Global perspectives on climate change: innovating for a sustainable energy future

GIFT Founder and CEO, Chandran Nair was a participant at the Economist Climate Change Forum held in Singapore on Tuesday, September 25th 2007. The Forum was also held in London and Washington DC.

Forum Summary:

Climate change is one of the most challenging and divisive issues facing the world. Governments are under ever increasing pressure to meet targets on cutting carbon emissions –but not at the expense of economic growth. Consumers are told they must play their part but there is confusion over what they should be doing as well as much apathy, with many believing that they individually cannot make a significant difference. For its part, the corporate world is trying to balance the need to deliver profit with broader responsibilities regarding the environment.

It was with this in mind that the climate change forums were initiated. Three events took place around the world on one day with the results of the Singapore debate fed back to the panel in London and the conclusions of the London conference relayed to participants in the subsequent Washington DC debate. This ensured that a truly global perspective was attained and, with audiences made up of a wide cross section of industry, government and environmental groups, a comprehensive range of views were represented.

Discussion centred around three main issues: 

• What are the best and worst policy instruments for cutting carbon dioxide emissions?

• How should governments set a framework for business? And what role can consumers play in achieving significant reductions?

• What sort of post-Kyoto framework has a chance both of engaging America and the big developing countries, and of effectively cutting emissions?

Polices for carbon reduction

Effective policy mechanisms were debated by the three forums, with Europe’s Emissions Trading Scheme (ETS), subsidies for alternative energies, and carbon tax provoking much discussion among participants.

At the Singapore forum, it was clear that Europe’s example was not one that Asia wanted to follow. ETS was singled out for making London traders rich, without fundamentally altering the behaviour of European emitters. Germany’s subsidies for solar power also came in for criticism for being an inefficient use of resources.

Cap and trade did have its supporters in Singapore, however, and some argued that the second phase of the ETS was likely to be much more successful, as target pricing got surer. There was, by contrast, much stronger support for the principle of a carbon tax.

While subsidies for alternative energies/fuel sources might be viewed more favourably in the United States and Europe, subsidies were universally panned by participants in Singapore. That is perhaps not surprising, since a tiny amount of subsidy in Asia flows to alternative technologies compared with the huge subsidies for oil, petrol and dirty electricity in much of developing Asia.

In London, there was general agreement among participants that a carbon price was necessary but not sufficient to address the problem, partly because of market failures (such as in the area of energy efficiency) and partly because of the urgency of the problem. Most agreed with the need for regulation to deal with consumers’ failure to invest in energy efficient practices – for example, in insulation or energy-saving lighting that could both save them money and cut carbon emissions. But there was some disagreement about subsidies: the politicians and the businessmen were, broadly, in favour, while the economists, civil servants and NGOs were generally against it.

One London participant thought that policy needed to move through two phases: first, one which included policies that were politically possible but not terribly effective, and second, ones which introduced more effective ones as a follow-up. Examples might be first and second phases of the ETS: caps were set so high in the first that the carbon price sank to nothing, and have now been lowered so that we do have a carbon price; or first and second generation biofuels.

In Washington, several panellists argued that a carbon tax would be the most efficient approach, and that unlike cap and trade, it would offer few opportunities for “rent-seeking”. But most also thought it would be politically impossible in America. The word “tax” is political poison. And the cost to ordinary Americans would be very obvious: any change in the petrol price is immediately visible in on big signs above every petrol station. With cap and trade, many consumers imagine that the costs will all be borne by big companies, and several politicians encourage this delusion. Also, no American politician wants to stand up and say “We’re going to have to kill the coal industry in West Virginia and Pennsylvania.”

A cap and trade system would be politically easier to implement, though America is still some way off. The European example suggests that it is tricky to know how high to set the caps and how to allocate them. Some panellists thought that permits to emit carbon should be auctioned, not given away for free. The money generated could then be given back to consumers, perhaps in the form of vouchers (or a credit card) to buy energy, modelled on the US food stamps programme.

Several people at the Washington forum thought that governments would have to try a combination of policies. A diplomat said he wanted a carbon tax and a cap and trade system and a straightforward ban on certain un-green products. The questions would then arise: who would decide how high to set the caps and taxes globally? And how would we work out the “rate of exchange” between the different systems?

There was agreement that the right policies will stimulate investment in green technology, which will cause the price of carbon capture and storage (CCS) and solar power, for example, to fall. Some participants questioned whether carbon-curbing policies would be implemented fast enough. One environmentalist worried that time is extremely short and observed that it is no good putting in place policies that merely cause us to drive over the cliff at 30mph rather than 50mph.

On a more optimistic note, another panellist suggested that sovereign wealth funds, which have grown enormous of late and pursue national-interest goals as well as seeking high returns, might invest heavily in carbon-curbing technology.

But a general warning was issued by a participant in London: beware of too many policies. All politicians want a new policy; there are already probably around 1,000 relevant policy instruments in Europe.

Consumer impact

The role of consumers in helping to reduce carbon emissions was keenly debated by the participants across the three forums. Can consumers be relied on to make efforts to live in a more environmentally-aware way or is it down to governments to set a framework for business?

Participants in Singapore felt that, beyond a few fads, Asian consumers are not committed to thinking about their environmental footprint, and will rarely pay more for a greener product or service (though it was pointed out they rarely get the chance to choose).

London attendees, however, were split on the issue. Some felt that the general mood among consumers is unclear, and it is apparent that contradictions remain. For example, a recent poll found that students regard climate change as one of the principal dangers their generation faces, but the vast majority of them also expect to fly more than their parents. Others at the briefing believed that there was a marked change in attitudes when people experience the supposed effects of climate change – for instance, in Canada after an especially warm winter and in Australia after its drought – and that was going to be crucial in bringing about change.

Everybody agreed that whether or not consumers will, on an individual basis, act decisively to affect climate change, as voters they will play a vital role. It is therefore crucial that politicians and the media engage them at an emotional, as well as a rational, level.

In Washington, most panellists were quite pessimistic about consumers’ willingness to change their habits without some form of coercion. Green labelling does not work. Big cars and big houses are status symbols precisely because they are expensive, so taxing them won’t necessarily curb consumption. One panellist cited the example of leaded petrol, the harmful effects of which are easy to understand. Yet when consumers had a choice and unleaded was slightly more expensive, people bought the “dirty stuff”. Only when it was banned did they stop.

Clearly, the price mechanism has a role to play in altering consumer behaviour. Taxing emissions in various ways must surely affect behaviour at the margins. But persuasion is also important. Public attitudes to environmentally irresponsible behaviour need to change. Some panellists thought this could happen, citing the fact that littering was once common but is now considered socially unacceptable.

The way forward

Having got to the point that there is almost universal acknowledgement that countries have to act now to tackle climate change, how can a post-Kyoto framework be developed that will engage the US and developing nations?

In Singapore, attendees pointed to a serious lack of Asian leadership and commitment on the issue. Despite its green pride, it was felt that Singapore was doing nothing to lead ASEAN towards forging a position on climate change; a debate in India had barely started; and even in China, where the Communist leadership is aware and worried about environmental devastation and rising emissions, the pursuit of economic growth trumps all. Japan has both technological know-how and lots of money to help developing Asia cut emissions, but its regional leadership role is undermined by abiding historical distrust. A new prime minister, it was thought, might help there.

Poor Asian statesmanship, it was argued, puts the onus on business leaders, but where are Asian business heads to be seen on this issue? Only multinational executives in Asia are involved with the climate-change debate, something brought home by the composition of our panel.

These executives, however, emphasised the willingness of businesses, for the most part bigger emitters than consumers, to lead by example and push governments for change. Often that is self-interest: one Singapore power-generating company uses clean gas but faces the same regulatory regime as its rival burning filthy coal. It naturally wants incentives for consumers to choose the cleaner electricity.

A consensus emerged among the executives that high uniform standards worldwide are preferable to a patchwork regime. For instance, an executive from a shipping company, which admitted the industry was fuelled by cheap “junk”, voiced the hope that the strict fuel standards that oblige ships to unload the junk in favour of cleaner fuel when they enter the Baltic Sea be applied worldwide: it would make life much simpler.

There was unambiguous agreement that governments take action now to implement meaningful cuts in global emissions. The question, all agreed, was not whether there should be cuts, but how big those cuts should be and how they should be achieved.

The majority of the group thought that a sensible target was cuts of 20-30% by 2025, and there was a strong feeling that any date further out than that got too woolly. For some of the group, this size of cut was too small. There were calls for “draconian” cuts of 70-80%, with strong authoritarianism as the only tool to implement them. This was too much for most to stomach, but everyone agreed that cuts needed to be mandated at the international level and not left to voluntary measures – hence the importance of a post-Kyoto framework.

Lastly, though there was much scepticism about America’s ability to take the lead on climate change, hope was not entirely abandoned. It was noted that American companies are much readier for regulation than was the case recently, if only because they would much prefer to be regulated at a federal level than a state one. (Exactly the same process, incidentally, is underway in Australia.) Some argued that companies, more than voters, can influence government policy. And an American change of heart could have a decisive impact in Asia. Australia is ready to play a more constructive post-Kyoto role; Japan has money; so American leadership could really set the debate alight about the mechanisms and aid to help developing Asia tackle emissions.

In London, it was argued that, internationally, the issue is moving from being a classic prisoners’ dilemma, in which all parties risk losing by moving first, to a co-ordination game in which the world is moving towards a goal and those that get there early will benefit. It was noted that the rich world should provide developing countries with a path from the Clean Development Mechanism towards no-lose targets which they get rewarded for meeting but are not punished for missing. It was thought that a national target, rather than international, was important, because as in Britain it helped focus minds on policies that would lead to emissions reductions.

In Washington, everyone agreed that a new framework would have to be seen to be fair. Rich countries account for most of the carbon that has been emitted in the past, and their citizens enjoy all the benefits of this and few of the costs. Rich countries will therefore have to do most of the heavy lifting.

But obviously China and India need to be part of the solution. Most people thought the UN should provide the overall framework, but many said it made sense to focus on the G8 plus 5, since they account for 90 % of emissions. China, one panellist noted, is waiting for American leadership on climate change. It was also pointed out that China had come to recognise that it was the key to re-engaging America, and progress at the Apec summit showed that they were willing to move.

The environmentalists tended to favour measures that would inflict enough pain to change people’s and companies’ behaviour. Others stressed the importance of the profit motive in giving people an incentive to emit less and invent technologies that would make it easier for others to do so. All agreed that rich countries should try harder to transfer the best green technologies to developing countries. China’s starting point for negotiations may be to demand that all US patents be waived.

Several people noted that private companies in most countries understand that the problem needs to be tackled and just want a clear set of rules telling them what their obligations will be.

Conclusions

While the debates surrounding climate change will continue to rage for a long time to come, it is interesting to note the common themes emerging from three corners of the world.

Consumer confusion continues. In Asia, consumers either don’t have the money or choice to make the switch to a greener lifestyle – even if they did, they see little incentive. Consumers in rich nations may have the money and the choice – but there is little to make people want to drop their gas-guzzling cars and long-haul holidays. Keener pricing and making eco-unfriendly habits socially unacceptable are key to moving forward.

Keep it simple. While the forums didn’t agree on whether the likes of cap and trade, carbon tax or subsidies were the way forward, there was a feeling that policies had to be kept simple – businesses want a cohesive set of rules that could be applied across the board.

Lead by example. There has been a wait-and-see attitude up until quite recently, with countries afraid to take the lead on the issue. This is changing. However, America is still held up as the one to watch, and it is clear that, above any other nation, it has to take its obligations on climate change seriously. It was also widely agreed that, while developing nations had their part to play, they need help from the rich countries to help them reduce their environmental impact.