Consensus on climate change goals

By Lord Browne
Published: June 30 2008 03:00

For people concerned about climate change, there is quite a lot to be gloomy about today. Short-term economic concerns - the credit crunch and high food and fuel prices - are dominating the agenda.
But there is also cause for optimism. There is momentum coming out of last December's Bali climate change summit. And a clear consensus has emerged on the policy goals that need to be agreed at next year's crucial Copenhagen meeting.
First, a long-term global emissions cap, a trajectory for achieving it over time and a burden-sharing agreement that defines regional and national responsibilities. Second, a basket of policies to do the three most important things to reduce emissions against business-as-usual projections: taking energy out of gross domestic product through a revolution in energy efficiency; taking carbon emissions out of energy through changing the mix of energy we use; and preserving carbon-rich assets, notably the world's forests. And third, a policy framework for climate change adaptation.
Yet there has been comparatively little discussion on the institutions that will be needed to deliver these goals.
Stronger international governance than today will undoubtedly be needed. But tearing up existing institutions - the United Nations Framework Convention on Climate Change (UNFCCC), the World Bank, the International Monetary Fund and G8 - and starting from scratch would be counterproductive. The evolution of the General Agreement on Tariffs and Trade (Gatt) to the World Trade Organisation suggests a more promising approach: institutional seeds, if properly fed and nurtured, can grow into strong players over time. Existing institutions need principles to help them widen, strengthen and link together. I offer four suggestions.
The first is that international climate institutions must be inclusive: they should convene the operators that count.
By 2030, developing countries will contain 80-90 per cent of the world's population and, under business-as-usual projections, be responsible for 60-70 per cent of emissions. A climate change solution without the involvement of developing countries would be highly inefficient.
A recent survey by Accenture, the consultants, suggests people in Brazil, China and India care more about climate change than those in Europe and North America. But these countries will only come to the table if the agreement struck at Copenhagen is equitable. And that means industrialised nations must take a lead: above all, demonstrating that carbon-constrained growth is possible.
Developing countries should commit to binding cuts in the future - say, after 2020. They should be allowed to grow without hindrance in the interim, although also commit themselves to verifiable steps to place their economies on a low-carbon trajectory. The obvious places to start are where cutting carbon emissions align with other goals.
Another crucial constituency is business. It is striking to compare the relative lack of business engagement at the international level with engagement at the domestic level.
This leads to the second main principle: institutional arrangements should be enduring. The most important features of any policy framework designed to mobilise investment dollars are that it is clear, stable and predictable. Uncertain and intermittent climate change policies are choking low-carbon energy investments.
However, stability must be balanced with the need for institutions to learn: to evolve as science, technologies, economics and politics inevitably develop. This points to the medium term as being the critical time frame. Five-year compliance periods would be too short. Fifty years too long. Fifteen years strikes me as about right.
The third principle is enforcing. Lessons of history - not least the recent history of the WTO - suggest that heavy penalties can hinder co-operation. Carrots, rather than sticks, are more successful in ensuring compliance in a world where power is devolved to nation states.
The carbon market will be the key: access to the carrot of international carbon finance flows. Today the Clean Development Mechanism (CDM) is the closest thing we have to the policy required.
I believe the CDM has a future, though its rules must be tightened and bureaucratic obstacles removed. The CDM must also be augmented with additional carbon mechanisms to incentivise emissions reductions across industrial sectors and from forestry.
The final principle is enabling. Reducing energy consumption, decarbonising the energy mix and preserving carbon-rich assets will be driven primarily by national policies. But international institutions can play an important enabling role.
As I argued in the FT a year ago in a piece co-authored with Nick Butler, I believe a new body, an International Carbon Fund, will be needed to manage the exchange of multiple carbon currencies of different relative values, as state, national and regional cap-and-trade programmes become linked.
International institutions must also help with capacity building: making the ground fertile for carbon finance to flow and for the transfer of low-carbon technologies. Examples include removing barriers, improving administrative capacity and education and training. Some of these efforts will require hard technical work. Others will require funding - which could be substantial in time. More thinking needs to be done about how to disburse funds held internationally in a way that is efficient, equitable and transparent.
There is talk today of an energy and environment crisis. And at times like this, when policymaking is prolific, it is important to highlight some bad ideas - the don'ts as well as the dos. Half a dozen come to mind.
First, be careful where you put energy subsidies. Incentives will be needed, for example to stimulate technology innovation, but energy in general should not be subsidised.
Second, establish facts before acting. Biofuels are a good example. There are good biofuels, such as ethanol from Brazilian sugar cane, but also bad biofuels. Policies must distinguish between the good and the bad.
Third, beware technology silver bullets. A suite of technologies, including all types of renewables, carbon capture and storage and nuclear will be needed.
Fourth, there are no silver bullets in policy either. For example, cap-and-trade programmes will establish a carbon price for large stationary emitters but a basket of fiscal and regulatory measures will be needed to change consumer behaviour to encourage energy efficiency.
Fifth, resist the siren call of protectionism. Combating climate change - and mitigating energy security, our other great challenge - will require global markets in oil, gas, coal, carbon and biofuels and regional markets in power.
And finally, do not rob the long term to pay for the short term. Doing what is needed will require enlightened, long-term political leadership - leadership that transcends short-term economic cycles and the day-to-day tussle of politics.
We have seen this kind of leadership before: for example after the second world war. As J.M. Keynes remarked at the closing plenary session of the Bretton Woods conference in 1944: "We have shown that a concourse of nations is actually able to work together at a constructive task in amity and unbroken concord."
Let us hope that these words ring true at Copenhagen next year.
Lord Browne, former chief executive of BP, is President of the Royal Academy of Engineering and Chairman of the Accenture Global Energy Board. This article is based on his speech last week at Chatham House.
Copyright The Financial Times Limited 2008