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Climate change affects the world’s poorest first and worst. Yet it is a problem the whole world shares that can only be addressed through international cooperation. CGD’s work on climate finance looks at economic incentives that benefit us all—by helping developing countries work together with other governments, institutions, and corporations to reduce emissions.
In 2016 on the CGD Podcast, we have discussed some of development's biggest questions: How do we pay for development? How do we measure the sustainable development goals (SDGs)? What should we do about refugees and migrants? And is there life yet in the notion of globalism?
And we have heard from some major international figures, including two former presidents—Ernesto Zedillo of Mexico and Joyce Banda of Malawi—Jim Kim, Christine Lagarde, Lawrence Summers, and Ngozi Okonjo-Iweala, as well as several major development organization heads, private sector representatives, government officials from around the world, and leading academics and thinkers—including, of course, many of CGD’s own experts.
In early 2017, the CGD podcast will discuss how best to conduct impact evaluations with Rachel Glenerster of J-PAL and our own Bill Savedoff; we will think about how digital technology impacts development with Raj Kumar of Devex; and we will ask if development finance institutions like the US’ OPIC and the UK’s CDC are the best way to pay for development, with their respective heads Elizabeth Littlefield and Diana Noble. Look out also for podcasts about major CGD work, including new ideas to better help refugees in long-running emergencies; the problems of trying to measure corruption; how biometric identification can help achieve several of the SDGs; and how Britain’s trade policy can make the most of Brexit.
I do hope you will stay tuned in 2017—and please share the podcasts and encourage your friends and colleagues to subscribe here or on iTunes. As ever, I welcome your thoughts and feedback. Thanks to Stephanie Brown, who produces all our podcasts—and to you for listening.
In 2016 on the CGD Podcast, we have discussed some of development's biggest questions: How do we pay for development? How do we measure the sustainable development goals (SDGs)? What should we do about refugees and migrants? And is there life yet in the notion of globalism? In this edition, we bring you highlights of some of those conversations.
President-elect Donald Trump has just named former Texas Governor Rick Perry to lead the U.S. Department of Energy (DOE). Over the past eight years, the agency has been run by two physicists: one with a Nobel Prize who transformed the focus of the agency from just management of nuclear weapons to energy more broadly and presided over the launch of ARPA-E, a groundbreaking initiative to make America an engine of energy technology innovation; and the other, a professor at MIT, who demonstrated his ability as a skilled diplomat by not only launching a breakthrough international clean energy research and development initiative but also by brokering a landmark agreement with Iran on peaceful use of nuclear energy. Indeed, over the last eight years DOE has helped transform the energy landscape of the country and the world through its many partnerships with companies domestically and partner nations abroad. Governor Perry may not have the educational background to manage the agency, but let us look to the energy policies of his home state which he governed from 2000 to 2015 to predict DOE’s role in the Trump administration.
The Texas Example
Rick Perry may not remember the name of the agency he is about to lead, but his state depends on energy to drive its economy and this is precisely what makes it an energy leader in the nation. Texas “needs energy policies that are free of isolationism and protectionism,” stated Michael Webber, the deputy director of the Energy Institute at the University of Texas at Austin. Isolationism and protectionism were major parts of the president-elect’s platform during his presidential campaign. If coal protectionism is the goal of the incoming administration (whether through mandates or subsidies), the natural gas industry, its main rival and driver of economic growth in the state, would suffer. And if a wall is to be built along the Texas – Mexico border, would political sensitivities block market access to the state’s oil and gas industries? Will a border wall dim the prospects of cross-border energy connections including pipelines and electricity grids? The energy industry thrives in an open market and the weight of Texas’s energy industries may shape the nation’s (energy) policies.
Market forces are also capitalizing on the state's environmental regulations and further contributing to Texas being a leader in clean energy deployment. Successive state legislation has: 1) revised and expanded the Texas Renewable Portfolio Standard (RPS) from 2 GW to 5.8 GW by 2015 with an aim of increasing to 10 GW by 2025 (which the state surpassed in 2009); 2) offered 100% property tax exemption to commercial and industrial renewable energy companies; 3) required investor-owned utilities to increase their annual growth in electricity demand to be met by energy efficiency measures from 10 to 30 percent; and 4) prohibited state agencies (barring emergency and law enforcement) with fleets of more than 15 vehicles from purchasing or leasing additional vehicles unless the vehicles use an alternative fuel source.
With abundant sun and wind, the state is well placed to be a driver of energy from these sources. Texas ranks number one in the country in the potential of solar energy generation and has often been dubbed the Saudi Arabia of wind, which powers ten percent of the state’s electricity. It’s no wonder then, that according to the American Wind Energy Association, by the end of 2015, Texas led the nation with over 24,000 wind energy employees. This is a fraction of the more than 100,000 people employed in the renewable energy sector statewide by approximately 1,300 Texan companies. What’s more, according to Carlton Schwab, chief executive of the Texas Economic Development Council, these jobs pay average annual salaries of more than $78,000. Being a leader in clean energy technologies in a state that is deeply conservative suggests that the Department of Energy could continue to support an industry that is already skewing towards a cleaner (and better-paying) future.
On Climate Change & Energy Innovation
To curtail the worst impacts of climate change — which will affect poor countries most dramatically and undermine critical development gains — the global momentum that led to the Paris Agreement must be maintained. Developed countries, which have contributed most to climate change historically, must continue to take the lead in reversing the trends of industrialization which ignore negative environmental externalities and have global spillover effects.
The US has already begun leading on emissions reduction, innovation, and climate and energy R&D. But the reactionary nature of short-term election cycles may threaten major progress on a global problem that requires a long arc of concentrated action. That’s not to say that other global leaders, such as China (see our colleague Jonah Busch’s recent blog here), won’t help pick up the tab, but shirking climate commitments would certainly diminish US influence and leverage internationally.
During an appearance on the Daily Show Monday night, President Obama addressed the incoming administration’s approach to climate change by saying, “They may change the policy on climate change, but climate change is still climate change,” and the “problems don’t go away.”
The president’s comments come days after President-elect Trump’s transition team sent an unusual questionnaire to employees at DOE inquiring about staff members’ involvement in climate negotiations and research. The DOE has announced it won’t comply with the transition team’s request for names of climate researchers for fear that those staff may be negatively targeted by the incoming administration. Tactics like these have caused scientists to worry the new administration may tamper with scientific data, leading them to engage in “guerrilla archiving” to preserve datasets externally.
Although the transition team’s initial forays haven’t been encouraging, Energy Secretary Perry has an opportunity to extend to the national level the inventive policies and mechanisms for scaling renewable energy that have been brought to bear in his home state of Texas. The state’s main power grid operator expects to reduce carbon emissions by 28 percent below the 2005 baseline by 2035; this will easily exceed reductions required by Texas under President Obama’s Clean Power Plan. Texas has also created its own Energy Systems Lab (ESL) (similar to DOE’s 17 national labs) under its Emissions Reduction Plan passed in 2001. The ESL monitors and evaluates policy and technology impacts in the state’s energy sector to employ that evidence to build a cleaner, more efficient energy system.
Public and private spending on R&D and innovation, for ventures such as Texas’s ESL and DOE’s national labs, should continue increasing to meet the world’s clean energy needs, rather than backsliding. The UNFCCC (2007) estimates that an additional $200 billion in global investment in R&D and innovation by 2030 is required just to return emissions to 2007 levels. Investment in R&D is a strong driver of innovative activity, and yet research clearly indicates that underinvestment in R&D and innovation is endemic to our governance system due to the market failure to place prices on emissions. Public investment for energy and climate research has risen under the Obama administration, but it will need to continue to do so. Private investors are also ramping up their ambitions. Earlier this week, Bill Gates, Mark Zuckerberg, and other prominent executives created the Breakthrough Energy Ventures fund, which is focused solely on generating financing for clean energy innovations.
Figure 1. Map of Department of Energy's National Laboratories Illustration by Sandbox Studio, Chicago, commissioned by Symmetry Magazine
Bilateral Energy Partnerships
Energy is one of the pillars of US diplomacy. Nothing has driven the US foreign policy agenda in the last several decades quite like American energy security interests. Over the last decade, these interests have shifted from simply energy security (especially as the US weans itself off foreign oil) to a quest for new energy technology development and deployment. America’s bilateral energy partnerships led by DOE have facilitated the creation of a new global energy innovation ecosystem that has given rise to new technologies and furthered broader US foreign policy agendas with countries who are otherwise energy starved. These bilateral partnerships must be sustained and expanded under the new administration.
Apart from bilateral partnerships on fossil energy, the US has forged several clean energy partnerships with other countries. Indeed, some US relationships with other countries are being defined by a partnership on increasingly cleaner sources of energy. Existing aggressive clean energy policies in countries like China and India will be sustained regardless of what the US decides to do with the Paris Agreement. And these countries will seek to continue collaborating with the US on clean energy research, development, and deployment. For example, one of the biggest areas of partnering with a country like India, which aims to install 175 GW of renewable energy capacity alone by 2022, is energy. DOE and the new administration would be wise to ensure that such targets are met by continuing existing collaboration if India is to be a reliable partner in other global matters, including trade and security. Texas’s energy policy record has shown us that such partnerships, unhindered by protectionism and isolationism, should be encouraged, and the technologies that will win out (which are trending cleaner) will facilitate US job growth. Hopefully Governor Perry will heed the policies of his home state as he prepares for his new role as Secretary of Energy.
President-elect Donald Trump committed his first major personnel act on climate Wednesday, picking Scott Pruitt—Oklahoma Attorney General, climate change denier, and oil industry ally—to head the Environmental Protection Agency. If Pruitt is confirmed, he’ll be responsible for looking out for all Americans, not just for narrow oil interests. Maybe he’ll be persuaded to take a more forward-looking stance on climate by the Americans already grappling with sea level rise in Alaska, Florida, and Louisiana. But if that doesn’t concern him, perhaps the United States losing international goodwill and influence to an ascendant China will.
For anyone hoping to see Trump listen to Al Gore on climate instead of Myron Ebell, the appointment of Pruitt was a rude awakening. The Pruitt pick looks to be just the first of many troublesome acts on climate by the Trump administration. The president-elect is reportedly looking to fill other key cabinet posts with climate change deniers and oil industry allies: Cathy McMorris Rodgers for Interior, and former Texas governor Rick Perry for Energy, where the Trump transition team is reportedly compiling a list of civil servants who attended climate meetings under the current administration. Just today the transition team announced that the president-elect has picked ExxonMobil CEO Rex Tillerson as secretary of state.
As environmental groups gear up to defend hard-won US federal government gains on climate, many people are starting to look elsewhere for signs of hope and progress. My colleague Frances Seymour sees climate policy advances shifting to states. Former New York City mayor Michael Bloomberg finds hope in cities. Some commentators take solace in market movement toward renewable energy, driven by ongoing technological advances and falling costs. I’ve been buoyed by a rapid-fire string of announcements by governments planning to completely phase out coal, the dirtiest fossil fuel—France (by 2023) and Finland, Canada, and Alberta (by 2030). These declarations follow on the heels of a similar announcement last year by the UK (by 2025).
But perhaps the greatest potential source of hope is the world’s biggest greenhouse gas emitter, China. As unlikely as it would have seemed just a few years ago, China has been making great strides on climate and air quality in recent years. It is rapidly shifting its power generation from coal to natural gas, and growing renewable energy. China has also been installing cleaning devices in power plants and rolling out vehicle emission regulations.
In a country where air pollution is responsible for more than one million early deaths a year, the shift toward cleaner energy and transportation is paying dividends. A recent study found that China’s nitrogen dioxide (NO2) pollution from power plants has fallen by more than half since its peak in 2011, reducing overall NO2 concentrations by one-third. Climate is a co-benefit—China’s carbon dioxide emissions have been falling since 2013 or 2014, well in advance of a 2030 target.
Whether China can maintain and expand upon these tentative environmental gains is uncertain. Even as China rolls out the policies above, it may or may not be continuing to build coal plants, and it may or may not be experiencing a resurgence in coal mining. Whether China can keep cutting emissions will depend in part on the success of its incipient carbon market, its forest restoration programs, and other innovative environmental programs called “eco-compensation”—the subject of a conference I recently attended in Kunming, China, and the subject of a companion blog, China’s Eco-Compensation Programs for Improving Environmental Quality.
If China is able to follow through on its domestic emissions reductions, what might this mean for international climate efforts? The 2015 Paris climate agreement was structured as a “bottom up” agreement in which all countries’ contributions are voluntary. There were always going to be leaders and laggards, and the main international mechanism to spur greater action was always going to be peer pressure—lauding the leaders, and shaming the laggards.
There’s no question that it would be better to have both the US and China as lauded leaders, working together for climate solutions, financing international efforts, and using their collective diplomatic muscle to bring vacillating nations on board. However, Candidate Trump pledged to “cancel” the Paris agreement, and President-elect Trump is reportedly exploring avenues for withdrawing the United States from the agreement. In contrast, a senior official at the conference I attended in Kunming confidently declared China’s commitments to decrease emissions a “solemn promise to the rest of the world.”
If Trump and his cabinet back the US away from its commitment to reduce emissions, the climate would be harmed both directly and by any corresponding slackening of efforts by other nations. Progress in national climate policies and progress in international climate negotiations are mutually reinforcing, as described in Frances Seymour’s and my new bookWhy Forests? Why Now? The Science, Economics, and Politics of Tropical Forests and Climate Change.
At the same time, the US would be handing a diplomatic gift to China. China is well-placed to fill a US-shaped hole in international climate leadership, together with Europe and other high-ambition nations. In doing so it would earn the goodwill of many nations, and the influence that comes along with that. When countries threatened by climate change consider trade and investment partners, they’ll look more favorably on a country that joins them in a common effort to fight climate change than one that shirks its commitments and makes the problem worse.
There are parallels here. If Washington abandons the Trans Pacific Partnership, Beijing stands ready to write trade rules for Asia. As the US has grown increasingly indifferent to multilateral development banks, China has launched the rival Asian Infrastructure Investment Bank. Could the Paris climate agreement become one more international institution where the US cedes leadership to China?
As a CGD colleague recently said to me, “who would have guessed we’d be pinning our hopes on China to lead us out of an environmental crisis.” Yet just as on trade and multilateral development banking, the results of a China-led climate effort might not always be to America’s liking—China could deprioritize transparency, for example. But, if we Americans give up our seat at the table, we will be in no position to complain about where China takes the agenda.
For nearly two decades, China has been rolling out a collection of fiscal instruments for improving environmental quality. These programs, collectively termed “eco-compensation,” include not only payments for environmental services (PES), but also an array of taxes, fees, subsidies, funds, compensation payments, and interstate compacts. Many of these programs are large and innovative, as I recently learned at an international conference in Kunming on eco-compensation, organized by China’s National Development and Reform Committee (NDRC) and the Asian Development Bank.
Eco-compensation has its origin in the 1998 Yangtze River floods, which killed thousands of people and left millions homeless. The Chinese government realized the importance of maintaining upstream forests for flood protection and introduced payments to landowners who protected or restored forest. (For more on how forests protect people from natural disasters, see Frances Seymour’s and my new bookWhy Forests? Why Now? The Science, Economics, and Politics of Tropical Forests and Climate Change.)
Since then, China has spent more than $150 billion on eco-compensation, according to one government official who spoke at the conference, including to reduce erosion, prevent sandstorms, combat desertification, and protect parks. China now claims forest cover of more than 21 percent, up from a low of 16 percent, according to another government official. (Independent scientific estimates confirm that China’s forest cover has increased, mostly with plantation monocultures rather than restored native forests.) Speakers described how China has recently passed a series of environmental protection laws, and how in 2015 “eco-civilization”—harmony between economy and environment—was inscribed as one of five pillars of the national Five Year Plan.
One new eco-compensation program, discussed by several speakers at the conference, is an interprovincial “horizontal” agreement for water quality along the Dongjiang River. The downstream province of Guangdong pays the upstream province of Jiangxi based on the quality of the water. The better the water quality, the more Guangdong pays. The agreement builds on dozens of similar arrangements between municipalities. One innovative feature of this agreement is that it’s two-sided: if the water quality is below a certain benchmark, Jiangxi has to pay Guangdong.
One of the most consequential programs discussed at the eco-compensation conference is China’s growing carbon market. Currently composed of pilots in eight cities, the program is set to expand in 2017 to a national market covering eight industrial sectors and 3-4 billion tons of carbon dioxide per year. It’s expected to be a $10 billion-per-year market. It is envisioned that after 2019 the carbon market will grow to cover all sectors, with offsets for agriculture and forestry projects.
The conference featured international speakers too. There were presentations on South Africa’s “Working For” environmental public works programs, which employ 70,000 people; Vietnam’s PES program; wetland mitigation banking in the United States; experiments with PES in Central Asia; forest planting programs in the Philippines; and biodiversity offsets in France.
I was invited to talk about recent global developments in reducing emissions from deforestation (REDD+). I discussed the Paris climate agreement; bilateral pay-for-performance deals in Brazil, Guyana, and Indonesia; the Forest Carbon Partnership Facility’s Carbon Fund; California’s moves to incorporate tropical forest offsets into cap-and-trade; the International Civil Aviation Organization’s pledge of “carbon neutral growth”; and India’s pro-forest tax reform—all topics we explore in depth in Why Forests? Why Now? I noted the current opportunity for a big buyer to access low-cost, high-volume emission reductions through REDD+, and to gain global goodwill by doing so.
The conference featured a number of recurring themes. Several speakers highlighted that eco-compensation brings institutional side benefits—including new data collection and monitoring and evaluation, as well as governance cooperation across districts that might not otherwise interact.
But several speakers stressed that eco-compensation can’t solve every problem. Complementary policies are needed to address other issues, in particular poverty alleviation. As one speaker put it, government planners should ask critically “what can eco-compensation do that other policies can’t?”
There were frequent debates over whether polluters should pay for environmental damages or whether beneficiaries should pay for improvements in environmental quality. Ronald Coase and his interpreters would surely be smiling.
So, are market-based approaches to environmental protection taking over in a land where the Hammer and Sickle is still a common sight? Well, not quite. Eco-compensation programs have been a complement to—not a substitute for—direct regulation of polluting industries. For example, after the 1998 floods the Chinese government instituted a logging ban as well as payments to upstream landowners. China’s fledgling carbon market functions alongside powerful government authority to clean up or shut down power plants; thanks to these efforts, CO2 emissions have been falling since 2013 or 2014.
Thus, policy sticks and carrots go hand in hand in China as elsewhere. In Costa Rica, the world’s premier PES program was the political sibling to a concurrent deforestation ban. And in Brazil, where restrictive policies caused a drop in Amazon deforestation of 80 percent between 2004 and 2014 even while beef and soy production increased, commenters have long warned that unless sticks are paired with carrots, deforestation could resurge. Worryingly, this now appears to be happening: deforestation in the Amazon in 2016 rose by 29 percent from the previous year (though it’s still 71 percent below the peak in 2004).
I was asked at the conference what the outcome of the US election means for the Paris climate agreement. I discuss this subject in a companion blog, If the Trump Administration Abandons Climate, Will China Take Global Leadership? In short, if the US retreats from global climate leadership, China will have an opportunity to claim the mantle, along with both the domestic responsibilities and international goodwill and influence that come along with it.
Can China lead on climate? If the commitment to improved environmental quality, openness to both market-based and regulatory approaches, and strategy of learning by doing that I observed at the eco-compensation conference are indicative of China’s climate efforts more broadly, there is good reason for hope.
In uncertain political times, the world needs solutions that enjoy broad-based support. Drawing on more than 20 research papers commissioned over two years, Why Forests? Why Now? demonstrates the disproportionate impact tropical forests can have on climate change mitigation, how the livelihoods of millions of poor people around the world depend on the services they provide, and how consensus has been reached on a framework for international cooperation to conserve them.
The first victims of climate change are the world’s poorest people. They are least able to rely on savings or insurance in times of climate-related disasters. They are least able to access modern healthcare. And they are least able to move to safer locations.
Preventing dangerous climate change is therefore critical for promoting global development. And saving tropical forests is essential to doing both.
That’s the topic of a major new book, Why Forests? Why Now? The Science, Economics and Politics of Climate Change. CGD senior fellow Frances Seymour, who coauthored the book with colleague Jonah Busch, joins me on this week’s podcast to explain why forests are key not only to meeting the objectives of the Paris climate agreement, but also to making progress on the sustainable development goals.
In the clip below, she tells me that over half of the sustainable development goals can be aided by protecting tropical forests:
Preventing dangerous climate change is critical for promoting global development. And saving tropical forests is essential to doing both. CGD senior fellow Frances Seymour, coauthor of a new CGD book, joins me on this week’s podcast to explain why forests are key not only to meeting the objectives of the Paris climate agreement, but also to making progress on the sustainable development goals.