G8 summit: "I Don?t Think Any 2 1/2 Day Meeting Can Be Critical"
6 Jun, 2007 03:15 pm
Discussions are being held in Heiligendamm, Germany for the G8 summit. Climate Change is a major subject on the agenda. Anthony Heyes, professor of Economics at the Royal Holloway, University of London answers scitizen's questions about the meeting currently taking place.
There are different proposals bandied around on what targets we should be setting for ourselves. The headline figure being talked about in Germany is looking to cap greenhouse gas emissions by 50% by the year 2050 against the usual benchmark of 1990. In terms of the temperature changes, that is seen as roughly consistent with keeping global warming to less than 2 degrees centigrade. Of course, a lot of the science is inexact and these can only be seen as ballpark numbers. Make no mistake, however, these are ambitious and deep cuts, and will require substantial effort on the parts of the economies of these countries.
What are the positions being taken by the summit leaders?
Europe over the last years has been seen as a leader, and rightly so. Angela Merkel, following up on Tony Blair’s work, is seen as pushing this quite hard. Having given it such primacy on this G8 summit is something quite revolutionary. George Bush, who has famously been dragging his feet over the last number of years, has in some sense preempted the work of the G8 over the past few days by suggesting that we need a new infrastructure or process for arriving at a global agreement. This would point to greater US leadership rather than UN leadership than we have had to this point. It provides a new basis for, perhaps, greater engagement by the US in this process, albeit on perhaps different terms. Bush has always been clear that he wants any talking to involve China, India and the rest of the developing world as intimately as possible, and this is sensible. But the US will not be signing up to anything of substance at the G8 this week. So again, the US is the stumbling block.
What is the position of China and Russia?
Well the two countries I would identify as being crucial to everything over the next decades are China and India. Most of the projected growth in global greenhouse gas emissions comes from those two. They are huge economies and rapidly growing. Of course, neither China nor India are members of the G8, so the G8 discussions will necessarily have to be explicit on what political arrangements can be made with these and other non-G8 countries. The G8 does not exist in isolation, though it can certainly provide some real leadership. India and China want to carry on a path of economic development to raise their living standards closer to the living standards enjoyed in North America, Europe, and elsewhere. To most people this seems reasonable and this constraint is now acknowledged by the G8. In the pre-Summit documentation the talk is of the need to “decouple economic growth from energy use” – in other words let economic growth continue, but follow a cleaner path. This is a pragmatic starting point against which to start trying to construct a global agreement on the way ahead, though it will happen against the backdrop of what the G8 says this week.
How do you evaluate the importance this summit?
Every time a major summit is held and climate change is high on the agenda, or an IPCC or other report comes out, people say this is critical moment. I don’t think any 2 1/2 day meeting can be critical – we are talking about substantial effort being exerted by the world’s major economies for the next several decades. If it doesn’t happen by next week that doesn’t mean the thing is doomed. A meeting between the US and other major polluters – to include China and others – later in the year could prove much more of a watershed.
There has been a shift over the past year or so in the public attitude outside the US – notably in Western Europe - and a desire to see political action. Labour and the Conservatives in the UK, for example, have been falling over each other to position themselves to be taking the high-ground in this policy area. There may even have been a movement in the US and with a US election next year (with Al Gore as a serious contender?) that could make a big difference. Over the next two years I would expect to see quite a dramatic change in the global policy environment on these matters.
From an economic perspective, what tools should the international community use to tackle this issue?
Any economist will tell you that one way or another you need to face polluters with price of the damage that they are doing with some sort of pricing system. In this case a price of carbon. When one thinks about regulatory or policy instruments involving pricing, there are two broad routes – taxation or tradable permits.
Most countries, even in Europe, have recoiled from using taxation, because the burden on producers is too great and makes getting the polluters onside too difficult politically. One can send the same price signals by using tradable permits. Europe has of course over the last couple of years moved down that route with the ETS – the European Trading Scheme. That's a trading scheme that has broadened out in the past year to include, for example, aviation. Globally I expect us to move towards something like a trading scheme, or at least for G8 leaders to push in that direction Now how precisely that will work, whether there will be regional separations and whether we will arrive at a single “world” price for carbon remains to be seen, but from my perspective the closer we can get to that the better.
Is Bush right as far as promoting incentive measures rather than binding ones?
It’s difficult to say. It is difficult to know what a “binding target” means when you are talking about nation states and a 40 year time horizons.
But at the level of polluters incentives are the key to economically efficient solutions. One can have a target in mind of the trajectory one would like global emissions to take, but there is then the question of how to implement that.
One can have a view that government should “implement” clean technologies and so on, but this is the wrong way to go about things. The suggestion that I’ve made is that you should face polluters with a price, and then let polluters get on and decide how they are going to respond.
The strength of a market-based response to these types of problems is that it doesn’t rely on government being too clever – they need to establish a market for the offending pollutant (in this case carbon) and then make sure that market is looked after – the correct supply of pollution permits released, etc.. Governments don’t need to involve themselves in trying to engineer technological fixes – something that they are ill-equipped to do. Incentives will be provided by polluters to reduce their pollution in a way they think will be cheapest, and of course, that will imply new technologies. I’m a technological optimist – give the private sector the incentive to do things cleaner by pricing carbon, and it has shown time and again that it is ingenious in coming up with creative responses.
Interview by: Chris Le Coq
Anthony Heyes is professor of Economics at the Royal Holloway University of London.
