Friday, December 7, 2007

Bali is bullshit - let consumers drive the change

It is almost impossible not to be cynical about the UN climate change conference currently underway in Bali. Some 10,000 delegates creating 430,000 tonnes of emissions have descended on the resort island to be involved in discussions on a post-Kyoto regime for managing climate change. So far there is no sign that this vast taxpayer funded junket to some fine beaches will produce anything other than yet more hot air.

According to some perspectives (Der Spiegel) the US is now "isolated" because of the UNFCCCs Annex I nations it alone has not ratified the deal reached in Kyoto this time ten years ago. Such a headline is reminiscent of The (London) Times reporting back in the 19th Century "Fog in Channel, Continent cut off". Excluding the European Union, Russia and their satellites Annex 1 only includes four nations: Japan, Canada, Australia and New Zealand. It does not include China, India, South East Asia, North Asia or South America.

And when it comes down to emissions controls only two nations basically matter: the United States and China, for between them they both control half of the world's CO2 emissions. Add in India with 10%, Taiwan, Korea, Japan, Malaysia, Singapore, Thailand, the Philippines, Australia, Chile, Mexico etc and one rapidly comes to 75%. In other words while Europe has made the most noise about it, climate change is not a European issue at all. Its an Asia-Pacific one. It should not be the European Union that dominates the climate change debate but ASEAN.

The big problem is the fallacy of "developing nation" status. Singapore may have a PPP-adjusted income per capita greater than Australia and a population greater than New Zealand's but it clings on to the post-war mantra that it is a "developing nation". Hong Kong, Korea and Taiwan are in exactly the same mindset. China, which is now on track to have the largest economy in the world and by some measures has a lower poverty rate (8%) than the United States (12%) similarly claims it is "developing".

These nations argue that they should be allowed to develop to European levels of wealth before having to assume European responsibilities. But compared to some European nations they already have. And when is enough enough? Do the nations have to be the richest in the world before they stop being "developing" nations or just in the top 50? The fact is all nations are developing nations, its just some are developing faster than others.

Some New Zealanders with their eyes fixated on Europe (especially the brits) like to imagine that little old New Zealand can "lead the world" in some way on climate change. At present the Government is certainly leading ASEAN in its efforts to single-handedly incorporate carbon costs into its economy. No other ASEAN nation is planning to incorporate carbon costs into every facet of its economy as New Zealand. Even Australia - the hero nation of Bali - has no interest in exposing its agricultural sector, its forestry sector or its motorists to the cost of carbon, and for good reason.

The reason is that the "cost of carbon" at the moment really means the price of European Union ETS units. That is because there is no other serious level of demand for carbon units, because no other jurisdiction has a legal obligation to buy them. Sure, some people will buy carbon credits to make themselves look good, but no-one will put them in jail if they don't have carbon credits to cover their obligations. Thus the world price for carbon is the European price and the European price is determined entirely by how the European Union allocates its obligations.

New Zealand will be the only nation in ASEAN which has essentially tied its economy to the European Union - with none of the benefits this usually implies. Now the big question is will the rest of ASEAN look at this with eyes weeping with admiration or will the predominant emotion be one of mirth? Will our sucking up to Europe really cause the scales to fall from Singaporese eyes? will they strike their foreheads realising their failure to address climate change or will they be laughing down their sleeves?

For the fact is that the Kyoto Protocol was not the saviour of the world. It was a nasty little European treaty designed to effect a transfer of wealth from the United States to the former Soviet Union. Oddly enough the US declined. There is no reason why containing emissions should be fixated on a single year (1990) other than it happens to suit some nations (Britain and Germany) and harm others (New Zealand in particular). There has been no emissions reduction observable from the cap-and-trade mechanism of the Kyoto Protocol and, thanks to the US not signing and the over-supply of AAUs to Russia and the Ukraine, there won't ever be any either.

And worse the omissions of the Protocol have led directly to the devastation of rain forests for biofuel plantation crops. Because "developing" nations are not included in the provisions and Annex 1 nations gain a benefit from importing biofuels without a carbon liability developing nations have seen an opportunity. Result: deforestation one of the single largest climate change impacts (22%) has accelerated. Delegates to the Bali conference who want to observe this first hand could do so out of the air-miles they accumulate by making a side trip to Sumatra to watch deforestation as it occurs.

To be brutally honest I think that Kyoto has done more harm to the planet than good. It has brought out the worst motivations in negotiators as each has strived for some advantage over others in the negotiating process. The result has been unfair and distortionary. Certainly in New Zealand Kyoto-inspired climate change policies have led to more deforestation than pre-Kyoto policies which simply provided a tax credit for planting forests.

To my mind the nations of the world could do far better to develop climate programmes unilaterally. Britain should not be able to sell the benefit of switching from coal to nuclear and natural gas any more than New Zealand should be able to sell the benefit of growing trees. Rather than focus on the delta over short periods the world needs to focus on carbon intensity over long periods. It is ludicrous that Germany should be seen as a climate change hero for increasing its electricity from renewables to 36% by 2020 and New Zealand treated as leper because it can't improve on getting 66% of its energy from renewables as easily. Equally New Zealand's emissions from livestock management is world leading but we can't improve it that quickly compared to other nations.

Ultimately the only real way carbon costs can be incorporated into the global economy is when consumers accept them. Instead of making carbon costs a negative they should be a brand distinction. The United Nations via the International Standards Organisation should simply create a labelling scheme for all goods based on average carbon intensity. To use the brand a firm would simply have to submit to a standard audit process. Goods or services would get Three Blue Marbles for Excellent (top 1%), Two for Good (top 16%) and one for Average (middle 66%). This would mean the bottom 17% would be under constant competitive pressure to improve their performance. Standards would be re-assessed every four years.

To date all Kyoto achieved was to let "developing" nations off the hook. That and provide a lot of free lunches to a lot of diplomats. The time for free lunches is over. All nations are "developing" and all nations have a responsibility to maintaining the life sustaining properties of our planet but diplomats have simply been doing what diplomats do best: eating and drinking up large; talking in blandishments and stalling. The time for such bullshit is over. Its time for the market to what it does best. Sell things and compete.

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