by Alex Evans | Jun 30, 2008 | Climate and resource scarcity, Cooperation and coherence, East Asia and Pacific, Economics and development, Global system
So, with a week to go until Japan’s G8 in Hokkaido, how are things looking? If you want the comprehensive answer, you should head straight for Jenilee Geubert’s excellent dossier on the website of the University of Toronto’s G8 research group – but here are a few highlights.
First, climate change. A draft communique seen by Dow Jones suggests there are four options on the table: a 50% emissions reduction by 2050 [from what year’s level isn’t specified]; an unspecified percentage cut by 2050; a 50% cut by 2051 or later; or a more than 50% cut by 2051 or later.
If you’re wondering where the magical figure of 50% comes from, it’s from the IPCC estimate of what it’ll take to limit average temperature rises to between 2.0 and 2.4 Celsius – though note that (a) the IPCC says 50 to 85%, and (b) that this is before the [rapid] rate of sink failure is taken into account. So 50% by 2050 is already too low.
Fukuda has said that the G8 will not aim to set medium term targets. Tony Blair’s big new report says it must. So does Avaaz. The US says a 25-40% cut by 2020 is “frankly not do-able“. The US is meanwhile extolling the benefits of its Major Economies Meeting, but last week’s MEM in South Korea didn’t go so great.
Next: energy. Oil’s just flown past $143 on the back of geopolitical tensions, so all the signs are that the issue will be charged when leaders gather next week. Fukuda wants to see more oil production, but after Saudi Arabia’s pledge of only 200,000 more barrels a day last week, it’s hard to see much sign of it – and even harder to detect any sign of join-up between Fukuda’s calls for OPEC to open the tap up a bit more, and Japan’s stated goal of something called a “Cool Earth“.
Meanwhile, biofuels might conceivably also come up, as Fukuda’s not a fan (“it is a fact that the production of bioethanol in some cases compete with food production”) – though Japan will want to avoid putting its American buddies on the spot. For its part, the US will point to IEA data that shows that biofuels have become crucial for meeting marginal oil demand (want to know how much non-OPEC oil supply growth is from biofuels this year? 63 per cent.)
And then there’s food. Sir John Holmes’s UN task force will be presenting its final report at the Summit. Leaders will probably pledge to do everything they can to increase food production and increase investment in agriculture – which is a good idea, though it does still leave the small fact that enough food is produced for everyone to eat today, but there are still 850-950 million undernourished people. Increasing yields isn’t the whole story.
One thing the G8 leaders could do is issue a strong statement of intent on the Doha trade round – and perhaps, if they want to be really relevant, taking security of supply issues into account at the same time. More generally, World Bank President Bob Zoellick’s ten point plan on food prices will doubtless be referred back to as a good and brief overview of the challenges – worth having another look at that ahead of the summit.
All in all, the three scarcity issues of climate, energy and food will dominate centre stage at Tokayo. It’s welcome that the G8 is focusing on them, but unclear that G8 leaders know what kinds of deal they should be agreeing on them – or how to get there. And G8 leaders also appear not to have figured out yet that scarcity issues are uniquely integrated, while the multilateral response to them is anything but. More on that over the course of this week…
by Alex Evans | Jun 28, 2008 | Climate and resource scarcity, North America
First things first: bookmark this link. It points to the Economics and Strategy page at CIBC World Markets, the Canadian investment bank whose research team brought us the superb brief I linked to a few weeks back, entitled Could Soaring Transport Costs Reverse Globalisation? Having checked back a few times since then, it has become clear that (a) a lot of their research is focused on food and energy issues, and (b) all of it is excellent.
Anyway, in their current weekly StrategEcon briefing note, Jeff Rubin has some thoughts about the oil price – which he now forecasts at $150 next year and $200 the year after that (“recent announcements from OPEC and China won’t be sufficient to hold oil prices in check. The additional 200,000 barrels per day pledged from Saudi Arabia is a pittance compared to the four million barrels per day that depletion will hive off world production this year”.)
What’s really interesting, though, is this little observation:
As gasoline prices climb inexorably, American driving habits are going to have to undergo a massive change, mimicking the driving habits long adopted by Europeans who have faced much higher gas prices. Average miles driven will likely fall by as much as 15%, while the market share of light trucks, SUVs and vans will be literally halved, reversing the trend of the last fifteen years. But the most fundamental, and unprecedented change will be in the number of vehicles on the road.
Over the next four years, we are likely to witness the greatest mass exodus of vehicles off America’s highways in history. By 2012, there should be some 10 million fewer vehicles on American roadways than there are today—a decline that dwarfs all previous adjustments including those during the two OPEC oil shocks. Many of those in the exit lane will be low income Americans from households earning less than $25,000 per year. Incredibly, over 10 million of those American households own more than one car.
Soon they won’t own any.
And the New York Times last week gave some corroboration on the ground:
Suddenly, the economics of American suburban life are under assault as skyrocketing energy prices inflate the costs of reaching, heating and cooling homes on the distant edges of metropolitan areas.
Just off Singing Hills Road, in one of hundreds of two-story homes dotting a former cattle ranch beyond the southern fringes of Denver, Phil Boyle and his family openly wonder if they will have to move close to town to get some relief.
They still revel in the space and quiet that has drawn a steady exodus from American cities toward places like this for more than half a century. Their living room ceiling soars two stories high. A swing-set sways in the breeze in their backyard. Their wrap-around porch looks out over the flat scrub of the high plains to the snow-capped peaks of the Rocky Mountains.
But life on the edges of suburbia is beginning to feel untenable. Mr. Boyle and his wife must drive nearly an hour to their jobs in the high-tech corridor of southern Denver. With gasoline at more than $4 a gallon, Mr. Boyle recently paid $121 to fill his pickup truck with diesel fuel. In March, the last time he filled his propane tank to heat his spacious house, he paid $566, more than twice the price of 5 years ago.
Though Mr. Boyle finds city life unappealing, it is now up for reconsideration.
Here’s James Howard Kunstler, prophet of suburbia’s demise, at TED last year:
[youtube:http://www.youtube.com/watch?v=Q1ZeXnmDZMQ]
by Alex Evans | Jun 19, 2008 | Africa, Climate and resource scarcity, Cooperation and coherence, East Asia and Pacific, Economics and development, Global system
Not much respite in prospect on food export restrictions, if today’s FT is anything to go by. Vietnam, the world’s second largest exporter of rice, has imposed a minimum price of $800 a tonne on rice exports (the price last year was $300 – ouch). Meanwhile, Argentina has just passed a tariff bill which “is not likely to lead to an immediate resumption of grain exports in the world’s third-biggest soy producer, sixth-biggest wheat producer and second-biggest corn exporter, analysts say”.
These problems underline a bigger challenge lurking in the background: that while the world may have a rules-based global trading system built around the WTO, that system is built for totally different trading conditions to the ones that obtain today.
In essence, the WTO and its dispute resolution architecture are designed to help countries to work through squabbles about market access and dumping – the sort of scuffles you expect in a buyer’s market. Fine – except that today, we’re in a seller’s market, on food and energy alike, where the concerns that are really furrowing brows are over security of supply, not market access.
And as a range of current examples show, the one thing policymakers can’t do is just sit back and ‘leave it to the market’. On energy, there’s already increasing friction over strategic oil supplies in Africa, the Arabian Gulf and the South China Sea. On food, meanwhile, export restrictions have left many countries in serious difficulties – like the Philippines, which is trying to go self-sufficient in rice within three years (from being the world’s no. 1 importer today – good luck). Meanwhile, China, Saudi Arabia and other importers are engaged in a quiet but determined hunt for land to buy in third countries.
Over the long term, these pressures may increase dramatically. Demand for energy and food is forecast to grow by 50 per cent each by 2030, according to the IEA and the World Bank respectively. If supply growth fails to keep pace – as seems entirely possible, especially given that food and energy prices are increasingly interlinked (through fuel costs, fertiliser costs, and the arbitrage relationship created by biofuels) – then situations like these will in retrospect seem like no more than trailers for the main feature.
In that context, it would be helpful if our rules-based trading system had something – anything – to say on the subject of security of supply. Do major exporters of key strategic resources have responsibilities as well as rights in the international system? Or is it no more than the legitimate exercise of sovereignty if they suspend or restrict exports at a moment’s notice?
Big questions – but not ones that are the subject of searching debate among trade negotiators. Like Britain’s artillery guns in Singapore during World War Two, the world trade system’s defences are pointing the wrong way.
by Alex Evans | Jun 13, 2008 | Climate and resource scarcity, Global system
Ahead of this weekend’s G8 Finance Ministers’ meeting, the treasury secretaries of Japan, the US and the UK have launched a call for G8 countries to commit cash to two World Bank funds – one on technology transfer for major developing country emitters, and one to help finance adaptation costs. The US will apparently hold a pledging conference later this year to try to raise an initial $10 billion; the three countries have pledged $5 billion of that.
Naturally, Global Dashboard readers will immediately jump to the question: is the UK’s contribution loans or grant aid? Let’s be very clear from the outset: the word “donate”, used in briefing the FT, means “to present as a gift, grant or contribution”. The Treasury website is silent about the new initiative, but fear not: we’ll be keeping our eyes peeled on this one.
In other news, Gordon Brown has confirmed he’ll go to the Saudis’ summit conference on oil prices (where it looks like he may be the only head of state attending). The Guardian tells us he thinks that
it would be necessary to build 1,000 nuclear power stations worldwide to combat … what he described as the world’s oil addiction.
Sigh. Again: petrol and electricity ain’t the same thing, Gordon…
by Alex Evans | Jun 3, 2008 | Climate and resource scarcity, Cooperation and coherence, Economics and development
The FT’s Gideon Rachman has a terrific column today mulling over the question that this week’s UN food summit in Rome is likely to sweep politely beneath the carpet: the question of fair shares to scarce global commodities like energy, food and ‘airspace’ for our emissions.
It is all very awkward. China and India are getting richer. And it appears their new middle classes want all the things we want: cars, washing machines, even meat. Here in the west, we have to restrain ourselves from saying: “Stop. You can’t live like us. The planet can’t stand it. And our wallets can’t stand it. Have you seen the price of petrol?”
Global equity is the awkward issue lying behind the world food crisis. In the long run, it will also prove fundamental to discussions on energy and global warming.
Gideon’s clearly right that asking China, India and other emerging economies to stay poor is a total non-starter (politically as well as morally) – but on the other hand (as his article also makes clear), the problem is that a burgeoning global middle class also risks leaving the world’s poor in an untenable position, now that supplies of energy, food, water, land and ‘airspace’ for our emissions are all getting scarce. Moises Naim asked in a recent LA Times editorial whether the world could afford a middle class – he might have asked whether the poor can afford one, too.
On climate change, at least, we’ve known for a while where the debate needs to go. Given that stabilising the climate will necessarily entail sharing out a safe global ‘emissions budget’, we can’t duck the question of how to share such a budget out – and, by extension, how to satisfy the different equity claims of both emerging economies and least developed countries. How to do that? In a nutshell, through enshrining the principle of fair shares to the global common resource of the atmosphere through a process of convergence to equal per capita emission rights by some agreed date (2030, 2050, the day after tomorrow – whatever countries can hammer out). More and more people in the climate debate are now accepting that proposition (Nick Stern being a notable recent convert), and discussion of it ought to figure heavily on the road to next year’s Copenhagen summit.
With food, though, it’s very much harder to see how the principle of fair shares can be operationalised. At this week’s UN food summmit, the demand side effects of changing diet patterns aren’t even being talked about seriously, even though most analysts agree they’re the most important driver of rising food prices.
Still, one starting point would be to get some basic analytical tools up on the web. If I want to calculate my lifestyle’s carbon footprint, there are any number of websites that will allow me to do just that – and to see whether I’m living within or beyond my ‘fair share’ of the atmosphere. But if I look for a calculator to figure out my diet’s “grain footprint” – the amount of wheat, corn and other cereals needed not just for my daily bread, but (more significantly) the meat, dairy products and processed food in my western diet – I draw a blank. As a result, I’ve no way of telling whether I’m taking food out of someone else’s food bowl, or being a responsible consumer and living within my fair share.
True, grain footprint calculators hardly represent a comprehensive global solution. But if global food supply fails to keep pace with demand growth – forecast by the World Bank to rise by 50% by 2030 – then they’re not a bad place to start the discussion.
