The right time for cli­mate action

Financial Mirror (Cyprus) - - FRONT PAGE -

To­day, the ta­bles have turned. With oil prices lan­guish­ing around $40 a bar­rel, fos­sil-fuel com­pa­nies do not need govern­ments to tell them to stop investing. The chal­lenge has moved to the con­sumer side of the equation. With fuel prices so low, what can be done to change con­sump­tion pat­terns?

To be sure, there are some signs that cheaper en­ergy could gen­er­ate enough growth to drive oil prices back up. But no­body pre­dicts a re­bound strong enough to prompt the rad­i­cal trans­for­ma­tion that will be re­quired if coun­tries are to meet their emissions-re­duc­tion goals.

A 2015 OECD re­port shows how far be­hind coun­tries are on their emissions tar­gets – never mind their com­mit­ment to limit the global tem­per­a­ture rise to well be­low 2 de­grees Celsius. Mean­while, oil ma­jors are keen to re­mind us that we will need to burn fos­sil fuels for many more years as we grad­u­ally shift to a new en­ergy econ­omy.

So, what are govern­ments to do? There is near-univer­sal agree­ment that no one will ben­e­fit from a dan­ger­ously warmer planet. But dif­fer­ent coun­tries have very dif­fer­ent in­ter­ests, de­pend­ing on whether they are oil ex­porters or im­porters and how de­vel­oped their economies are.

Oil-pro­duc­ing de­vel­op­ing coun­tries should con­sider whether their re­sources have an eco­nomic fu­ture, given di­min­ish­ing scope for emissions. Coun­tries like Saudi Ara­bia, Iraq, and Iran – where oil is plen­ti­ful and cheap to ex­tract – are likely to stay in busi­ness for some time. Even if the world rapidly de­car­bonises, oil con­sump­tion will re­main high enough for their re­sources to be worth ex­tract­ing.

But coun­tries with less gen­er­ous oil en­dow­ments need to im­ple­ment eco­nomic re­forms and elim­i­nate sub­si­dies. Saudi Ara­bia has made clear that it is no longer pre­pared to sac­ri­fice mar­ket share to prop up more costly pro­duc­ers. Its de­ci­sion to main­tain out­put at cur­rent lev­els – ef­fec­tively neu­ter­ing the OPEC car­tel – has al­ready had a damp­en­ing ef­fect on com­pet­ing sup­plies; nearly $400 bil­lion of fos­sil-fuel in­vest­ments have been shelved.

Many govern­ments have been an­nounced a 10% cut in public con­tin­ued to slide this year. And al­most $14 bil­lion by scrap­ping cap­ping sup­port for diesel fuel.

On the other side of the spec­trum, oil-im­port­ing de­vel­oped coun­tries are most likely ef­fi­cient users of fos­sil fuels al­ready. Their economies, hav­ing proved they can cope with oil at $100 a bar­rel or more, clearly do not need an in­fu­sion of cheap en­ergy to thrive. It is there­fore a good time to in­tro­duce car­bon taxes, so that the oil wind­fall is not sim­ply gob­bled up at the gas sta­tion. These coun­tries should shelve any delu­sions of find­ing “black gold,” en­joy the short­run ben­e­fits of cheap oil, and take action now to align in­fra­struc­ture in­vest­ments to chang­ing tech­nol­ogy.

Mean­while, oil-pro­duc­ing de­vel­oped coun­tries should bank the re­main­ing rents to en­able cap­i­tal sub­sti­tu­tion and en­sure life af­ter oil. This is what Nor­way has done, to sig­nif­i­cant na­tional ad­van­tage, over the past 25 years.

Fi­nally, it is govern­ments of oil-im­port­ing de­vel­op­ing coun­tries that are likely to have the most ur­gent need for en­ergy – and also the widest array of pos­si­bil­i­ties to meet that need. They will be look­ing to the global com­mu­nity for sup­port and will need to take a hard look at whether the en­ergy so­lu­tions on of­fer are mod­ern or sus­tain­able. The bur­den of proof must be on fos­sil-fuel-based so­lu­tions – par­tic­u­larly coal – to demon­strate their com­pet­i­tive­ness af­ter ac­count­ing for the full en­vi­ron­men­tal, health, and so­cial costs.

It can some­times seem like there is never a right time to take cli­mate action. When growth is strong, peo­ple urge govern­ments not to de­rail the gravy train. (Never mind that there is lit­tle ev­i­dence to sug­gest that a well-sig­nalled, pro­gres­sive im­ple­men­ta­tion of a car­bon tax would weigh on growth.) When growth is weak, peo­ple ask in­cred­u­lously how cli­mate pol­icy ad­vo­cates could con­sider mak­ing things worse. forced to act. Rus­sia spend­ing as oil prices In­done­sia should save gaso­line sub­si­dies and

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