Category Archives: Climate Change

The Threat to US Global Leadership

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President Barack Obama has had a remarkable series of foreign policy triumphs over the last 12 months.  One of the lesser-known was the passage of legislation for reform of the IMF on December 18, 2015, after five years of obstruction by the US Congress.   As the IMF convenes in Washington DC for its annual spring meetings April 15-17, we should pause to savor the importance of this achievement.  One could almost say that if Americans had let yet another year go by without ratifying the IMF quota reform, they might as well have handed over the keys of global economic leadership to someone else.  That would be China.

The IMF reform was an important step in updating the allocations of quotas among member countries. (Quota allocations in the IMF determine both monetary contributions of the member states and their voting power.  They are supposed to be determined by economic weight.)   The agreement among the IMF members was to allocate greater shares to China, India, Brazil and other emerging market countries, coming primarily at the expense of European and Persian Gulf countries.  The change in IMF quotas is a partial and overdue adjustment in response to the rise of the newcomers.  President Obama managed to get the leaders of the other G20 countries to agree to this reform at a 2010 summit in Seoul.

Approving the agreement should have been a “no-brainer” from the viewpoint of the United States:   it was neither to pay a higher budget share nor to lose the voting weight that has always given it a unique veto power in the institution.  The reform was an opportunity to exercise US global leadership.  But one might have thought it was a threat to US leadership if one judged from congressional opponents who blocked passage of the legislation until last December.

If the game is a competition between China and the US for international power and influence, then some damage has already been done.  China feels that its economic success merits a greater role on the world stage.  If the status quo powers “move the goal posts” by denying China the place at the table of global governance that it has earned, it will look to establish its own institutions.   Meanwhile, Asia has been wondering if the US is committed to the region (as its “pivot” claimed).  Indeed, the rest of the world has often in recent years wondered if internal politics prevents the US from functioning at all.  Asians tend to prefer to have the US engaged. China’s territorial assertions in the South China Sea confirm its neighbors worst fears. But they will look elsewhere if need be.

Thus Asian countries (and others) were happy to join a new China-led institution, the Asian Infrastructure Investment Bank. The AIIB, widely viewed as a serious diplomatic setback for the US, went into operation December 25.

The good news is that the AIIB is off to a good start, with no sign so far of the feared lowering of standards relative to other multilateral development banks (such as the World Bank).  But it is even better news that the US can now get back into the game, after a string of international successes.

It has been a busy 12 months for President Obama in the international arena.   Consider  global achievements in four areas (in addition to the IMF reform):

  • On April 2, 2015, the United States (and five other major powers) reached a long-shot breakthrough with Iran over its nuclear program, which was then consummated in a July 14 agreement diverting Tehran from what had seemed an inexorable march to nuclear weapons.   On January 16, 2016, the International Atomic Energy Agency verified that Iran had in fact completed the necessary steps under the agreement to ensure that its program remains exclusively peaceful.
  • On June 24, 2015, Congress was persuaded to give the White House Trade Promotion Authority.  It allowed the administration to complete the Trans-Pacific Partnership (TPP) in October.
  • On July 20, 2015, the US and Cuba re-opened embassies in each other’s countries.  Last month, on March 20, Obama because the first president to visit Cuba in 90 years. The historic event marked the end of 55 years of an attempted isolation policy that had only succeeded in giving the Castro brothers an excuse for economic failure and in handicapping American relations throughout Latin America.
  • On December 12, against all expectations, representatives of 195 parties to the UN Framework Convention on Climate Change successfully reached an agreement on global action in Paris, spurred in no small part by an earlier breakthrough between President Obama and Chinese President Xi Jin Ping.  This month, on April 22, the two leaders are scheduled to sign the Paris Agreement on behalf of their respective countries, the world’s two largest emitters of greenhouse gases.  The signing will encourage others to ratify.

These accomplishments are not the kind that come automatically with possession of the Oval Office.  A year ago, not one of them was expected.  Not only did the international political obstacles appear nearly insurmountable; the domestic obstacles looked even worse.  The overwhelming conventional wisdom was that Obama would not be able to accomplish much in his remaining time in office.  After all, the Republicans had succeeded in blocking almost all Obama’s proposals since they took the House of Representatives in November 2010.  Why should he have any better luck after they took the Senate (in November 2014) and especially now that he was a “lame duck” as well?

The Trade Promotion Authority legislation was declared virtually dead last May.  The IMF quota reform legislation was considered so moribund, the press did even consider it worth reporting on.

A lot of the opposition came from Republicans who from the start have been eager to line up on the opposite side of whatever position President Obama takes.   But opposition to such internationalism comes from the far left of the political spectrum as well as the far right, and not just in the area of trade.  To take the salient example of Bernie Sanders, historically he has joined with congressional Republicans in trying to block efforts to rescue emerging market countries in Latin America and Asia at times of financial crisis.  (These rescues are invariably called “bailouts,” even while they cost the US nothing – the Treasury made a profit on the 1995 loan to Mexico that Sanders fought – and even while they sustain economic growth.)  To take another example, New York Senator Chuck Schumer joined the Republicans in trying to block the Iran nuclear agreement, an effort that failed on September 8.

The IMF deal is done.  Managing Director Christine Lagarde is doing a good job (especially compared to her three predecessors, none of whom was even able to serve out his term).   She is right, for example, to tell the Germans that a solution to the Greek problem requires further debt-reduction as one of its components.

But each of the other four initiatives could still be de-railed by US politics, especially if the far left and the far right join together.  Congress has yet to repeal the Cuba embargo.   It could reject the TPP, in effect telling Asia it is on its own.  On June 2, a federal Appeals Court will hear a challenge to the Clean Power Plan whereby the Obama Administration hopes to begin implementing its commitment under the Paris Agreement.  Donald Trump and Ted Cruz both say that if elected president they would tear up the Iran nuclear deal.   (What would happen then?  Probably the same thing that happened when George W. Bush took office in 2001 and tore up Bill Clinton’s “framework agreement” with the North Koreans:  they predictably and promptly got a bomb.)

The struggle over whether the US will lead the world continues.  It is not a struggle between the US and rivals, but a struggle within American politics.

 

[This is an extended version of a column that appeared at Project Syndicate.  Comments can be posted there or at Econbrowser.]

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The Paris Agreement on Climate Change, C’est Bon

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How should one evaluate the agreement reached in Paris December 12 by the 21st Conference of Parties to the UN Framework Convention on Climate Change (UNFCCC)?   Some avid environmentalists may have been disappointed in the outcome.  The reason is that the negotiators did not commit to limiting global warming to 1 ½ degrees centigrade by 2050, nor will the new agreement directly achieve the 2 degree limit.

But such commitments would not have been credible.  What came out of Paris was in fact better, because the negotiators were able to agree on meaningful practical near-term steps. Virtually all countries agreed concretely to limit their emissions in the near term, with provisions for future monitoring and periodic checkup and renewal. This is a more important achievement than setting lofty goals for the distant future while giving little reason to think that they would be met.  The important thing is to get started.

In four key respects, the agreement is a good one, for those who see global climate change as an important problem and who want down-to-earth steps to address it.

First, and most salient, is comprehensive participation.  More than 186 countries offered individual commitments, called Intended Nationally Determined Contributions (INDCs), to go into effect in 2020. These countries account for 96% of global emissions, compared with the current coverage of the Kyoto Protocol which is only 14% of global emissions.  In the past, only advanced countries were expected to agree to commitments to reduce emissions of greenhouse gases.  Developing countries were explicitly spared that within the UNFCCC.  One reason it is so important for them to make explicit commitments is that the growth in emissions is now taking place exclusively in developing countries, not among the advanced countries.  Furthermore, countries like the United States would not agree to limit their emissions if they feared that the effect might simply be a migration of carbon-emitting industry to developing countries.

Second is the agreed process of future assessment and revision of targets.  The decision was to take stock and renew the commitments every five years. (Some negotiators had been arguing for ten-year intervals.)  Future steps can adjust targets to be either more aggressive or less, in light of future developments.  Probably more aggressive, if the scientists’ predictions are borne out.  The second set of INDCs is to be decided in 2018.

Third is transparency in monitoring, reporting and verifying each country’s progress.  Countries are to report every five years, starting in 2023, how well they have done compared to what they had said they would do.  The United States and Europe had to push hard on China and India to get agreement on this.  But without it, the INDCs would not have been credible.

Fourth are mechanisms to facilitate international linkage, including scope for firms operating in rich countries to finance emission reductions in poor countries.  This is important in order to achieve the environmental goals in an economically efficient way:  it is cheaper to pay a poor country to refrain from building new coal-fired power plants than to shut down plants that are already operating in rich countries.  Achieving the first period’s INDCs at low cost will in turn be important for willingness to take further steps in future periods.

Some may be disappointed that the Paris Agreement did not explicitly commit to more aggressive environmental goals, particularly limiting warming to 1 ½  degrees centigrade (above pre-industrial levels) or zero greenhouse gas emissions in the second half of the century, leaving these as aspirations.  And in truth the INDCs are nowhere near enough in themselves even to limit warming to 2 degrees Celsius (3.6 degrees Fahrenheit), the long-term global goal that was agreed at an earlier Conference of the Parties in Cancun in 2010.

Actually achieving such environmental goals would of course be desirable, in order to minimize risk of disaster scenarios.  But proclaiming ambitious collective numbers is very different from achieving them.  It is almost beside the point that, by now, a goal of 1 ½ degrees would be very high-cost economically. The plan needs to be credible if it is to determine myriad business decisions made today.   But collective goals are not credible without assignment of individual responsibility; and leaders in any case can’t make credible commitments 35 years into the future.

Others, from developing countries, are disappointed for another reason:  the figure of $100 billion in finance from rich countries does not appear in the legally binding body of the agreement.  They did get an admission of moral responsibility to help small island states, for example, cope with “loss and damages” from sea level rise.  But the rich countries rejected demands for concession of legal liability.  I judge this a reasonable outcome in a difficult situation.

Rich countries can’t deny that their past emissions have inflicted harm on the world.  The entity whose land was flooded would have a claim to compensation from the entity that had caused the damage, if they were operating within a domestic legal system.  But sovereign countries are not operating in such a legal system.  The $100 billion in finance has always seemed to me problematic.  The developing countries fear that the rich countries won’t in the end deliver it, not in cash; and they are right.  The rich countries fear that if they did send “reparations,” much of it would disappear into the pockets of local elites; and they are right.  Better, then, not to make promises in the first place.

The poor countries do have a strong case.  The average American still emits ten times as much greenhouse gases as a citizen of India.  India cannot be deprived of the right to develop economically.  But the best place to take account of these fairness concerns is in the agreed emissions targets.  The efforts that the richer countries promise in these agreements should be – and generally are — greater than the efforts of poor countries.  The richer a country is, the earlier the date at which its emission targets should peak.  The richer it is, the more sharply its target should cut relative to emissions baseline.  With targets that take into account countries’ stage of development, i.e., that continue to grow in the short term, the poor countries can get paid for additional emissions cuts under the international linkage mechanisms.  This fulfills the important principle of “common but differentiated responsibilities and respective capabilities” that was and is a key feature of the UNFCCC under which the Paris Agreement has been reached.

The Paris Agreement incorporates both fairness and efficiency.  In light of the very big obstacles and long odds that they faced, the negotiators were surprisingly successful in converging on a plan that offers hope of practical progress.

[A shorter version was published by Project Syndicate. Comments can be posted there or at EconBrowser.]

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The World Economy in 2015

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I am posting in three parts the results of an interview on the year-end outlook.  (The questions come from Chosun Daily, leading Korean newspaper. The interview is to be published there in January.)

Part 1. The Global Economy in 2015

Q: Around this time next year, which countries do you predict will be the winners, and which will be the losers of the year?

A: The big gainers will be oil-importing economies, particularly China, India and other Asian countries.

Russia will be the big loser. It has now become clear to all how fragile and vulnerable the Russian economy was, especially with respect to world oil prices. It is easy to forget that commentators a few months ago were declaring Russia less vulnerable to Ukraine-related sanctions than Western Europe. Before that, they were judging the $50 billion 2014 winter Olympics in Sochi a triumph.

Q: Even up to last year, Russia was considered a promising market. Which country could be the ‘Next Russia’ in 2015?

A: Cuba. Continue reading

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