A new climate shaping the world

The agreement reached at this year’s G8 may have left observers totally underwhelmed, but it has provided some insights into how the economics of climate change will be managed in future.

While some of us worry about the fate of the polar bears when the ice floes have melted, it’s not all bad news—at least not for some of the world’s most powerful nations, for whom climate change is creating new revenue streams.

If the summertime ice caps melt—and even the most ardent greenie seems to accept this as inevitable—species will be lost and sea levels will rise, but there will also be an oil and gas bonanza for the winners of the scramble for the Arctic. The area is believed to contain up to 25% of the world’s oil and gas reserves, said Nils Wang, rear admiral of the Danish fleet.

With oil trading at $142 a barrel that’s an attractive prospect and the region’s superpowers aren’t going to be caught on the back foot. Anticipating a modern-day gold rush, Denmark, Russia, Norway, Canada and the United States have already carved out a deal—in the form of the Ilulissat Declaration—ostensibly about responsibility and cooperation, but also very much about staking a claim to what might be the world’s last reserves of fossil fuel. The declaration makes clear the parties’ intention to block any “new comprehensive international legal regime to govern the Arctic Ocean”, interpreted as a warning to European powers who might see the area as being up for grabs.

Wang pointed out that if the Arctic ice melts it will transform the world’s shipping routes: “The distance between Rotterdam and Yokohama could be reduced by 40%.” (It’s not quite clear what this will mean for African ports.)

As extreme weather events such as cyclones and floods strike with increasing frequency and intensity the World Bank is rolling out insurance products to cover the risks of changeable weather, from Malawi weather derivatives to Caribbean hurricane insurance. Places such as Africa, with its rainfall-dependent agriculture, or low-lying Bangladesh will be hardest hit.

At a forum of legislators from G8+5 countries held in Tokyo on the eve of the Hokkaido summit World Bank managing director Graeme Wheeler reiterated that climate-related disasters affected two billion people in developing countries during the 1990s as opposed to fewer than 25 million in developed countries. “The World Bank treasury is developing the platform for the issuance of multi-country catastrophe bonds that will pool the risks of several countries and transfer them to capital markets,” Wheeler said.

Critics caution that many of the affected countries already have problems ensuring that government and aid spending is effective and appropriate, so the challenge will be to ensure that these payouts actually benefit the communities directly affected by disasters.

There is a range of plans to deal with the perennially thorny issue of the historic responsibility of the developed world for climate change versus the right of poorer countries to develop (and to emit huge amounts of carbon in the process).

These range from creating a global carbon market and taxing all trades, auctioning off emission allowances and imposing levies on air travel, the proceeds of which would be used to help poor countries adapt to the effects of climate change.

VP Singh, a member of India’s Parliament, told the Global Legislators’ Organisation for a Balanced Environment forum that the carbon footprint of tribal and fishing communities in his country is extremely low and that India’s annual emissions are at 1,3 tons per person—as opposed to 20 tons per capita in the US. Using the principle of “the polluter pays”, he proposed that India’s poorest be compensated by those who’ve exceeded their quotas: he calculated that at current carbon prices this could see inflows of $40-billion a year to India.

But history aside, there’s no getting away from the fact that developing countries will soon become some of the biggest emitters in the world, with giants such as India, China and Brazil using huge amounts of fossil fuel and emitting greenhouse gases from deforestation and conversion of land to agriculture. (And lest we feel smug, South Africa, with its cheap industrial electricity, has one of the world’s most energy-intensive economies, said Independent Democrats MP Lance Greyling, pointing out that we are the 14th-biggest emitter in the world.)

The answer, said the G8, is for poorer countries to develop but do this in a clean, green way by jumping the technology ladder instead of replicating the unsustainable dirty-energy policies used by the rich countries. The World Bank’s $6-billion Clean Technology Fund will invest in projects that use and develop low-carbon, smart-technologies and will be looking to private sector investors for an additional $30-billion a year.

Oxfam has expressed concerns that this will not be new funding, but that existing aid will be diverted to climate adaptation. “As the $6-billion will come out of existing aid budgets, and as adaptation needs for developing countries are estimated to be $50- to $86-billion a year, this is clearly not enough,” said Jo Walker, advocacy coordinator for Oxfam in Southern Africa.

Oxfam said that overall aid to developing countries is going down, not up, and that “every dollar diverted to climate adaptation is one dollar less for essential medicines, schoolbooks and other crucial development tools”.

NGOs point out that many G8 countries are themselves not investing in renewable energy, instead pouring money into subsidies for biofuel production. In a report released this week to coincide with the G8 summit, ActionAid said. “The World Bank lacks the credibility to manage and design such funds because of its poor track record on social and environmental protection.” According to ActionAid the World Bank’s “significant current and past lending for fossil fuels”, as well as the fact that the bank doesn’t offer a clear definition of what clean technology actually is, is a “reason to believe the funding may still be oriented heavily towards funding large-scale coal plants”.

ActionAid’s definition of clean technology is that it must not include oil, gas for export, any type of coal technology, hydropower above 10 MW or nuclear power.

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