Monday, October 30, 2006

Stern review on the economics of climate change

An interesting report on the economics of climate change was released in the UK today - I won't get into the details of where I agree and disagree with the analysis, but hopefully this will continue to push the much needed drastic action. Here are a couple of interesting quotes from presentation session to the Royal Society:

Tony Blair today said that the world was facing "nothing more serious, more urgent, or more demanding of leadership" than climate change...

The chancellor, Gordon Brown, who commissioned the review, said climate change was "the world's biggest market failure"...

I realize there's not much new in those kinds of statements, but it highlights what I think are two of the most important aspects of this challenge: the need for leadership, and the need to improve and update our thinking on markets - what free-markets were, what they are, and what they ought to be (of course, this brings us back to leadership)...

Publication of the Stern Review on the Economics of Climate change

30 October 2006

The most comprehensive review ever carried out on the economics of climate change was published today.

The Review, which reports to the Prime Minister and Chancellor, was commissioned by the Chancellor in July last year. It has been carried out by Sir Nicholas Stern, Head of the Government Economic Service and former World Bank Chief Economist.

Sir Nicholas said today:

“The conclusion of the Review is essentially optimistic. There is still time to avoid the worst impacts of climate change, if we act now and act internationally. Governments, businesses and individuals all need to work together to respond to the challenge. Strong, deliberate policy choices by governments are essential to motivate change.

But the task is urgent. Delaying action, even by a decade or two, will take us into dangerous territory. We must not let this window of opportunity close.”

The first half of the Review focuses on the impacts and risks arising from uncontrolled climate change, and on the costs and opportunities associated with action to tackle it. A sound understanding of the economics of risk is critical here. The Review emphasises that economic models over timescales of centuries do not offer precise forecasts – but they are an important way to illustrate the scale of effects we might see.

For more information and the complete report, click here.

One of our external lecturers at the MSLS programme, Christian Azar, did a simliar analysis back in 2002, also finding how small the costs of mitigating our emissions are compared to "baseline" GDP forecasts -- (of course, these are measurements wrought with flawed assumptions in that we talking about 'business as usual' and using GDP as if it were a measure of success or well-being -- still, it makes a point):

On a percentage basis the difference between the BAU and the stablization at 350 PPM up around the $200 trillion mark in 2100 is tiny - what the graph doesn't show is the huge costs associated with impacts if anything close to the BAU scenario were to occur.

Stay going.

Thursday, October 19, 2006

The final product

Our thesis is finally published! Of course it feels quite good, and at the same time as I look back over it I immediately wish we could have done more - expanded here, clarified there - I suppose that's the way it usually goes! All in all it was a great experience, and I am ever grateful to my partners, Michelle & Mauricio for making the process so amazing and fulfilling.

If you're interested, you can access it through the BTH system by clicking here.

Stay going.

Wednesday, October 18, 2006

Amsterdam, making markets work:

I am on the train back from Amsterdam, where Greenland Enterprises just presented at the Make Markets Work for Climate conference. We hosted a side event at the end of a long first day, and were pleased by a good turn out, engaged participants from around the world and an interesting dialogue following the presentation.

We started off talking for about 20 minutes, introducing our background and briefly describing our thesis research and the creation of CDM Select, focusing mostly on the framework for strategic sustainable development, on which the tool is based. Then we had our panel members – Mauricio Mira (our thesis partner and sustainability consultant in Bogota, doing some CDM-related work), Anne Morgan (a student in this year’s class with background in the NGO sector) and Brendan Demelle (a friend who does freelance research on all kinds of social & environmental topics, with a big focus on global warming education & public awareness) – join us and we spent about 40 minutes in a dialogue with the audience.

It was great. Although we essentially packed an hour presentation into 20 minutes, most people seemed to grasp the concepts of the funnel, the importance of understanding the system and having a clear definition of success in the system (the 4 sustainability principles), and the power of backcasting in the context of group decision making and strategic planning. There was a good deal of confusion as well, of course, and some of the expected questions and responses that typically bring the discourse into the “leaves” of detail, confusing the issue, but overall I think people appreciated the broad, high-level, whole-system perspective, and saw how helpful, and indeed vital it is to have some clarity and agreement on that, before diving into the details. Great learning experience for us, and really exhilarating to engage with a live, fresh audience on these ideas and see such a positive response.

The conference itself was dominated by finance and policy types, though there was some NGO presence, energy & technology company reps and project developers. The Prime Minister of the Netherlands opened up the conference, and the main session speakers and panelists were a pretty high-profile bunch – including a former PM of the Netherlands, Chairman of ABN AMRO, execs from Shell and BP, Ministers from China, India, Brazil and Pakistan, and a couple of World Bank execs (and of course the accompanying protestors outside).

On the whole, the conference reinforced for me a lot of the trends I’ve been seeing over the last year: a huge focus on long-term certainty (post-2012 when Kyoto ends), and a need for reform of CDM administrative procedures & capacity building.

The long-term certainty issue is a bit amusing, as I would say there is certainty that there will be an international carbon regime of some kind post-2012, but just not clarity on what it will look like exactly – the policy makers and the private sector were playing ping-pong, both saying they needed the other to really commit (business wants a clear message in the form of a long term framework on what regulations will look like and how quickly they’ll have to de-carbonize, and policy makers say it’s complicated and they need clear signals from business on how aggressive they can be). Regardless, the bottom line is that the EU ETS is an EU directive, which goes on in perpetuity – there’s a chance it could be dissolved, but it wouldn’t be easy, and given the growth, momentum and excitement it has enjoyed I’d say the chances are slim-to-none that it goes away. Credits from CDM projects are accepted in the EU ETS – and it looks like RGGI in the US (which is now likely to link up with California as well) will accept project-based credits – so even without getting total certainty on “Kyoto 2” right now, I don’t think it’s at all crazy to be initiating long-term CDM projects.

There wasn’t a whole lot of talk on the technicalities of the CDM accept to say (as usual) things need to be improved – more talk of “programmatic CDM” (where a program comprised of lots of smaller GHG reductions can generate credits, as opposed to having to be a larger, distinct project – e.g. an efficient lighting initiative across a city) and sector-based CDM. There were calls from non-Annex I (i.e. “developing”) countries for better technology sharing, capacity building and education around CDM. And finally, there were some calling for an increased focus on the sustainable development aspect of CDM projects - we attracted some them to our session, and got some good feedback about the potential for the framework and CDM Select to be helpful in capacity building, designing more appropriate projects and evaluating proposed projects with a whole-system perspective.

All in all it was a great experience at the conference – we learned a lot, met some more great people, and enjoyed some encouraging feedback on our work. The city of Amsterdam was also incredible – beautiful old buildings (many of which are sinking, as most of the city is below sea level – hence their leadership in fighting climate change), great food, and good vibe – the energy of the chaordic bike and trolley traffic balanced by the serenity of the canals and quiet side streets.

After a few weeks of focusing hard on our BTH project, it was refreshing to check back in with the world of carbon finance and got me really excited about heading to Nairobi in November for COP (the annual international climate negotiations) – it will be an exciting session and hopefully result in serious progress in meeting this colossal challenge. Stay going.