by David Steven | Jan 27, 2009 | Climate and resource scarcity
Flickr user aturkus
Over at (the truly excellent) Clusterstock, Jay Yarrow notes that US car-markers are complaining bitterly about being forced to cut their fleet’s emissions.
The crippled industry, which we’ve already pumped full of cash, just can’t support changing its production. Big beefy SUVs and light trucks are profitable, compact cars are not. Gasoline is oversupplied, the economy’s in a rut, fewer people are buying hybrids. General Motors just laid off 2,000 workers yesterday. The timing is not right for tougher emission standards.
“When exactly will the timing be right for a shift in fuel standards?” Yarrow asks. “When the economy is flying high? Like it was just a few years ago and nothing changed? Or when gas prices spike again and it’s too late?”
I made a similar point in last week’s talk at the United Nations University. In the boom years of 2000-2006, global emissions shot up by 2.6% a year – blowing to bits the figure of 1% that Stern used in his models. Reflecting on these trends, Kevin Anderson and Alice Bows argued that:
It is difficult to envisage anything other than a planned economic recession being compatible with stabilization at or below 650ppm.
But now we have that recession (not planned of course), falling energy demand, and a breathing space where global emissions are likely to decline. Will leaders use the opportunity to do a global climate deal? Or will they listen to their industrial lobbies and decide that tomorrow (or the day after that) will surely be a better time?
by Alex Evans | Jan 26, 2009 | Climate and resource scarcity, Economics and development, Global Dashboard
Today sees the launch of The Feeding of the Nine Billion, my Chatham House pamphlet on food prices and scarcity issues, which brings a year-long research programme to its conclusion. This morning’s Financial Times has a piece on the report here, and there’s a BBC World Service interview with me here (scroll to 9.42; you need RealPlayer installed).
The report’s key diagnosis is that while food prices have fallen significantly from their peak last year, they remain acutely problematic for poor people and por countries at their current levels – and poised to resume their upwards climb when the world emerges from the downturn. Accordingly, the last thing policymakers can do at this stage is to heave a sigh of relief – on the contrary, they need to treat the current easing in prices as a window of opportunity in which to agree the comprehensive, long-term collective action needed to ensure food security for all in the 21st century.
Long term demand drivers, above all a population set to reach over 9 billion by mid-century and the rising affluence and expectations of a growing ‘gloal middle class’ are half the story, with the World Bank forecasting 50% higher demand for food by 2030.
On the other hand, scarcity issues will present increasing challenges on the supply side. Oil prices are also set to resume their climb after the downturn, given that investment in new production has collapsed as oil prices have fallen, setting the stage for a future supply crunch; food prices can be expected to follow them, as biofuels, fertiliser prices and transport costs all play their part. Climate change, water scarcity and competition for land will all also push prices upwards.
So what needs to be done? The report sets out a ten point agenda for action at the international level and in developing countries, but overall I think of the challenge in four key areas. (more…)
by David Steven | Jan 21, 2009 | Climate and resource scarcity, Economics and development, Global Dashboard, Global system, London Summit
I’ve been in Japan today, speaking at ‘Reforming International Institutions – Meeting the Challenges of the 21st Century’, a seminar organized by the United Nations University and the British Embassy in Japan.
You can download my talk here (with pictures, references etc) – or the text only is available below the jump. There’s a webcast too.
Headlines:
- It’s going to be a tough year. The financial meltdown has a long way to go, and the downturn is risking turning into a global depression.
- Trade is a bell wether. Protectionist pressures are already on the rise. If they gain traction, take that as a warning of a wider loss of confidence in global institutions.
- The unravelling of global economic imbalances could prove corrosive to the international order. If countries start to devalue to protect exports, expect a tit-for-tat dynamic to kick in.
- Scarcity issues (energy, water, land, food, atmospheric space for emissions) remain the key medium term driver of global change. Commodity prices will spike again as soon as there’s recovery.
- The downturn has stemmed the uncontrolled growth of emissions, but also lessened the chance of a robust global deal on climate.
- Economic bad times could well drive increased conflict. A major new security threat might be the fabled black swan – hitting just when the global immune system is already overloaded.
- If we experience a long crisis (or a chain of interlinked crises), we are likely to see either a significant loss of trust in the system (globalization retreats), or a significant increase in trust (interdependence increases).
- You need to stretch time horizons to get the latter – shared awareness (joint analysis of risks and challenges), as a basis for shared platforms (loose coalitions of leaders), which can lobby for a shared operating system (a new international institutional architecture).
- 2009 sets a challenging agenda for the G20 (financial reform and economic recovery – but framed by a broader vision on climate, resources, security etc.)…
- …the G8 (caucus of rich countries able to tee up Copenhagen and kick start development assistance if developing countries begin to teeter)…
- …the UN (especially Ban Ki-Moon’s proposed high level ‘friend’s group’ on climate, but also as a fora for getting to grips with scarcity issues)…
- and the Bretton Woods institutions and the WTO (first of all ensuring they keep their heads above water, then looking to ‘save globalization from itself’).
- Oh and be ready for the backlash – people are angry and rightfully so, but that may well lead us down some populist blind alleys.
(more…)
by David Steven | Jan 11, 2009 | Climate and resource scarcity, East Asia and Pacific, Global Dashboard, Global system, London Summit, North America
[youtube]http://www.youtube.com/watch?v=iRzr1QU6K1o[/youtube]
In last month’s New Atlantic, James Fallows had a fascinating interview with Gao Xiqing, Chief Investment Officer at China’s sovereign investment fund, and the man responsible for a significant chunk of China’s huge holdings of American dollars.
Gao – who Fallows dubs one of the US’s new banking overlords – thinks Americans need to learn some humility and fast.
“The simple truth today is that your economy is built on the global economy,” he says, “and it’s built on the support, the gratuitous support, of a lot of countries. So why don’t you come over and … I won’t say kowtow [with a laugh], but at least, be nice to the countries that lend you money.”
The US should disentangle itself from expensive overseas conflicts, Gao believes, raise its diplomatic game, and – above all – tell its citizens to get saving as part of a “long-term, sustainable financial policy.”
It’s all well and good, but maybe Fallows should have pushed Gao a little harder on whether China’s own financial policy is sustainable. After all, despite recent appreciation, the yuan remains substantially under-valued against both the dollar and the euro – the main reason why the Chinese has ended up holding so much Western debt.
Gao’s comments on the dollar are somewhat contradictory (and reflect all the ambiguity of China’s own dollar position). On the one hand, it defends its status as a reserve currency. The US is still the most viable and predictable market, he says. But on the other, Chinese investment in the dollar is widely unpopular at home. According to Gao, China’s citizens ‘hate’ its support of rich Americans (“people eating shark fins”) at the expense of “poor [Chinese] people eating porridge.”
More significant than public pressure, perhaps, is Gao’s belief that the dollar is highly likely to lose value over the short to medium term (with a corresponding appreciation for the yuan). This will wipe billions of Chinese reserves (reserves that have only been built up through consumption foregone) – while challenging China’s export-led growth model:
We are not quite at the bottom yet. Because we don’t really know what’s going to happen next. Everyone is saying, “Oh, look, the dollar is getting stronger!” [As it was at the time of the interview.] I say, that’s really temporary. It’s simply because a lot of people need to cash in, they need U.S. dollars in order to pay back their creditors.
But after a short while, the dollar may be going down again. I’d like to bet on that! The overall financial situation in the U.S. is changing, and that’s what we don’t know about. It’s going to be changed fundamentally in many ways.
Unravelling these imbalances seems certain to be ugly. Reading George Cooper’s book, The Origin of Financial Crises, on a plane the other day, I was struck by strong parallels between today’s economic woes, and a crisis we have heard little about recently – the ‘Nixon Shock’ that led to the end of the Bretton Woods system. (more…)
by Alex Evans | Dec 17, 2008 | Climate and resource scarcity, Global Dashboard
As oil continues its crazy gyrations (yesterday’s price – $48), news is proliferating that investment in new exploration and production is falling off a cliff. Monday’s NYT, for example, had this:
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.””
