Globalizing Asia or Asian Globalization?

Parallel Session II
Energy and the Environment

Ann Florini –I noticed that this morning there was only brief mention of energy and environment.  For Asia’s prosperity to continue, and for peace and prosperity, policymakers have to get 3 things right:  economics;  security;  environment. 

Environmental issues were always the leftovers on the global agenda.  All the things we heard about this morning are multiplied in environmental issues.  Governance?  Hardly have any.  The energy set of issues is the driving question for all the environmental issues we face today.  Yet there is no consensus on what the issues are, what the problems are, how we deal with those sets of issues.  Mother nature is beginning to express her displeasure.  Climate change in particular raises questions the world is only just beginning to grapple with.

Simon Tay – I agree with the way Ann framed the issue.  I’m going to assume everyone has seen or heard Al Gore and is convinced that there will be an impact on the world if nothing is done about climate change.  What to do about it?  Who will do it?  How to approach?

The sense of urgency is very strong, but the question of who and how is still there. We are in the middle of a perfect storm.  Surging demand for oil.  Insecurity in many areas that provide oil and gas.  Question of what are climate change impacts if you consume all that oil.

The last 200 years, we had an interlocking triangle.  To grow economically, we had to use energy.  To use energy means carbon.  The third leg of the triangle is if you use carbon you affect climate change and undermine the roots of economic growth.

2 main points.  We should try to figure out in Asia what is our position on this triangle? One of the dangers of all political choices is to make false or wrong choices in the beginning.  Some false steps are already being taken. We need political will, multilevel governance to deal with these issues.

(shows slides of growing energy demand around the world)  It is clear that in more developing countries, there is an intensification of energy needs.  The needs of China are outstripping its ability to meet its own needs.  Similarly for India.  The big question is about the future.  Where is the energy going to come from?

First “evil” of false policy choices.  Countries compete for energy resources, leading to resource nationalism.  When you read about China in Africa, this is Asia moving up in the stream of oil resources.  It puts Asia in the path of competition and potentially, conflict.

2nd evil.  Unsafe nuclear energy.  Nuclear energy prospects have increased dramatically.  Asian countries want civil nuclear energy programs.  But many countries have problems getting even simple things to work.  Some are in seismically active zones.   Floods. 

3rd evil:  biofuels.  One of the products in s.e. Asia competing to be a biofuel is palm oil.  It is competing with food for land use.  If we raise biofuel crops, we cut down forests.  Or burn them down, leading to haze.

Some solutions: 
(chart of countries that grew gdp without disproportionate growth in energy consumption)  Japan and Hong Kong have grown with relatively little expenditure of energy.  We could be 20-40% more efficient than we are today.

In the field of energy, we have looked away from free markets and turned it into a nationalization issue rather than leave it to markets and private companies.  In some countries, state-owned oil companies are the most corrupt and least efficient.  The second factor about markets is that we need to create markets for renewable energies.  Skepticism of renewable energy is based on current technologies.  If we invest in renewables, it is possible to use them more efficiently.  We need to incentivize the search for technologies and investments for renewable technologies.

Asia needs cooperation.  It has talked about shared energy grids, but almost nothing has been done.  In the upcoming ASEAN meeting, energy and environment will be close to the top of the agenda.  We need a multi-agency effort.  Leaders must demonstrate political will. After that will be the East Asian summit.  Hopefully it will pick up and push forward the energy agenda.

Laurence Tubiana– Asia is not doing well in terms of energy efficiency, but that is not surprising given the level of economic development.  There is the potential to have a high rate of growth with less intense use of energy.

If we say business as usual, by 2030 we risk a rise of 5-6 degrees in average temperature. The risk is enormous.  Decision making is more and more in the hands of developing countries, and most of those in Asia.

Our framework today is global, as it was in Kyoto, with emerging countries engaging in the same kind of commitment as Europe.  There is another way which could be a limited club of major emitting countries who could discuss shared responsibility.  Another option, as in U.S., is that you don’t have any global framework, but enhance domestic policies through technology. 

We need Kyoto logic, because we need something on the global level.  We have to ask emerging countries to reduce levels, and we have to allow poorer countries to increase their levels.  We also need market mechanisms for implementation.  We need a carbon price.  We cannot wait until we use up all the fossil fuels in the world because by that time it would be a very risky situation.

The impasse in negotiation is because Europe-U.S. confrontation is illogical.  Developing countries are relying on U.S. argument.  We can have domestic policies, and can solve these through technology.  Europe says we need a global framework.  The strength of the EU position is that everybody knows there is no solution based only on regulation.  We must alter kinds of energy.  Weakness of the EU policy is that we are too rigid on the model.  We want coordination on objectives, and maybe that’s not realistic.  Rigidity of Europe is strong because of our leadership in the climate debate, but isolates us because we can’t engage other countries in a common regime. 

Must combine technology innovation and international regulation.

Competitiveness issue shows we have to design a new set of agreements.  The argument to share costs in China and India will not be well received in Europe and the U.S., but we cannot wait.  We need to share the burden. 

Discussion of climate change has to be broader than the climate change community.  We need to involve investment and trade.

Finally, there is a huge recognition that the solution will come from Asia.  Not from Europe because of our old structure.

Ann Florini– we are facing a very basic question.  Given the time it takes and the scale of changes we have to make, do we have a hope in hell of dealing with climate change?

Simon Tay – if we assume science is right, there is a lot of physical and chemical momentum.  So even if we slow down, carbon emissions will move ahead.  If you put in infrastructure, it locks you in for 20 years or so.  The other problem is we are not seeing the right pricing models.  For example the move from coal to oil… oil was too cheap.  Pricing isn’t there with renewables.  The transition may take a long time.  We have to think long term and act soon.

Laurence Tubiana– maybe I am more optimistic, because we see climate change going up in the agenda quickly.  In 1997 nobody was paying attention, other than a small group of networks.  It was not really a public opinion issue.  That’s different now.  I notice that the Chinese government is more concerned about the impact of growth.  There is a strong rationale for energy efficiency.  If you can have international support to move quickly to energy efficiency that can be a strong driver to improve domestic policies.

It’s beginning to be a big business case.  There is an opportunity to make a lot of money in the area of energy efficiency.  The problem is time. 

q. Peter Stephens World Bank.  Having worked in the international arena for 15 years, I am not wildly optimistic about the pace at which things happen.  But climate change has moved so quickly to the top of the agenda.  Within the World bank, it is listed as one of 6 priorities.  This is very encouraging. 

But weighing against this we have significant issues, for example in China it will be a balance between the need for growth to safeguard social cohesion, and the impact of environment on social cohesion.  Another issue:  is this another example of the West imposing itself on the world?  So there is a balancing act, but there is potential.

?? – let me inject pessimism.  Do we know how to solve problems? Yes.  But we don’t solve them.  International system is in a state of flux. I have been a critic of the Indian government for wantung to build pipelines from Iran, because it connects one buyer to one supplier.  It is possible to solve this with a market mechanism that creates efficient markets around the world.  But countries don’t do that, they try to corner the energy supply for themselves.

q. UC Berkeley.  In an Asian context, is anybody thinking about whose job it is to host the Bangladeshi refugees who will be the first victims if we don’t solve the problem fast enough?

Simon Tay – I didn’t mean to be pessimistic, but to raise a sense of urgency.    There was a success story in CFCs.  We found alternatives.  Shared technologies.  But ozone layers are still thinning.  But there are many more activities that use carbon.  That’s why we need a global compact.  As for the question about Bangladeshis.  Many dangers have been signaled, but no specific countries have been signaled as the danger spot.  Most Asian countries have no studies on the impact in their own country, let alone Bangladesh.

Laurence Tubiana–Not all countries have assessed the impact of climate change.  We are in a classical case of prisoner’s dilemma.  But we were so in 1997 also.  We are slowly moving to an economy of risk, in which each country starts to measure its own risk.  The change is huge.  Risk becomes a domestic driver.

q. I would like to provoke the speakers to talk about if there is any chance for big countries in Asia to be serious about carbon mitigation.  I think the better approach is not mitigation, but adaptation.  And in the process we will discover that other mitigation policies will follow.  Not doing something about climate change now becomes an obstacle to development.

Laurence Tubiana– what are we adapting for?  Known risks or costs?  Or something we don’t know and have no measurements for.  That is the problem with adaptation reasoning.  Adaptation has been instrumentalized by economists who say we can wait and then adapt when we know what we have to adapt to.  The framework of discussion could be very different if we introduce assessment of costs to each country.

John Thomas, Kennedy School – how to mobilize political will, not just look for it in selected politicians?

Simon – a lot of the dialogue in Singapore is about opportunities to make money in transformation.  It’s not just a message of fright and urgency.  It is also about what path to take and what are the benefits of that path.  Leaders have many different signals to respond to. 

Laurence Tubiana– we are talking about a huge transformation.  The problem is who is the new leader?  Government is trapped in a lot of tradeoffs.  It is a huge public policy school work.

q. Owen Hughes – does the panel favor carbon trade or carbon tax? 

Laurence Tubiana- that is a huge debate.  In 1990’s new governments were very negative about carbon trade.  I don’t believe we could have tax coordination on global level.  But we could have some sectors that are governed by that kind of control.  For transport, heating, diffuse carbon emitters we can’t do carbon trade for everything.  Tax system is a natural complement to carbon trade.  We need to have some kind of convergence. 

Simon – I think the Europeans have been experimenting for all of us. 

q. Jennifer from AUC – if you take Simon’s triangle, you get to the point where you can’t grow any more without shrinking.  It would lead to the de facto end of growth.  If that is true, how do we deal with allocating income loss?

q. Richard, LKY and USC -  if U.S. were to define climate change as primary security issue,  huge amounts of money and innovation would follow. 

q. I am intrigued by variations in energy intensity.  Have there been systematic surveys done?  They would have profound policy implications.

Simon – for a long time, energy has been underpriced.  More companies not efficient.  We over-air-condition. On security question, I’ve been getting more papers on issues like the Bangladesh question, and energy as a security issue.  The U.S has touted a lot of alternative energy as a security issue.  On the question of the triangle… one way to unlock it is investment in technology.  Joseph Kennedy said I wouldn’t mind spending half my fortune to save the other half.  I haven’t met an Asian with the same attitude.  I think we can create opportunities so there will be a constituency of winners who will move us toward that target.

Laurence Tubiana– the extra cost of efficient building is 5-6%.  But people are unsure whether they can take the extra cost.  So it is an organizational problem as well as a price problem. On the security issue, there is a great capacity for innovation in the U.S. once something is on the agenda… what is interesting is that new thinking comes from the private sector. 

I would like you to think of the role public policy schools could play in designing a global deal. It is a really new policy field.  For the future we need a lot of input from the academic field.