, which Tony Blair described as “absolutely central to showing that the world has the capacity to confront its multilateral challenges with the necessary unity of purpose and overcome them.” The Doha talks remain stalled – with most of the key players claiming to follow a positive sum strategy, but simultaneously sticking to zero sum tactics.

Exactly the same pattern is being played out in climate. In Bali last year:

• All countries agreed that a post-2012 climate framework should be finalised by the end of 2009.
• The vast majority of countries accepted that global greenhouse emissions will need to be cut by at least half by 2050.
• All developed countries – with the sole exception of the United States – agreed that, as a group, they must cut emissions by 25-40 percent below 1990 levels by 2020.
• Developing countries agreed that they must move to a lower carbon growth trajectory.
• All countries agreed that funding will be needed to prevent deforestation, encourage innovation and technology transfer, and to pay for adaptation.

This is broad, simple and relatively non-contentious stuff. But even then, reaching agreement was hard work, as anyone who witnessed the dramatic last day in Bali will remember.

• A huge split opened up within the G77/China negotiating bloc – between countries who see climate change as a potential obstacle to their economic development (India, China, etc), and those who see it as a matter of national survival (Bangladesh, the small Island states, etc).[iii]
• This led the G77 to increase pressure on the American delegation, which reacted predictably by threatening to derail the agreement.
• With the result in real doubt, the Japanese adopted a highly ambiguous position, reflecting their sense that it had not received a fair deal under Kyoto, while the Canadians would have been happy for the summit not to reach a conclusion.
• Only intense public and behind-the-scenes pressure persuaded the Americans to rescind their objections, presumably due to an unwillingness to accept sole blame for Bali’s failure.
• The Americans threatened not to support the Bali roadmap, but retreated under intense and vocal pressure.

What we saw, in other words, was the outbreak of zero sum warfare, even while the broader positive sum framework was being agreed.

Bad news for Copenhagen

This is bad news for prospects of agreeing a global deal in Copenhagen.

If you want to understand what is likely to happen between Bali and Copenhagen, think of a game that has the opposite dynamic to chess. In this game, the endgame involves cuts in emissions which will be painful for some, at least in the short term; new types of regulation; and new taxes, whether or not these are imposed directly through a tax, or indirectly or through a cap.

With every step you take towards this endgame:

• The number of pieces on the board will grow, not shrink.
• Latecomers will be narrowly focused on their objectives.
• They will often have a similarly narrow understanding of the issue.

As a result, the game becomes more complex as it progresses, while progress is exponentially more difficult to achieve the nearer an agreement becomes. The last 10% of the negotiations are harder than the previous 90%, in other words. The last 1%, the hardest of all.

Then, if it comes to that, ratification will prove even more testing. At this point:

• A single international ‘game’ will fragment into many domestic ones.
• Each of these domestic games will tend to be more inward-looking and narrowly focused – more likely to lead to zero sum than positive sum thinking.

Is there another way?

So should we despair?

Certainly, it would be easy to. And certainly, we will hear a growing number of voices who will suggest that a deal is impossible, undesirable, or both. They will suggest that countries should either ignore the problem, defer addressing it for a generation or two, or rely purely on a bottom-up response.

However, it is possible to conceive that an alternative zero sum dynamic might kick in. This would see countries continue to fight for their national competitiveness, but based on a very different view of how these interests can be secured. Consider the following logic:

• If you believe the current scientific consensus, a transition to a low carbon economy is inevitable.
• Even if there is short-term disagreement and delay, in the medium term, the cumulative impact of climate change – or a catastrophic climate shock such as the collapse of the West Atlantic Ice Sheet – will force governments to act.
• This will mean a radical restructuring of the global economy and a drive for what McKinsey have called ‘carbon productivity’ – a transformation that will need to resemble an accelerated version of the industrial revolution.[iv]

In this case, powerful countries, or regional blocs, might decide that it is in their interest to:

• Lead the process politically - allowing them to exert power in an international arena that is driving a wholesale economic transformation.
• Lead the process economically - by moving out of high carbon or ‘legacy’ sectors (leaving them to their neighbours), while at the same time gaining leadership in high carbon industries.

Under this scenario, we might reach a threshold or tipping point where, instead of competing to delay an agreement, a growing number of countries compete to lead it. In this case, zero sum competition would promote agreement, not delay it.

Are there any signs of this happening? The answer is yes, there are a few.

• Some American policy-makers and business leaders have expressed anxiety at being outside the Kyoto protocol. For them, lack of participation has led to a loss of influence.
• Many countries, meanwhile, are subsidising low carbon industries – not just because they want to cut emissions, but because they see these industries as critical to their future national competitiveness.
• This trend is not limited to developed countries. China, in particular, is engaged in intensive analysis and debate about its place in a low carbon world. Would it, as an emerging economic power, be best placed to dominate a new type of economic system than nations that have grown rich under the existing economic order?
• And finally, there is the example of the European Union, which has agreed cuts in its own emissions – 20% by 2020 – and is attempting to use this unilateral move to force the pace of a Copenhagen deal.

High or low carbon competition

So let’s summarise these four different dynamics that we can see in the politics of climate change. First the big picture:

• Unchecked climate change is a negative sum outcome – the cake gets smaller for everyone.
• A stable climate, with a corresponding economic transition, is a broadly positive sum outcome – the size of the cake can be increased if agents co-operate effectively.

But within this non-zero sum framework nest zero sum games. I have identified two main varieties:

• High carbon competition, where countries compete for a share of available carbon emissions.
• Low carbon competition, where countries compete to position themselves advantageously for the low carbon competition.

My contention is that our chance of reaching an overall positive sum outcome depends on whether countries increasingly prefer the second option to the first.

But how likely is this? Are early signs of low carbon competition a harbinger of what is to come? Will the political system reach a tipping point after countries compete to exit legacy industries and enter new ones? Or will countries continue to try and keep what they have now?

That is a question that I know the other speakers in this session plan to address.

Conclusion

Let me close with a final reflection. As we move towards Copenhagen, there are real signs that the process is in trouble:

• There is a lack of shared awareness among countries about what will be needed to deliver a deal.[v]
• Negotiators are finding themselves overwhelmed by the complexity of the negotiations - while their political masters do not have the bandwidth to fully engage.
• We’re too focused on the negotiating bubble - when it’s the political conditions outside the bubble that will determine whether governments are able to commit to an ambitious deal.

As Alex argued, policy makers have had the IPCC to distil climate science for them. But there has been no parallel investment in understanding and debating solutions, and the human drivers that will decide whether those solutions are deployed or not.[vi]

Of course, an IPCC for climate solutions could not, and should not, be a formal intergovernmental mechanism. An attempt to build shared awareness will only be successful if we adopt an open source model – and start with a similar level of ambition as informed the early days of the IPCC.

Ultimately, co-operation on climate relies on signals from the future. At the moment, those signals are weak. If we fail to strengthen them, a global deal on climate will remain a long way off.

[i] IPCC IV Summary for Policymakers – emphasis added.

[ii] Nicholas Stern, ‘The Economics of Climate Change: The Stern Review’, Cambridge University Press, 2007. http://tinyurl.com/52d6l6

[iii] http://www.nytimes.com/2008/01/22/science/earth/22conv.html?ref=science

[iv] ‘The Carbon Productivity Challenge: curbing climate change, sustaining economic growth’, McKinsey & Company, 2008. http://tinyurl.com/4h6t85

[v] Alex Evans and David Steven, ‘Shooting the Rapids: multilateralism and global risks’, paper presented to the Progressive Governance Summit, April 2008. http://tinyurl.com/3jft8q; and Alex Evans and David Steven ‘Towards a Theory of Influence for Twenty-First Century Foreign Policy: Public Diplomacy in a Globalised World?’, chapter in Engagement: public diplomacy in a globalised world, Foreign & Commonwealth Office, 2008. http://tinyurl.com/6k2ydo

[vi] Alex Evans and David Steven, ‘Climate Change: the state of the debate’, as part of the London Accord, 2007. http://tinyurl.com/6zj5l8

At the recent EU summit in Brussels there was widespread reluctance to meet pledges all EU governments made last year to cut CO2 emissions by 20% by 2020. Eight Eastern European countries – including Poland, Hungary, Romania, Bulgaria, Slovakia, Latvia, Lithuania and Estonia — released a joint statement urging the EU to balance the wish for cleaner air against “the need for sustainable economic growth” at a time of “serious economic and financial uncertainties.” Italy threw its weight behind these countries, threatening to veto the proposed EU plans.

Likewise in the US, top power industry executives seized the opportunity to lobby for delaying carbon emissions legislation, at the recent New York Utility Conference. More dramatically in Canada, the Liberals were dealt an electoral defeat on Wednesday largely on the basis of their strong advocacy in favour of a carbon tax (see story here).

All this backtracking is akin to forfeiting the forest for the tree. Financial crises are short-term phenomena, global warming on the other hand is with us for the long haul, and the window of opportunity for addressing it is fast narrowing. The prospect of economic recession does not in any way reduce the magnitude or the urgency of the climate problem, nor does it provide any compelling reason for delaying action. Or as EU President Barroso put it:

“Saving the planet is not an after-dinner drink, a digestif that you take or leave. Climate change does not disappear because of the financial crisis.

Moreover, as David Wheeler of the Center for Global Development argues, smart carbon regulation will be easiest, not hardest, to introduce during a recession, since a slowing economy emits less, and smart cap-and-trade regulation can “lock in” this head start on emissions reduction at almost no cost during the recession. His proposal for the US is to:

• Immediately pass a cap-and-trade bill that sets the initial total limit at the pre-recession emissions level, and schedule a progressive decline in the overall limit that will achieve the needed long-run goal.
• Establish an annual auction for 100% of the emissions permits.
• Set aside a healthy share of the auction proceeds to provide a compensating rebate for every American

In this way the consumer is shielded from cost increases, and the power provider incentivised to develop less carbon-intensive energy options for the future.

It is amply clear that big emitting developing countries such as China and India will not make significant commitments to curb their greenhouse gas emissions unless the US and EU lead by example. With only about a year to go before the new global deal to replace the Kyoto Protocol is due to be reached in Copenhagen conference, the US and EU have no room to falter. More than ever, political courage and leadership is needed to ensure global efforts to address climate change are not jeopardized.