by Alex Evans | Jan 7, 2008 | Climate and resource scarcity, East Asia and Pacific
This year’s G8 summit is brought to you by Japan, who as David Pilling reports have decided to hold the event in a uniquely Japanese-sounding venue: the Windsor Hotel on Hokkaido.
As with the Germany G8 at Heiligendamm last year, Japan plans to put climate change front and centre – an issue on which, Pilling reports, “Japan likes to feel it has strong leadership credentials”.
Japan has among the world’s most advanced energy-saving technology and lent its name to the Kyoto Protocol, a breakthrough agreement, albeit a flawed one. That gives it the moral authority, officials say, to act as a bridge between the far-flung positions of the US, Europe, China and India.
But, he goes on, that strategy is not without challenges:
Japanese officials admit that their “bridging” strategy is fraught with difficulties. At home, the government is handcuffed by the intransigent attitude of business, which insists on voluntary cuts rather than mandatory targets reinforced by a carbon tax. Partly as a result, Japan is far from achieving its Kyoto targets and is likely to make up much of the difference by buying emission rights.
The debate is also moving very quickly, say officials. The growing scientific and political consensus on the urgency of tackling global warming could rapidly make Tokyo’s emphasis on technology and voluntary national targets out of date. Some Japanese officials say that, by July, serious discussion may well have shifted to the cap-and-trade mechanisms favoured by Europe.
International development, too, figures heavily among Japanese priorities. Fletcher Tembo has a good discussion of this on the Overseas Development Institute’s blog, where he observes that while the midpoint for the Millennium Development Goals has just passed, levels of aid to developing countries still haven’t increased significantly – at least, not after debt relief (supposed in theory to be additional to aid) and aid to Afghanistan and Iraq have been taken off the balance sheet.
But in practice, there’s every chance that events will buffet the Japanese agenda – especially if oil prices continue their upward march and the solvency crunch continues to worsen. Meantime, the elephant in the room continues to be: how substantive a discussion of climate and energy is it actually possible to have without China and India as full participants (rather than guests invited for canapes)? Quite a challenge for Yasuo Fukuda, the new PM – Japan’s third in a year…
PS. As preparations for the summit (to be held from 7 – 9 July) get going in earnest, the best website to watch will – as ever – be that of the G8 Information Centre at the University of Toronto. Meanwhile, here’s the official Japanese website too, where the ‘What’s New’ section today helpfully informs us that the domain name has been renewed for 2008. Lucky, that.
by Alex Evans | Jan 4, 2008 | Europe and Central Asia, Influence and networks
Now that the European Constitution Treaty has been agreed, all the usual froth about Europe’s place in the world can be expected to redouble. Groan. So it was amusing to read John Thornhill‘s unvarnished account yesterday of how the Chinese and the Indians see the EU:
The senior Chinese official did his best to be polite. When, at a recent conference on Europe and Asia, I asked him how the Chinese viewed Europe, he chewed thoughtfully on a canapé before replying: “Europe needs to rediscover its entrepreneurial spirit.”
Many of his compatriots are more openly contemptuous, at least judging from a study by Chatham House and the Robert Schuman Foundation, reflecting the views of Chinese policymakers. Europe is more of an edifice of the past than the future, said one Chinese commentator. “Europe appears defensive, introspective, decadent and tired, too prosperous to continue to take risks, too complacent to accept change; Europe is a continent that has lost its ambition and its place in the world.”
The Indians are even more scathing. A similar study in 2006 found that Indian commentators considered Europe to be in economic decline, “too small, divided and anchored in the past” to flourish in the future. Many also saw Europe as racist and protectionist, and its claims to be a “soft power” laughable.
And this is before the EU acquires its own diplomatic service, which thanks to the Constitution Treaty it can now look forward to. The smart money in Brussels is on the whole exercise turning into a debacle: an entire diplomatic corps will need to be assembled from scratch, composed of people who for the most part have never worked in foreign policy. It’ll be fun to watch, if nothing else…
by Alex Evans | Jan 2, 2008 | Climate and resource scarcity, North America
Hal Weitzman is with Barack Obama in Iowa. Barack Obama loves ethanol.
When the last presidential caucus was held in 2004, Iowa produced 860m gallons of ethanol. A year later, after Washington introduced a renewable fuel standard mandating the yearly production of 7.5bn gallons by 2012, the industry enjoyed a growth spurt. Today, Iowa’s 28 plants are responsible for 2bn gallons of the US’s annual production of 7bn gallons, with 18 new plants expected to add 1.6bn gallons next year. As a result ethanol is one of the few issues on which there is near-consensus among the leading presidential hopefuls on both sides.
Go figure. As Weitzman continues,
Nationally, there is a growing chorus of disapproval against the ethanol industry. Foodmakers and retailers blame ethanol for higher corn prices. Livestock producers resent the effect of the corn boom on feed costs. Some environmentalists question ethanol’s green credentials and say there should be more support for wind and solar power. Free-market groups oppose a 51 cent-a-gallon government subsidy for refiners who blend ethanol into traditional petrol.
Regardless of this opposition, ethanol is likely to become a permanent fixture of the US’s energy supply, boosted by growing interest in renewable fuels and a widespread sentiment that the country needs to wean itself off its dependency on oil imports. Polls show most Americans support the industry. This month Congress passed an energy bill that mandates an increased annual production of 36bn gallons of ethanol by 2022. “It’s pretty easy to take a shot at ethanol, but the reality is that it’ll be a part of any ‘final package’ on energy,” says Wallace Tyner, professor of agricultural economics at Purdue University in West Lafayette, Indiana.
Grrr.
by Alex Evans | Dec 7, 2007 | Climate and resource scarcity, Economics and development, South Asia
FT Asia Editor Victor Mallett’s analysis piece on India yesterday is a worth a look. Scarcity issues are slowly assuming centre stage:
It is slowly dawning on Indian policymakers that the country’s much-trumpeted “demographic dividend” – the population surge that will increase the workforce to 800m by 2016 and make India the world’s most populous nation – may turn out to be more of a threat than an opportunity.
Who will create the jobs to absorb the net increase of 71m young people of working age over the next five years? Most are poorly educated and only a fraction will find regular work.
Who will feed them and supply them with water and fuel? India has 18 per cent of the world’s population but only 4 per cent of its fresh water and just over 2 per cent of its land area. Many of the country’s groundwater aquifers are already in critical condition. Available per capita water supply has declined since 1975 and water demand is set to exceed all usable sources of supply by 2050.
The bulge of young people today, furthermore, will in time become a bulge of pensioners in a country where only 11 per cent of the working-age population have formal pension arrangements. India will thus face the same problems of ageing and high dependency ratios as Japan and Europe today, only on a larger scale.
All six risks facing India identified by the WEF and the CII – inequality within a rising population, water shortages, high oil prices, global protectionism, climate change and infectious diseases – originate, at least in part, in the alarming growth of the Indian population.
by Alex Evans | Dec 5, 2007 | Climate and resource scarcity, Cooperation and coherence, Global system
Amid the torrent of news about (a) ongoing turmoil in financial markets and (b) rocketing prices in the real economy for energy and food, it’s fascinating to watch two worlds – the financial economy and the real economy – colliding. All of a sudden, various of globalisation’s chickens are coming home to roost – energy security, food security, hedge funds and financial innovation, to name just a few. And the worrying thing is that as policymakers play catch-up with these esoteric, highly specialised issues, it’s becoming increasingly clear that no-one has a clear strategic overview of what’s happening.
Start , for instance, with a quick snapshot of the financial markets situation from NY Times columnist Paul Krugman:
How bad is it? Well, I’ve never seen financial insiders this spooked — not even during the Asian crisis of 1997-98, when economic dominoes seemed to be falling all around the world. This time, market players seem truly horrified — because they’ve suddenly realized that they don’t understand the complex financial system they created.
Chip Mason, founder of Legg Mason (one of the world’s largest money managers, with $1 trillion of assets under management) says that credit markets are the worst he’s seen in 47 years in the business: “It is a very unusual situation. I have not seen anything like this, where nothing is traded.” Nor is the UK proving immune to the crunch. As Nouriel Roubini notes, two days ago the one month Libor inter-bank interest rate spiked 60 basis points from its Friday levels – to its highest level in nine years.
Already, a kind of inquest on financial innovation is opening up in some quarters. Krugman quotes Bill Gross – the managing director of Pimco, a leading bond manager – thus: “What we are witnessing is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.” (See also Gross’s more detailed – and very downbeat – assessment on Pimco’s own website.) Krugman’s own view: “The bottom line is that policy makers left the financial industry free to innovate — and what it did was to innovate itself, and the rest of us, into a big, nasty mess.”
But there’s disagreement over how much the current turmoil matters for the real economy. Not much, says former Bank of England Monetary Policy Committee member Willem Buiter: “The good news in all this is that much of the financial sector has become quite detached from the real economy. The implosion of much of this formerly privately profitable but never socially productive financial intermediation will have little if any adverse macroeconomic effect.” A lot, says Nouriel Roubini: “it does not make sense to avoid bailing out the real economy – and preventing a massive global loss of incomes and jobs – just in order to punish reckless lenders and investors in the financial market and thus avoid moral hazard.”
There’s disagreement too over what needs to happen on interest rates. Roubini thinks it’s urgent, but Wolfgang Munchau begs to differ: “The inflation outlook would justify a neutral policy stance at best. A bias towards low interest rates got us into this mess. Low interest rates will not get us out of it. Central banks should keep their cool.”
The question of inflation brings us neatly over to the real economy, and to prices for energy, crops and other commodities (another issue that we’ve been following here in recent months). If the financial turmoil does present a serious downside risk for growth, at the same time as energy and food prices – for which demand is relatively inelastic – proceed inexorably upwards, does that herald a return to 1970s-style stagflation?
Krishna Guha did a handy analysis piece on that question in the FT on Monday, and concluded that there was indeed at least “a whiff” of the s-word in the air, but that over a 1-2 year time horizon, “the world may see low growth or high inflation – but probably not sustained stagflation in any large economy”.
(I’m not so sure. The more I look at energy and food trends, the more it looks like we may have seen a structural shift towards long term higher prices for both. True, a slowdown in emerging economies would let off some steam. But it would take a very hard landing in China and India to eradicate the massive growth in their demand for energy and agricultural products of recent years. And it will still take a very large amount of investment – in energy infrastructure, in agricultural acreage expansion- to keep up with even lower end demand projections for these commodities.)
But here’s the thing. I know more or less enough about energy and agriculture to form my own views about what’s happening on that front. But I’m completely reliant on interpreters (like the ones I’ve quoted above) to explain the credit crunch to me. And I have no real way of evaluating which of them is right and which of them is wrong.
As the various worlds of the economy continue to collide, an integrated perspective of all of these issues is becoming increasingly urgent. And here’s what should really worry all of us: who the hell does understand both worlds? Almost certainly not any one policymaker, central banker or committee. Yet these are the people we trust to make crucial decisions on this tangled web. Increasingly, we’re going to come to see this perfect storm above all as a crisis in our ability to take and implement effective decisions. More on that in a future post…
