30 November 2015

What we need from the Paris conference on climate change


It’s being billed as the world’s last chance to agree to do something about climate change. On Monday, the United Nations Conference on Climate Change will meet in Paris. The 175 countries, whose leaders will be present at the start of the summit, have pledged their ‘nationally determined contributions’, which have been measured to limit global warming to 2.7C by the end of this century. That is above the 2C tipping point identified by the UN, and is a tacit admission that we’re going to have to think about adaptation as well as mitigation.

It’s worth having a look at what some countries have promised. It’s interesting.

India has pledged to cut CO2 emissions by 35% (of 2005 levels) by 2030, primarily by generating 40% of its electricity from renewables and creating a 3bn tonne carbon sink. This is more ambitious than the proposals put forward by the European Union and the United States. When you consider that possibly up to 600 million Indians do not have access to electricity, it’s going to take a breakthrough in renewable energy of an extremely large carbon sink for India to get anywhere near that target. China seems to be less ambitious, or at least more honest. It says it will cut emissions by 65% per unit of GDP, which means it expects to pump out more CO2 in absolute terms until around 2030.

Nigeria, whose emissions are expected to treble to around 900 million tonnes per year in 2030, or around 3.4 tonnes per person, has pledged a 20% cut, but not on past emissions but on business as usual projections of future activity. Most fast growing economies adopt this approach. Similarly, Indonesia is more concerned with lifting the remaining 11% of its population out of poverty than cutting pollution, despite the fact that densely populated cities such as Jakata, Padang and Jayapura are vulnerable to flooding and typhoons.

This is much harder than belling the cat. The classic fable, of a marauding cat terrorising a colony of mice, illustrates the basic problem of collective action. While in the fable it only takes one brave mouse to confront the feline and put a bell around its neck, we actually need all the mice (countries) to do something against its short term interests to ensure the efforts of the others are not undermined. And the mice do not trust each other. The cat (hydrocarbon) bestows economic benefits to myopic countries which have every right to aspire to the living standards enjoyed in the West and more, while the costs of climate change and resource depletion are uncertain, far in the future and unequally dispersed.

The aspiration for Western comforts is a key point because the issue is not just about the climate –  it’s also a matter of resources. The Global Footprint Network has calculated, based on global population and the total area of productive land, that the earth can sustainably handle an ecological footprint of 1.7 hectares per person. In the United States, the average consumer is supplied by 6.5 hectares, and in Europe the level is closer to 4.5 hectares per person. It is an ecological fact that the status quo is simply not sustainable.

Green supporters use this chart to make the case for Cuba and support their campaign for de-development of rich economies. Others suggest forms of population control. These cannot be the right answers if we want to preserve or defend economically and politically liberal societies. Yes, we need to stop wasting 40% of our food and radically improve our recycling technologies, but we shouldn’t think we need to take a large axe to many parts of our economy or start telling people what they are allowed to do in their bedrooms.

There are, however, five things we can and need to do to tackle climate change and its effects, and make development more sustainable.

We need to drastically pare back fossil fuel subsidies. According to the Empty Promises report for the Overseas Development Institute, the G20 spends $452bn supporting fossil energy compared to $122bn promoting renewables. At the very least, there needs to be a proper level playing field between fossil fuels and alternative energy sources.

In 2012, Shell received a $1.6bn subsidy from the US government despite posting profits of $26.8bn. These subsidies bloat government budgets, particularly in poor countries, and divert resources from wider development. They are also regressive, benefitting relatively wealthier consumers who consume more energy. Countries should follow the example of Narendra Modi, who has used the current period of low oil prices to slash India’s $23bn fuel subsidy bill.

If we believe that pollution should have a price due to its impact on public health, urban congestion and the wider environment, then the implicit level of energy subsidy is much higher. The IMF reported earlier this year that 6% of global GDP (or $5.3trn) is spent on subsidising fossil fuels. China spends more than India on cash subsidies but that is dwarfed by the $2trn annual cost of carbon industries on health and traffic congestion, cutting lives short and reducing productivity.

We need to introduce sensible carbon taxes. These should be revenue-neutral so that the overall tax burden isn’t increased, and they could be sensitive to movements in oil prices and be countercyclical to offset macroeconomic cycles.

Developing countries expect support from rich countries in improving their energy mix. According to their INDCs, developing countries are willing to do more if they are assisted with technology transfer. Indonesia and Nigeria will double their emission reduction efforts if they get help from the rich world diffusing and installing new technologies.

Many renewable technologies such as wind and tidal are not mature enough or cannot be integrated with national grids cost-effectively to be widely applied. However, in India, solar prices on a levelised basis is now within 15% of the price of coal, and could be competitive by 2020. We therefore need a joined up approach between subsidy reduction, carbon taxation, the funding of intensive green R&D and systems and markets for international diffusion.

Private finance can play an enormous role here as economies of scale further reduce the cost of renewables, as can private enterprises such as Elon Musk’s Tesla, which showcased the Powerwall solar battery earlier this year. The world needs $1 trillion a year between 2012 and 2050 to finance a low-emissions transition, and the private sector arm of the World Bank Group, the International Finance Corporation (IFC), could lead the process of creating inclusive and functioning climate finance markets.

We need to think about adaptation and mitigation if it is accepted that warming will accelerate beyond the 2C tipping point, or if natural causes is responsible for the warming planet. Amsterdam is a costal city 6 metres below sea-level. It is possible to adapt vulnerable spaces to be more resistant to hostile conditions, but it will be costly as much of the world’s population lives within 50 miles of a coastline or a river.

According to the UN’s Institute for Water, Environment and Health, the world is losing 2,000 acres of irrigated land in arid and semi-arid places such as the Indus Basin in Pakistan and the Euphrates Basin in Syria and Iraq each year due to salt-induced degradation.

We could open up the Pandora’s Box of geo-engineering. Cloud-seeding, which uses silver iodine to induce rainfall, has a 30% success rate according to the United States National Research Council, and was used during the Beijing in 2008 to keep the Olympics dry. It could come back into vogue as countries such as Egypt and Ethiopia look to avoid water wars over access to the Nile.

But there will also must be an understanding that without new technologies, a changing planet will drive political instability, revolutions, conflicts and mass migrations possibly larger than what we have been seeing since the summer of 2015. That ought to put today’s €3bn commitment to Turkey from the EU into sharp relief.

To address the twin challenges of climate change and resource sustainability, we don’t need to abandon market principles. In fact on balance, what we need is pro-market. Fuel subsidies, which distort prices and incentives, should be phased out. Emissions should be priced according to their economic cost. International climate finance markets should be developed and supported by a boost to R&D funded by carbon taxes and private capital. If we make sizeable steps in this direction, we’ll stand a chance of building more sustainable economies. Let’s hope the world’s leaders have come to Paris prepared to bell this cat once and for all.

Zac Tate is Deputy Editor of CapX