Advocates all want to get their pet topic discussed at the G20. Economic and financial crisis issues will dominate. Employment and commodity price volatility are next in line. Development, corruption, tax havens and anti-money laundering, drug trafficking and transnational crime, protecting the marine environment and resuscitating trade negotiations will all compete for attention. Climate change will receive very little agenda time.

The French presidency was a disappointment. Only four of the 95 paragraphs of the Cannes Summit Final Declaration were on climate change; two paragraphs were on fostering clean energy, green growth and sustainable development; and one paragraph was on inefficient fossil fuel subsidies. The G20 reaffirmed the commitment to rationalize and phase out inefficient fossil fuel subsidies, asked finance ministers to report back next year and ritualistically endorsed low-carbon strategies for green growth and sustainable development. The final declaration included the usual platitude of being “committed to the success of the United Nations Conference on Sustainable Development in Rio de Janeiro in 2012.” The only semi-substantive commitment on “Pursuing the Fight against Climate Change” referred to “operationalization of the Green Climate Fund.” It reiterated the Copenhagen goal[1] of mobilizing US$100 billion per year from all sources by 2020, requesting finance ministers to report on progress at Los Cabos: “We reaffirm that climate finance will come from a wide variety of sources, public and private, bilateral and multilateral, including innovative sources of finance...We underline the role of the private sector in supporting climate-related investments globally, particularly through various market-based mechanisms and also call on the MDBs to develop new and innovative financial instruments to increase their leveraging effect on private flows” (G20 Leaders, 2011).

The devil is in the detail. The Cannes outcome combined obfuscation about “private” finance with the classic snowplow technique of procrastination. So, can we expect anything better from the Mexican presidency? Can Mexico mediate substantive progress on climate finance?

An assessment of the US capacity to meet its share of the US$100 billion pledge concludes that it is not going to happen, that “raising new public funds for climate finance will be extremely challenging in the current fiscal environment and that many of the politically attractive alternatives are not realistically available absent a domestic cap-and-trade program or other regime for pricing carbon. Washington's best hope is to use limited public funds to leverage private sector investment through bilateral credit agencies and multilateral development banks” (Houser and Selfe, 2011).

This finding, recommending alchemy, will be hard for emerging economies and developing countries to swallow. For the foreseeable future, China, India, Brazil and South Africa will insist on “new and additional” resources in the context of United Nations Framework Convention on Climate Change negotiations. European and other developed countries are unlikely to make significant real commitments while the United States dithers.

Mexico must avoid the fatal quicksand of trying to set binding national emission targets and the embarrassment of spotlighting the imaginary future annual US$100 billion of financial transfers. Any Los Cabos climate change initiative will have to be recognizably consistent with each G20 country’s national interest, contribute to a range of priorities — fiscal consolidation and environmental and economic growth — and be phased in at politically feasible rates. Mexico should highlight the economic case for taxing “bads” and subsidizing “virtues.” Imposing carbon taxes would allow offsetting the reduction of taxes on labour and capital, and bring down debt levels — a message that could enjoy broad appeal across the political spectrum and across the G20 membership. The most obvious candidate is to accelerate the phasing out of fossil fuel subsidies to reduce greenhouse gas emissions and, simultanously, enhance energy security, providing immediate vital fiscal gains.

We must accept the political reality that change will be gradual and any other initiatives must be well prepared. Los Cabos can invite G20 portfolio ministers or working groups, international organizations, and even leaders to present recommendations at a future G20 meeting. Work can be commissioned on a package of several complimentary elements. The G20 can mobilize the existing international financial institutions to catalyze “no regrets” investments, establish a new international research and development (R&D) “Manhattan Project” and promote stringent process standards.

Mexico could have a real impact on climate change by strategically selecting initiatives — pursuing the art of the possible. The G20 should create an international decentralized institution to collaborate on energy R&D and develop open-source technology, where financial contributions can be spent in one’s own country, thereby finessing political constraints. Imagine the impact if the G20 agreed on a schedule of 2020 product and process (for example, cement and aluminum) standards for selected high-carbon-content traded goods, enforced over time by border-tax adjustments on goods “below standards.”  (Such an agreement is more likely in a G20 context rather than through the World Trade Organization.) 

Furthermore, the G20 can “do good by stealth,” championing initiatives that are seemingly irrelevant to climate change, which will have very beneficial consequences. Two examples are highlighting the priority of girls’ secondary education and public health campaigns to reduce obesity. Any emission target will be easier to achieve with lower population growth — female secondary education, which has many positive economic consequences, also decreases fertility rates. Obesity accounts for substantial health care spending; adverse economic effects include absenteeism and lower productivity. A healthy lifestyle campaign would pay indirect dividends to climate change. A population that is overweight needs more energy — production of extra food requires machinery and transport systems that emit greenhouse gases (Edwards and Roberts, 2010).

Los Cabos can indeed catalyze positive progress on climate change, if Mexico thoughtfully designs a judicious package.



[1] In a speech to the Copenhagen Climate Change Conference on December 17, 2009, US Secretary of State Hillary Clinton stated: “And today I’d like to announce that, in the context of a strong accord in which all major economies stand behind meaningful mitigation actions and provide full transparency as to their implementation, the United States is prepared to work with other countries toward a goal of jointly mobilizing $100 billion a year by 2020 to address the climate change needs of developing countries. We expect this funding will come from a wide variety of sources, public and private, bilateral and multilateral, including alternative sources of finance.”

Works Cited:

Edwards, Phil and Ian Roberts (2010). “Population adiposity and climate change.” International Journal of Epidemiology 39, No. 5: 1398-1399. Available at:  http://ije.oxfordjournals.org/content/38/4/1137.abstract.

G20 Leaders (2011). Cannes Summit Final Declaration. Available at:  www.g20-g8.com/g8-g20/g20/english/for-the-press/news-releases/cannes-summit-final-declaration.1557.html.

Houser, Trevor and Jason Selfe (2011). “Delivering on US Climate Finance Commitments.” Peterson Institute for International Economics Working Paper Series. November. Available at: www.iie.com/publications/wp/wp11-19.pdf.

 

 

 

 

 

Mexico should highlight the economic case for taxing “bads” and subsidizing “virtues.”
Program
As leaders of the G20 nations prepare for their summit at Los Cabos, Mexico June 18-19, CIGI experts present their perspectives and policy analysis on the most critical issues, such as strengthening the architecture of the global financial system, food security, climate change, green growth, global imbalances, and employment and growth.