Analysis, COP16
12 November, 2010

Will the G20 help Cancun to succeed?

Sergio Abranches

The leaders of the G20 have pledged that they “will spare no effort to reach a balanced and successful outcome in Cancun.” Will this really come through?

It is clearly on the G20’s power to lead Cancun to deliver sound outcomes. But will they use this power? The leaders of the member countries have included a supposedly strong paragraph on the Climate Talks in the final ‘Declaration of the Seoul Summit’. They said that:

“We reaffirm our resolute commitment to fight climate change, as reflected in the Leaders’ Seoul Summit Document. We appreciate President Felipe Calderón’s briefing on the status of the UN Framework Convention on Climate Change negotiations, as well as Prime Minister Meles Zenawi’s briefing on the report of the High-Level Advisory Group on Climate Change Financing submitted to the UN Secretary-General. We will spare no effort to reach a balanced and successful outcome in Cancun.”

From the Seoul Declaration

To have a hint of what they might do in Cancun we should first look at what they’ve done about the global currency disequilibrium in Seoul. This crisis is a more pressing problem, one that requires prompt, coordinated action. The economic diagnosis of the present imbalances is clear, so are their causes. The actions to be taken are well known and have already proved to work in more than one occasion. All that said, one should expect a clear, direct, practical and operational statement about what is to be done, by whom and within which timeframe. Not a diplomatic note written to suit any circumstance whatsoever and giving everyone an excuse to opt out.

The decision-making setting is very similar to the climate change one. Typically a situation the players say to each other: “I’ll do it if you do more of it”, or “I’ll do my part after you’ve done yours”. Positions are framed on the basis of each ones’ appraisal of everyone else’s ‘primary responsibility’ for what happened as well as for what continues to happen. This is a game that has no optimal solution, only suboptimal ones. In other words a situation that leads to the decision to muddle-through.

Let’s look at what the leaders have put on paper about fiscal policies, financial reforms and monetary and exchange rate policies, the three pronged policy requirements to adequately face the crisis:

Fiscal Policies: Advanced economies will formulate and implement clear, credible, ambitious and growth-friendly medium-term fiscal consolidation plans in line with the Toronto commitment, differentiated according to national circumstances. We are mindful of the risk of synchronized adjustment on the global recovery and of the risk that failure to implement consolidation, where immediately necessary, would undermine confidence and growth.

Financial Reforms: We are committed to take action at the national and international level to raise standards, and ensure that our national authorities implement global standards developed to date, consistently, in a way that ensures a level playing field, a race to the top and avoids fragmentation of markets, protectionism and regulatory arbitrage. In particular, we will implement fully the new bank capital and liquidity standards and address too-big-to-fail problems. We agreed to further work on financial regulatory reforms.

Monetary and Exchange Rate Policies: We reaffirm the importance of central banks’ commitment to price stability, thereby contributing to the recovery and sustainable growth. We will move toward more market-determined exchange rate systems and enhance exchange rate flexibility to reflect underlying economic fundamentals and refrain from competitive devaluation of currencies. Advanced economies, including those with reserve currencies, will be vigilant against excess volatility and disorderly movements in exchange rates. Together these actions will help mitigate the risk of excessive volatility in capital flows facing some emerging market economies.

Nonetheless, in circumstances where countries are facing undue burden of adjustment, policy responses in emerging market economies with adequate reserves and increasingly overvalued flexible exchange rates may also include carefully designed macro-prudential measures. We will reinvigorate our efforts to promote a stable and well functioning international monetary system and call on the IMF to deepen its work in these areas.”

From The Seoul Summit Document: Framework for Strong, Sustainable and Balanced Growth

The paragraphs above need no comment. The Seoul Summit has failed to decide on a clear set of concrete actions to tackle the so-called “currency war”. The detailing paragraphs deal with what has been done – to no avail – what has been decided, and has not been implemented, and future work. A well known story of leaders making vague commitments at global fora, not taking any strong action back home, only to meet again to promise to implement what they’ve failed to implement before. This was exactly what happened with the “fast-start” finance agreed upon in Copenhagen. It was decided and not delivered.

Now, why should we expect that the G20 leaders will be more affirmative and decided in Cancun? Why should we expect Cancun to be more successful than Seoul, and to go beyond Copenhagen?

The leaders were generous on words and promises drafting the climate change-related  paragraphs of the Seoul Document. On fossil fuel subsidies, a clear and straightforward measure that could help accelerate the transition to a low carbon economy, they approved the following statement:

Fossil Fuel Subsidies: We reaffirm our commitment to rationalize and phase-out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption, with timing based on national circumstances, while providing targeted support for the poorest. We direct our Finance and Energy Ministers to report back on the progress made in implementing country-specific strategies and in achieving the goals to which we agreed in Pittsburgh and Toronto at the 2011 Summit in France.” From The Seoul Summit Document: Framework for Strong, Sustainable and Balanced Growth

“Medium term” and “timing based on national circumstances” give any country a legitimate exit option based on the subjective interpretation of “medium” and “circumstances”. Chance of achievement near zero.

Here’s what they said about climate change and the low carbon economy:

Climate Change and Green Growth: Addressing the threat of global climate change is an urgent priority for all nations. We reiterate our commitment to take strong and action-oriented measures and remain fully dedicated to UN climate change negotiations. We reaffirm the objective, provisions, and the principles of the UN Framework Convention on Climate Change (UNFCCC), including common but differentiated responsibilities and respective capabilities. We thank Mexico for hosting the UNFCCC negotiations to be held in Cancun beginning at the end of November 2010. Those of us who have associated with the Copenhagen Accord reaffirm our support for it and its implementation. We all are committed to achieving a successful, balanced result that includes the core issues of mitigation, transparency, finance, technology, adaptation, and forest preservation. In this regard, we welcome the work of the High-Level Advisory Group on Climate Change Financing established by the UN Secretary-General and ask our Finance Ministers to consider its report. We also support and encourage the delivery of fast-start finance commitments.

The ongoing loss of biodiversity is a global environmental and economic challenge. Both climate change and loss of biodiversity are inextricably linked. We acknowledge the outcomes of the global study on the economics of ecosystems and biodiversity. We welcome the successful conclusion of COP10 in Nagoya.

We are committed to support country-led green growth policies that promote environmentally sustainable global growth along with employment creation while ensuring energy access for the poor. We recognize that sustainable green growth, as it is inherently a part of sustainable development, is a strategy of quality development, enabling countries to leapfrog old technologies in many sectors, including through the use of energy efficiency and clean technology. To that end, we will take steps to create, as appropriate, the enabling environments that are conducive to the development and deployment of energy efficiency and clean energy technologies, including policies and practices in our countries and beyond, including technical transfer and capacity building.

We support the ongoing initiatives under the Clean Energy Ministerial and encourage further discussion on cooperation in R&D and regulatory measures, together with business leaders, and ask our Energy Experts Group to monitor and report back to us on progress at the 2011 Summit in France. We also commit to stimulate investment in clean energy technology, energy and resource efficiency, green transportation, and green cities by mobilizing finance, establishing clear and consistent standards, developing long-term energy policies, supporting education, enterprise and R&D, and continuing to promote cross-border collaboration and coordination of national legislative approaches.”

From The Seoul Summit Document: Framework for Strong, Sustainable and Balanced Growth

A mix of diplomatic literature and promises without any real action behind.

“We also support and encourage the delivery of fast-start finance commitments.” Fast-start finance was decided by these same leaders – with the exception of the UK PM – in Copenhagen, and was to be fully available in the beginning of this year. Nothing happened. Is it really the case to say that the leaders support and encourage its delivery? Isn’t it a matter of simply writing some checks?

The elements that might help us to make an educated guess about the likely outcome at Cancun are not on global summit communiqués or on what happened at UNFCCC’s preparatory meetings. We should look for them in the realm of domestic politics. The relevant question is whether there has been any significant change in the domestic political circumstances that might affect the major developed and emerging players’ attitude at the climate talks.

The answer is yes for a handful of powerful players. In the U.S., president Obama has lost the majority in the House, barely managed to maintain a slim advantage in the Senate, and now leads a “divided government”. Congress is far more hostile to climate change policies than it was before, when Obama wasn’t able to pull a clean energy bill.

In the UK, the new coalition has imposed harmful budget cuts to the environment, climate change and scientific programs. I talked to a Cambridge professor who heads a low carbon economy program and he told me they’re loosing their best people and that he expects “a lot of change” for the worse because of the budget cuts. The director of a British private organization that provides consultancy and finance to business low carbon initiatives told me his company has also been hit by the cuts. They’re streamlining plans and loosing people.

The European Union is entangled in the fiscal and financial crises of many of its members. In France, president Sarkozy faces increasing social unrest. In Germany, Angela Merkel looses popularity and fights to keep her coalition together. (Reuters has just released a very interesting Special on chancellor Merkel.)

In Brazil, Lula’s former Chief of Staff, Dilma Rousseff, has been elected president. She masterminded the huge government investment program known as the “PAC” (Plan to Accelerate Growth). Almost every project in the program has a very high carbon footprint. In Copenhagen, as head of the Brazilian delegation, minister Rousseff, now president-elect, has impeded the delegation to have an effective role in the negotiations. The Brazilian position has only changed after president Lula arrived.

I have analyzed in detail what happened with the major players in Copenhagen in my last book Copenhague Antes e Depois.

The most important lesson from Copenhagen was that leaders will commit globally to what they have negotiated domestically, not the other way around. This means that the goals and commitments of a global agreement have to be politically approved at the domestic level beforehand. Only then can they be more significant than those decided in Copenhagen. Only when these commitments become domestic laws will they have a better chance of being implemented and enforced. A binding global compact without a corresponding set of national laws is very unlikely. Look at the Kyoto Protocol. It is an international law, but is it really binding? What power ensures its enforcement? The European Union is ahead of the rest of the World because it has a binding domestic program for emissions reduction in force.

What we can expect from Cancun is progress focused on some areas, building a bridge for more objective future talks. No real change is likely to happen before the global economic disequilibrium is effectively addressed. No country or group of countries will make further commitments at global meetings, before they approve them domestically.

It is unlikely that president Obama will be able to negotiate any meaningful climate change bill with the recently elected Congress. We’ll probably have to wait to see whether he can get reelected. Once reelected and if the economic situation improves, than he may have a new chance at persuading Congress to vote a climate change bill.

It is unlikely that president Dilma Rousseff will be more supportive of environment and climate change policies than she was as Lula’s all-powerful chief of staff and chief policy coordinator.

There are no new facts that would lead the Chinese leadership to change attitude in Cancun. And nobody really knows what may happen to Chinese global climate change politics when a new leadership, under the presidency of the Xi Jinping, comes to power in 2012.

All major players have reason to keep the same position they had in Copenhagen. It is unlikely that Cancun will go any farther than Copenhagen did. It will probably be a “bridge meeting”, one that takes us, more or less unharmed, to the next season of negotiations.

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