The countdown to Copenhagen is ticking away toward the UN climate change conference to be held there in December billed as a ‘must succeed’ event to save the world from the fate of global warming and greenhouse gas emissions.
Do I sound skeptical?
There is a lot at stake in the outcome of this over-hyped Copenhagen conference but the risks are mostly that the assembled politicians will engage in short term political correctness at the expense of long term economic growth. The good news is that there are enough conflicts among the countries participating that the real threat of consensus to do something stupid is fast diminishing as evidenced by the posturing going on to reduce expectations.
Reading the press clippings from the round of consultative meetings is akin to reading the gossip pages or watching coverage of a Hollywood event. As a student of history I am reminded of the infamous quip from Alice Roosevelt who said, “Dear, if you have nothing nice to say about people, please sit next to me.”
So what is being said?
- India Says Get Realistic. Environment Minister of India Jairam Ramesh laments that the Copenhagen delegates need to get realistic or the conference will face the same fate as the Doha Round of trade talks. Interesting that he should make such a linkage because the implications of any agreement on enforceable reductions in greenhouse gas emissions on economic growth is the key issue dividing developed countries and fast growing developing countries.
- Environmentalists Worry No Deal Will Be Reached. You can tell that this conflict is serious when the environmental groups complains about the lack of leadership going into Copenhagen necessary to reach agreement and worried that the talks might fail accuses the developed countries of EU and the US of continuing to “dodge the hard decisions on slashing their emissions and funding the transition to a low carbon economy.”
- China Leads Developing Countries in Rejecting Enforceable Targets. In Bangkok at a recent consultative meeting of those going to Copenhagen, frustrations spilled out on the table as China led 131 of the 180 countries at these advance climate talks in accusing the EU and US of “rejecting historical responsibilities” and trying to “fundamentally sabotage” the Kyoto protocol and the international negotiations over what will replace it. Translation: We the developing countries successfully avoided any accountability for our rapidly growing emissions in the Kyoto Protocol and we have no intention of allowing you EU and US “do-gooders” to force us into being accountable at Copenhagen for reducing our emissions especially if it slows our economic growth.
- Sudan has the Audacity to Accuse Others of Not Taking Responsibility. Sudan chairs a group of emerging countries called the G77 at the talks. In Bangkok Sudan’s representative said that the rich countries want to “kill the protocol.” Translation: Leave us alone at Copenhagen like you did in Kyoto Protocol. We will not agree to any enforceable targets imposed on us.
- We Don’t Have the Votes to Pass Waxman-Markey. Carol Browner speaking for the US was forced to concede that there was no way the US Congress was going to pass this controversial bill before the Copenhagen event. This was embarrassing for the Obama Administration which had hoped to have a bill signed by Copenhagen to wave in the face of the developing countries and complete the Obama apology tour for the US failure to sign onto Kyoto.
So the moon walking away from the Copenhagen cliff begins. . .
The Obama Administration says it wants an entirely new strategy to replace a legally binding world agreement with a voluntary one. This would be a big change from the Kyoto approach which set global emissions targets to a Copenhagen strategy of setting national targets. For the EU this is blasphemy, but it likely is music to the ears of China, Brazil and India—-and no one cares what Sudan thinks anyway.
Ironically, after pillorying George Bush over rejection of the Kyoto Protocol, the Obama Administration now is proposing to scrap it completely in favor of what appears to be a self-policing set of national targets. The US risks being accused of undermining the Kyoto framework and its system of defining global emissions reduction targets by the Europeans and the environmental groups. The issue between the US and EU involves how the national targets are set, but this can probably be finessed.
If the worst that emerges from Copenhagen is a set of fiery speeches about the horrors of global warming and emissions levels followed by a set of self defined and self enforced national emissions reduction “targets” that would be a good outcome.
It reflects another practical reality for President Obama—there is probably no way to get any Copenhagen Treaty—even a benign one approved by the US Senate in the run-up to the 2010 Congressional elections, and probably less chance after that.
Whether you voted for Barack Obama or not, there was a palpable sense of pride and hopeful expectation in his election. We wanted to believe. We who voted for McCain secretly rooted for him anyway. We lived into one of the most powerful strengths of America—our ability to change course. And let’s face it, the Republicans ran out of gas—and good ideas long before the end of Bush’s second term.
So for the 2008 election we had a choice. A wise old war hero who spent so much time in Congress he didn’t inspire us with where he might take us. Or a brash, audacious young man whose soaring speeches reminded us of Camelot but offered little detail on where the “change you can believe in” would also take us.
We went for change we hoped we could believe in from a fresh face we hoped could deliver it. And, in any case, we were ready to throw out the incumbents. But after this first year of the Obama presidency we are losing much of our idealistic enthusiasm for what it is bringing us. Yes, he faces tough problems not of his making. But in some cases, he is making them worse—potentially much worse.
So far we are still willing to give him the benefit of the doubt. The good news is we still hope these first year stumbles are the result of inexperience and that he will learn FAST from these missteps. The bad news is our sense of doubt is growing that maybe this is not going to turn out to be Camelot again after all. The awarding of the Nobel Prize largely for his aspirational leadership may turn out to be the turning point. That it comes so soon is also both good news and bad.
At a time when we need for the recovery to take off, it is being diminished by growing fear of trillion dollar deficits built on a promise of stimulus that turns out to be the mother of all pork fests but producing very few jobs. Our president is outsourcing his leadership role to a Congress quite capable of screwing up a two-car funeral. While he continues to deliver his campaign stump speech and blame his predecessor.
At a time when we are at a crossroads in the fight against terrorism and our “allies” in NATO largely refuse to fight, our President keeps apologizing for America’s perceived sins and shortcomings. His equivocation undermines our best allies, emboldens our worst adversaries and cheers the Europeans—at least the Nobel committee. Did they forget they spent the first half of the 20th century killing each other until America came to their rescue to fight off the state sponsored terrorism of European warlords, Nazis and Fascists and then stay to defend them against Communism?
And then there was health care. Oh, how we wanted to believe in change on this front. We know the current system needs fixing. We know it costs too much. We could all sign up for options—public or not—if they brought more choice, better service and lower costs. But the stark reality is this debate has little to do with health care and everything to do with politics. The politics of trial lawyers that means there is no mention of tort reform anywhere. The politics of insurance companies who first try to ‘cut a deal with the devil’ promising large costs savings if the Democrats will not take their monopoly profits away—only to have Speaker Pelosi renege on the deal and demand more. Then there is the politics of labor unions making it difficult for Congressional Democrats to tax “Cadillac” health plans in a desperate search for revenue when the Cadillac being taxed is union health plans.
Like the drip, drip, drip of a leaky roof the ceiling overhead is getting saturated, and there is only one outcome. It is not too late for the Obama presidency, but if they hear the footsteps of impending failure we have yet to see a “surge” of new leadership direction from that end of Pennsylvania Avenue to take back control from Congressional Democrats who are running the Obama bus in the ditch.
So I’m not sure whether that is the good news or bad news. I am still waiting for some change I can believe in, but am coming to realize that it is, perhaps, not BAD if none of these grand plans make it out of Congress.
Here is the San Francisco Bay Area we have a dangerous cultural phenomenon playing out on the streets. It’s called a “side show” where groups of people use Twitter and text messaging to randomly select a location to rapidly assemble in their cars and motorcycles to perform spins, wheelies, and other dangerous stunts and then disperse before the cops arrive. This is the modern version of the drag race, but people can and do get hurt.
We have a similar kind of “side show” playing out in the chatter about the value of the US dollar and its implications for energy prices. Recently that side show has taken the form of press rumors that there is a conspiracy to dump the US dollar as the world’s reserve currency for a basket of others. Separately, but playing on the same theme are the periodic rants from the bad boys of the world from Iran, Venezuela and others blessed with oil but cursed by stupid leaders who urge shifting oil trading into some non-dollar denomination.
There are problems with the value of the US dollar but being dumped as the world’s reserve currency is not likely to be a consequence of its current weakness. Let’s face it, who else in the world would put up with all these other countries, can float as much debt to create a cash pool big enough to park other currencies, or has the underlying maturity and financial strength (even today) to be the market clearinghouse for the global economy?
So what does this have to do with energy?
Commodity markets particularly in oil have been used, and abused, as a way to compensate for the weakness of global equity markets, currency fluxuation, and to increase the liquidity for traders in a time of market uncertainty. But the cure for that is to strengthen economic fundamentals, restore confidence in the markets, and shift focus from a need to CYA near term to growing earnings and valuation long term.
Yes fundamentals matter both for the broad economy of nations and the world—as well as energy. On the energy side, we are engaged in a rather healthy debate right now about our energy future, mix of fuels, sources of power generation and the price we are prepared to pay as consumers to achieve the emissions reduction aspirations of our politicians. The recession is buying us time (how’s that for sick logic?) to have this debate, but reality is setting in sooner than some politicians had hoped.
For the same reasons the US dollar is likely to continue as the world’s reserve currency (there simply is no practicable alternative!) I suspect the world’s energy balance will come through this period of reflection and debate recognizing the realities that the fastest path to a cleaner environment is through healthy, productive, growing economies around the world where investment in new technology is made, energy efficiency in new plant and equipment is built in to expansions, and the social policy is worked out to enable global markets to work efficiently with the least distortion from trade barriers, subsidies, or misguided industrial policy experiments.
Don’t expect that prescription to come from Copenhagen or Washington or Brussels or Beijing. But competitive global markets have a way of enforcing balance, and consumers still look out for their own economic self interest. So the best defense for both nation states and individuals is healthy, competitive, open world markets including energy.