Global deal – the developing country ask

Imagine you’re advising China or India – or perhaps a poorer developing country such as Ghana – on their preparations for the climate change negotiations in Copenhagen. What sort of deal should these countries be prepared to accept? What would seem fair?

Nick Stern sidles up to these questions in his paper – Key Elements of a Global Deal on Climate Change. His starting point is that global emissions need to drop to around 20 gigatonnes of carbon dioxide equivalents (and then further to around 10GT CO2e in the decades that follow) – that’s around 2 tonnes of CO2e in 2050 for each of the world’s 9 billion people or so.

Stern believes that there is no choice but for countries to converge on this per capita average:

This target for per capita emissions by mid-century is so low that there is little scope for any major country to depart significantly above or below it. If one or two large countries were to manage only to reduce emissions to, say, 3T or 4T per capita, then it would be difficult to see which other major grouping of countries would be able to get emissions close to zero: and the global target would be unlikely to be reached.

So…let’s imagine the Americans have accepted this logic (suspend belief for a moment) and have a proposal for reducing their emissions from over 20T today to Stern’s 2T by 2050. They enter the negotiating room expecting other countries to do the same.

How would you advise China, India or Ghana to respond? They start from a very different point – around 5T per Chinese citizen, 2T for an Indian, and maybe around 1/2 tonne for a Ghanaian.

Now, as Stern admits, for them, simple convergence would be a pretty rough deal.

All major groups getting to 2T/capita is a pragmatic approach and not a strongly equitable one. It takes little account of the greater per capita contributions of the developed countries to the historical and future contributions to the stock of GHG emissions.

My instinct would be to urge the Chinese, Indians and Ghanaian to forgo what might be a fun, but ultimately unproductive, squabble about historical emissions. Be magnanimous about the past, I’d suggest. Instead focus on what really matters – who’s going to be allowed to emit what over the next forty years.

Because however far Chinese, Indian or Ghanaian emissions are allowed to increase before they start to drop towards 2T – its absolutely certain that their total emissions between now and 2050 (on a per capita basis) will be significantly lower than America’s.

In other words, there’s no trajectory that can be drawn that gives these countries a fair share of the next generation emissions ‘cake’.

So what deal would you advise them to strike?

Nothing new under the sun

Among the most popular policy responses to recent rises in food prices are export bans. Cambodia has banned rice exports, for example. Kazakhstan, Pakistan and Iran have refused to export wheat to hungry neighbours like Afghanistan. And Burkina Faso, one of the West African countries that has been hardest hit by the price rises, has banned cereal exports to neighbouring Ghana.

Such measures have been widely criticised, but they are not new. I recently came across FJ Pedler’s ‘Economic Geography of West Africa’, published by Longmans in 1955. Among many other interesting topics, he writes about the maize shortages of 1947. He notes the wildly fluctuating price of guinea-corn in the Zaria region of Nigeria, which rose from £8 per ton in 1946 to £38 per ton a year later. “These price movements,” he says, “are an indication that too little food is produced to meet the needs of the people throughout the year.” Traders take advantage of this, buying up food at harvest time to sell it later when prices rise (a bit like today’s commodities traders, who have been stocking up on food): “They are often blamed for high prices and scarcity [plus ça change…], but their action is the result of shortage, not the cause of it.”

As in today’s crisis, Mr Pedler reports that governments “often get frightened by the high prices and shortages…and prohibit the movement of food from one place to another.” Like Burkina Faso today, West African governments in the 1950s banned the export of guinea-corn from one state to another – in this case, from Katsina Province into Zaria Province. It didn’t help then either, and Pedler explains why the approach is flawed:

It is difficult to defend these bans on economic grounds. If they are effective, they prevent food from moving to the place where people will pay most for it. This must drive prices even higher in the needy area: while in the producing area an artificially low price is maintained, so that there is less economic incentive for farmers to increase their production.

Little has been learnt, it seems, in the intervening half-century. However, as Mr Pedler observed back then, the bans are easily evaded; “their principal effect is to add to the cost of transport by making it necessary for traders to avoid control posts or bribe the guards.” Good news for the corrupt, then, but bad news for the hungry.

West Africa: stuck in a food / fuel pincer movement

I had a long chat with Pascal Fletcher at Reuters on Friday while he was writing this article on the effect of price rises for food and fuel in west Africa, where he’s based.  He clearly knows the region back to front, and as his piece makes clear, the outlook isn’t good:

Africa’s cocoa makes the world’s chocolate, its fish, fruit and vegetables reach tables around the globe and its oil powers vehicles and factories from China to the United States. Yet far from benefiting from soaring commodity prices, African states are being squeezed as hard as any by the costs of fuel and food imports. Their desperate moves to cushion the impact for potentially restive populations threaten to wreck already stretched budgets, slashing receipts and swelling state spending.

As far as I can tell from the rough tally I’ve been keeping over the last few months, west Africa’s been one of the regions hardest hit by civil unrest related to food and fuel inflation, and Pascal’s article seems to confirm this.  As a result, many governments have been under pressure to subsidise prices for both.  Problem is, that doesn’t do their exchequers any good at all – quite apart from the inflationary impact of such measures.

The unplanned contingency measures, on top of global food and oil prices far above what most imagined a year ago, are wreaking havoc with governments’ finances. “This trend is throwing the budget out of gear,” Ghana’s President John Kufuor lamented last month when he unveiled a package of actions to mitigate the price rises …

As I argue in Pascal’s piece, the expense of subsiding goods across the whole economy, coupled with the inflationary impact, are two of the reasons for the current enthusiasm for social protection systems – be they food aid, vouchers or straightforward cash transfers – that are targeted at the poorest people.  Expect to hear a lot about such ‘social protection systems’ at this week’s UN food summit. 

But there’s a catch, too: in many places, the infrastructure for administering these systems just isn’t in place.  Helping countries to get it set up has to be a top priority for donors – starting right now.

On collision course: scarcity and African patronage systems

“If you see people throwing stones, it means if they had guns, they would have been shooting”, observes Frederick, an economics grad who drives a motorcycle taxi in Douala, Cameroon. 

The FT’s Matthew Green explains:

Only a few crumbs were left on the counter at the Boulangerie du Rail delicatessen in Douala after looters swept the shelves of cake, croissants and champagne… “People are hungry, they have nothing to eat,” said Felix Djoyo, the manager, who had locked himself behind a metal door while shanty dwellers ransacked his bottles of Bordeaux.

The crisis in Cameroon might have generated few headlines abroad, but the violence shows how soaring oil and food prices on global markets are threatening the patronage systems propping up some of Africa’s longest-serving leaders.  Protests linked to surging inflation have broken out in Guinea and Burkina Faso in recent months, where presidents have ruled for more than two decades. Niger, Ghana and Senegal have also seen demonstrations …

The government has agreed to a small reduction in fuel prices to placate protesters, saying it cannot afford the kinds of subsidies needed to shield the economy from global market forces. But many residents blame Mr Biya for the hardship, saying years of venal rule have skewed the economy to favour a tiny elite.

So, another point to add to the growing list of what rising food and energy prices mean for Africa: patronage systems come under increasing stress in conditions of scarcity.  Look at Kenya.  People at the tops of agencies are acutely aware of the problem – DFID’s Douglas Alexander and the World Bank’s Bob Zoellick both returned from Davos fired up about the political impacts of scarcity issues, for instance.  Some people in country offices get it, too. 

But the underlying problem is still that many donor agencies’ culture is all about disbursing cash – rather than having a really sophisticated analysis of endogenous drivers of change and a theory of influence to go with it.  Neither the old problem of patronage nor the newer problem of scarcity issues is really that well understood in donor agency cultures.  We’d better hope they get up to speed pretty fast…

Festive cheer from the IEA

No ho-ho-hos from the International Energy Agency this Christmas. They chose December 27th, of all days, to announce that, er, their reserves data is – how to put it? – rather Enronesque. 

As the FT says, the Agency “has been paying insufficient attention to supply bottlenecks as evidence mounts that oil is being discovered more slowly than once expected”.  The article continues: “To make amends, the International Energy Agency has started work on a new study to be published next year that will rework its long-term projections for global oil reserves”.

Alongside a plan to build a new set of data for the decline in production rates in the world’s top 250 oilfields, the IEA is also ready to reassess its own forecasts for projected oil discoveries, which it based on estimates by the US Geological Survey.

Any downward revisions in oil discoveries or upward revisions to decline rates will in theory increase the probability that global oil reserves will be smaller than expected and that global oil supply will peak much sooner than expected.

Natural decline rates for discovered fields are a closely guarded secret in the oil industry, and the IEA is concerned that the data it currently holds is not accurate.

Doubts are also surfacing about the original estimates for new oil discoveries around the world that were calculated by the USGS in 2000. A USGS re-assessment of these statistics in 2005 showed that actual new oil discoveries averaged only 9bn barrels a year between 1996-2003, 60 per cent less than the average annual estimates for the forecast period of 1995-2025. Just a few months ago, the USGS also downgraded its estimates of future new discoveries around Greenland by 38bn barrels.

“Insufficient attention to supply bottlenecks”?  Call me lacking in seasonal goodwill, but wasn’t the whole point of creating an International Energy Agency to have organisation whose job it was to pay attention to supply bottlenecks? 

What’s all the more alarming about the IEA’s Yuletide admission is that the Agency was already sounding alarm bells and pointing to flashing red lights on the dashboard even before this announcement.  Regular GD readers will recall that November 16 saw the publication of the latest World Energy Outlook, when the Agency said that over the next 25 years some $22,000 billion – just under half 2006 world gross product – would need to be invested in supply infrastructure.  If even that astronomical figure was based on an over-optimistic assessment of reserves data, then – ?

Nor was this even the end of the IEA’s Christmas message to the world.  The following day, it announced its finding that the rising cost of oil has already wiped out the benefits of increased aid and debt relief to non-oil producing African countries, according to an IEA survey of 13 countries including South Africa, Ghana, Tanzania, Ethiopia and Senegal.  According to the IEA, the increased cost of oil bought by these countries since 2004 was 3 per cent of their combined GDP: “more than the sum of debt relief and aid received over the past three years by the countries, which have a combined population of 270m, of whom 104m live on less than $1 a day”.  One implication:

The situation is raising fears that, in spite of the strong growth many African countries have seen in recent years, there could be a repeat of the 1980s’ debt crisis in the developing world that was caused in part by the oil shocks of the 1970s.