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How climate is changing politics

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In the fall of 2019, Democratic Speaker of the US House of Representatives, Nancy Pelosi, went on record saying that competition for resources was turning ecology into a national security issue. A growing number of politicians and experts share her opinion.

While most countries worldwide take a “mixed” picture of the consequences, upsides and downsides of global warming amid an ever-growing rivalry between states, the environmental idea is becoming a convenient and attractive tool to discredit opponents. Moreover, for some pro-Nature organizations, the proclaimed requisite to ensure environmental protection outweighs any objective needs for the development of both individual territories and entire states. Sometimes it becomes almost impossible to draw a line between sincere idealism and “lobbying for a new type of corporate interests.” As a result, criticism of a development model based on the use of hydrocarbons actually becomes an instrument of competition promoting the interests of the “green economy,” which in recent years has often proved to be less than ecologically impeccable.

Russian President Vladimir Putin has repeatedly reminded the international community of what the advocates of an immediate change to the global energy system fail to mention. Paradoxically, climate change and demands for a rash change of political priorities to combat it both threaten to increase inequality between countries.

On the one hand, political instability caused by the increasingly changing climate throws into question the long-term plans for the socio-economic development of entire regions and even continents. According to the UN’s Food and Agriculture Organization (FAO), shortages of drinking water and large-scale human migration in search for a better live will emerge as the most pressing problems mankind will face in the near future. The regions where conflicts provoked by climate change will flare up in the coming years might include, among others, territories south of Russia’s borders and the Arctic.

On the other hand, less diversified economies, technological backwardness and outdated infrastructure put most economically underdeveloped and developing states at a disadvantage to the world’s most developed countries. The former argue, however, and with pretty good reason too, that many of the world’s most affluent countries keep using “dirty” technologies and production facilities in a bid to maintain their economic growth, including tax exemptions and even state subsidies. This is something ordinary citizens are well aware of, as is proved by the “green-oriented” political forces’ modest successes outside the “golden billion” states. In developed economies many people are wary of the high price of current “green” technologies, which promise not so obvious gains and only decades later at that,and politicians just can’t ignore this public sentiment. Finally, widespread forecasts of a global economic slowdown and even a possible recession are putting environmental problems on the back burner.

Besides, the much-trumpeted predictions of the imminent triumph of “green” technologies are not always grounded in reality. In February 2019, The Economist wrote that companies using traditional energy still generate more income compared to renewable energy projects. Global demand for oil continues to grow by an annual 1-2 percent, just like it has done the past 50 years. Most of the nature conservationists still move around in cars with internal combustion engines and fly on airplanes. Relying on some breakthrough developments and technologies whose prospects of mass-scale implementation remain dim would certainly be premature. The $300 billion that is currently being invested in renewable energy worldwide is just a drop in the ocean compared with investments in the development of fossil fuels. Finally, despite all high-profile statements regarding the introduction of electric vehicles, even in 2030, up to 85 percent of cars will still be running on the tried-and-true internal combustion engines.

In 2017, the US withdrew from the Paris climate agreement, and the Trump administration is now trying to breathe new life into the country’s coal industry. Even in many environmentally aware countries, broad sections of the public have not yet been convinced about the benefits of having to pay more for “green” goods and services. For example, the idea of stimulating economic growth by means of tax cuts is not popular with the high and mighty of the world’s leading economies. Meanwhile, experts consider monetary incentives, aimed at encouraging public support for technological and cultural changes aimed at reversing the global warming process as one of the most promising measures able to ease the skeptics’ fears. Therefore, assuring people that measures aimed at reducing harmful emissions will not cause a catastrophic blow to their personal well-being may prove a hard task. 

In this regard, many politicians, administrators and experts are wondering just how dramatic changes in the existing economic structure over several decades will be able to reverse the negative climatic phenomena and how much should we focus on political, economic and social measures that would help individual countries and associations of states adapt to the objective trends of nature. And, finally, whether this is not just an attempt by the developed countries to hamper their current and potential rivals’ progress under the guise of solving environmental problems.

During 2019, the conflict between West and East European countries over the issue of unification of their environmental policy was heating up threating to further split the European Union. It turned out that “EU subsidies are no longer part of its policy, but rather a kind of gift for loyalty. We are talking about the familiar divide-and-rule policy”, about an almost deliberate separation of EU states and regions, unwilling to unconditionally embrace decisions taken by the bloc’s leading countries and by Brussels. Simultaneously, the East European countries’ skepticism about the requirements of the earliest possible rejection of “dirty” technologies is fueled, among other things, by the example of Germany, where diversification of energy sources has effectively resulted in increased consumption of traditional fuels – coal and gas – with all the political and financial consequences this entails. This is due to the hasty closure of nuclear power plants that “green” generating units can’t fully compensate for.

In hindsight, one will have to admit that climate change has long influenced the fate of states and peoples. Some experts believe that the Late Antique Little Ice Age, “which began in the 5th century AD and lasted about a hundred years” could be a reason why the Byzantine Empire failed to maintain its growth. Today, access to fresh water is viewed as a leading factor that may spark conflicts both between countries and inside individual states. Since the mid-1990s, there have been forecasts that the 21st century wars will not be fought for oil, but for water. A population growth combined with an increase in the number of territories suffering from lack of water resources may lead to a significant increase in the number of refugees and internally displaced persons. This is a problem a number of regions of Africa and Eurasia, including Central Asia, Iran, Afghanistan and Turkey, may soon be grappling with.

Catastrophic climate change is already contributing to an increase in cross-border migration, which is contributing to the rise of political extremism.  Poor countries with growing populations are increasingly at risk of “political instability and violence.” The harmful effects of climate change can exacerbate economic turmoil in various parts of the globe. Meanwhile, population growth around the world may significantly outpace global economic growth, which, as many experts already predict, will result in a protracted period of stagnation at best. Overall, similar trends, which Republic.ru pointed to in 2019, give rise to political discourse about “the need to reconsider most of the existing paradigms,” and, very likely, “away from classical capitalism and towards even greater state regulation.”

Climate change, which provokes economic stagnation and intensifies cross-border and internal migration, can further embolden separatist movements in many parts of the world, including Europe. The fragmentation of countries into smaller territorial entities increases the risk of conflict, and sets the stage for outside intervention. Ultimately, the objective need for greater international cooperation in tackling global problems will face an equally objective upward trend in nationalism and isolationism.

For Russia, the Arctic offers a particularly important example of the geopolitical importance of the climate factor, as climate change is making this region increasingly accessible for economic development, while simultaneously making it vulnerable to new geopolitical challenges. Late this past summer, Bloomberg described the Arctic as “a region, whose growing importance is reshaping the world’s geo-economics.” As a result, the growing number of mineral exploration and development projects, as well as a projected increase in shipping volumes, will be ramping up competition, including military, between world powers.

There are other climate-related issues too. Russia also keeps reminding its foreign partners that, unlike the United States, it recently signed up to the Kyoto Protocol and, unlike the EU, has fully met its commitments under this accord. Inconsistencies in the assessment of the Russian forests’ and soil’s ability to absorb carbon dioxide are a matter of strategic importance. As the Expert magazine noted, Russian woodlands are an important factor in this country’s implementation from 2020 of the terms of the Paris Agreement under the UN Framework Convention on Climate Change, regulating measures to reduce carbon dioxide emissions into the atmosphere. The problem is that underestimation by foreign experts of the Russian forests’ CO2 absorption capacity can lead to the introduction by Western countries of a “carbon tax” on exported Russian gas.

Meanwhile, as President Putin noted during his traditional news conference summing up the results of the outgoing year 2019, Russia has “great advantages in the fight against climate change.” A “significant breakthrough” in the development of generating capacities in hydropower combined with vigorous development of gas production, including large-scale high-tech projects for LNG production, makes Russia the greenest in the world energy mix. And Moscow does not intend to stop there. By ratifying the Paris Climate Agreement, Russia reaffirmed its strong commitment to international cooperation in the field of climate change, aimed at creating a paradigm of harmonious relations with nature. Working together, the international community needs to find a balance between a clean and safe environment while simultaneously maintaining the competitiveness of countries, peoples and regions, and the interests of their long-term sustainable development.

From our partner International Affairs

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Economy

China Development Bank could be a climate bank

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China Development Bank (CDB) has an opportunity to become the world’s most important climate bank, driving the transition to the low-carbon economy.

CDB supports Chinese investments globally, often in heavily emitting sectors. Some 70% of global CO2 emissions come from the buildings, transport and energy sectors, which are all strongly linked to infrastructure investment. The rules applied by development finance institutions like CBD when making funding decisions on infrastructure projects can therefore set the framework for cutting carbon emissions.

CDB is a major financer of China’s Belt and Road Initiative, the world’s most ambitious infrastructure scheme. It is the biggest policy bank in the world with approximately US$2.3 trillion in assets – more than the $1.5 trillion of all the other development banks combined.

Partly as a consequence of its size, CDB is also the biggest green project financer of the major development banks, deploying US$137.2 billion in climate finance in 2017; almost ten times more than the World Bank.

This huge investment in climate-friendly projects is overshadowed by the bank’s continued investment in coal. In 2016 and 2017, it invested about three times more in coal projects than in clean energy.

The bank’s scale makes its promotion of green projects particularly significant. Moreover, it has committed to align with the Paris Agreement as part of the International Development Finance Club. It is also part of the initiative developing Green Investment Principles along the BRI.

This progress is laudable but CDB must act quickly if it is to meet the Chinese government’s official vision of a sustainable BRI and align itself with the Paris target of limiting global average temperature rise to 2C.

What does best practice look like?

In its latest report, the climate change think-tank E3G has identified several areas where CDB could improve, with transparency high on the list.

The report assesses the alignment of six Asian development finance institutions with the Paris Agreement. Some are shifting away from fossil fuels. The ADB (Asian Development Bank) has excluded development finance for oil exploration and has not financed a coal project since 2013, while the AIIB (Asian Infrastructure Investment Bank) has stated it has no coal projects in its direct finance pipeline. The World Bank has excluded all upstream oil and gas financing.

In contrast, CDB’s policies on financing fossil fuel projects remain opaque. A commitment to end all coal finance would signal the bank is taking steps to align its financing activities with President Xi Jinping’s high-profile pledge that the BRI would be “open, green and clean”, made at the second Belt and Road Forum in Beijing in April 2019.

CDB should also detail how its “green growth” vision will translate into operational decisions. Producing a climate-change strategy would set out how the bank’s sectoral strategies will align with its core value of green growth.

CDB already accounts for emissions from projects financed by green bonds. It should extend this practice to all financing activities. The major development banks have already developed a harmonised approach to account for greenhouse gas emissions, which could be a starting point for CDB.

Lastly, CDB should integrate climate risks into lending activities and country risk analysis.

One of the key functions of development finance institutions is to mobilise private finance. CDB has been successful in this respect, for example providing long-term capital to develop the domestic solar industry. This was one of the main drivers lowering solar costs by 80% between 2009-2015.

However, the extent to which CDB has been successful in mobilising capital outside China has been more limited; in 2017, almost 98% of net loans were on the Chinese mainland. If CDB can repeat its success in mobilising capital into green industries in BRI countries, it will play a key role in driving the zero-carbon and resilient transition.

From our partner chinadialogue.net

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Oil-Rich Azerbaijan Takes Lead in Green Economy

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Now that the heat and dust of Azerbaijan’s parliamentary election on February 9thhas settled, a new generation of administrators are focusing on accelerating the pace of reforms under President Ilham Aliyev, who has ambitious plans to further modernise its economy and diversify its energy sources.

Oil and gas account for about 95 percent of Azerbaijan’s exports and 75 percent of government revenue, with the hydrocarbon sector alone generating about 40 percent of the country’s economic activity. Apart from providing oil to Europe, Azerbaijan successfully completed the Trans-Anatolian Natural Gas Pipeline (TANAP) with Turkey in November 2019 to transfer Azerbaijani gas to Europe.

Yet, with an eye on the future, the country has also begun to take huge strides in renewable energy. Solar and wind power projects have been installed, with their share in total electricity generation already reaching 17 percent. By 2030, this figure is expected to hit 30 percent.

Solar power plants currently operate in Gobustan and Samukh, as well as in the Pirallahi, Surahani and Sahil settlements in Baku.

The potential of renewable energy sources in Azerbaijan is over 25,300 megawatts, which allows generating 62.8 billion kilowatt-hours of electricity per year. Most of this potential comes from solar energy, which is estimated at 5,000 megawatts. Wind energy accounts for 4,500 megawatts, biomass is estimated at 1,500 megawatts, and geothermal energy at 800 megawatts.

President Aliyev has supported the drive for renewable energy. He signed a decree in 2019 to establish a commission for implementing and coordinating test projects for the construction of solar and wind power plants.

Azerbaijan’s focus on renewable energy has drawn interest from its European partners, with leading French companies seeking to invest in the country’s solar and wind electricity generation.

Azerbaijan is France’s main economic and trade partner in the South Caucasus. According to French ambassador Zacharie Gross, “the French Development Agency is ready to invest in Azerbaijan’s green projects, such as solid waste management. This would allow using new cleaner technologies to reduce solid waste. This is beneficial for the environment and the local population.”

“I believe that one of the areas that have greatest development potential is urban services sector. An improved water distribution system can reduce the amount of water consumed, improve its quality, and also solve the problem of flood waters in winter,” the French ambassador added.

Azerbaijan is currently a low emitter of greenhouse gases that contribute to climate change. According to the European Commission, the country released 34.7 million tons of CO2 into the atmosphere in 2018, i.e. just 3.5 tons per capita. This is lower than the norm adopted by the world: 4.9 tons.

In contrast, in 2018 Kazakhstan generated 309.2 million tons of CO2, Ukraine generated 196.8 million tons,Uzbekistan101.8 million tons, and Belarus 64.2 million tons.

And the amount of carbon dioxide emitted by Azerbaijan has been consistently falling. In 1990, Azerbaijan emitted 73.3 million tons, but in 2018 this had dropped to 34.7 million tons. By 2030 the country plans to reduce its annual greenhouse gases emissions by a further 35 percent.

Measures taken by the government include the early introduction of Euro-4 fuel standards in Azerbaijan, with A-5 standards to be introduced from 2021. An increasing number of electric buses and taxis are now transporting passengers in the main cities.

Another key step is the clean-up of the environmental degradation caused by over 150 years of oil production. Azerbaijan’s state oil company SOCAR is helping to recover oil-contaminated lands in Absheron Peninsula, particularly in the once critically contaminated area around Boyukshor Lake. This involves the removal of millions of cubic metres of soil contaminated with oil.

Azerbaijan is also reducing the amount of gas it wastes in flaring. In a study funded by the European Commission, Azerbaijan ranks first among 10 countries exporting oil to the EU in the effective utilisation of associated petroleum gas.The emission of associated gases decreased by 282.5 million cubic meters from 2009 through till 2015. This is expected to fall further to 95 million cubic meters by 2022.

The government is also encouraging large-scale greening of the land. In December 2019, a mass tree-planting campaign was initiated by First Vice President Mehriban Aliyeva to celebrate the 650thanniversary of famous Azerbaijani poet Imadeddin Nasimi. 650,000 trees were planted nationwide, including 12,000 seedlings that were delivered by ship to Chilov Island.

A 2018 survey, carried out in cooperation with Turkish specialists, found that forest area is 1.2 million square meters in Azerbaijan, i.e. 11.4 percent of the total area of ​​the country.A new requirement was introduced last year to halt deforestation and to reduce the negative impact of business projects on the environment.

For a country with the 20th largest oil reserves in the world, Azerbaijan could well have chosen to stick to a hydrocarbon future. But it has instead dared to think beyond oil and gas in its energy, transportation, economy and environment. The country is setting a template that should inspire other large oil producers to emulate.

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China-US: How Long Will the Phase One Agreement Hold?

Osama Rizvi

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Although the recently signed Phase One agreement between the US and China has put a halt to the ongoing trade war between the two global economic superpowers, it cannot be viewed as a long-term solution. At its best, it is a temporary truce. The language of the eighty-six page document, including its ambiguities and the unrealistic promises upon which the entire agreement is based, suggests that it is based on two unreconcilable compromises between the two parties.

Some of the main highlights of the deal include: China must give an action plan on “strengthening intellectual property protection” and it must reduce the  pressure on international companies for “technology transfer.” China has promised to increase the purchase of goods and services from US by $200 Billion over two years. Other key points include easy access to Chinese markets. The 15th December tariffs of $160 Billion have been delayed in December 2019. Tariff rates on $120 bn of goods (imposed on September 01, 2019) have been reduced from 15 to 7 percent although tariffs of $250 Billion at a rate of 25 percent will remain.

The 86 page document, when analyzed, displays an ambiguity in its language, as well as the absence of any enforcement plan and dispute settlement process. Therefore, whenever an issue might arise (and it will) there is a likelihood the deal may implode. For instance, whilst mentioning enforcement of payment of penalties and other fines, the word “expeditious” remains unclear. What is the time period and how will enforcement be accomplished? At another point, while referring to China to send a case for criminal enforcement the word “reasonable suspicion” which can be based on “articulable facts” makes it very abstract. Chad Brown, a trade expert in an article for Business Insider, says that there is no specific way mentioned in the document to penalize the party who violates any provision. Moreover, there is no body (like WTO) that will take decisions but is rather left to the USTR and discussions with Chinese counterparts – a recipe for confusion.

Then there are the promises. But we have to consider different variables. But if it turns out that China carries out its promise to buy crude oil, LNG and coal, the global commodity markets will feel the heat – in a negative way. Under the agreement China will buy an additional $52 bn of energy products in the span of coming two years- 418.5 Billion in 2018 and $33.9 in 2021. This year China will have to buy about $27 Billion energy purchases from U.S. To put this in context, China imported 14 million barrels of oil in November 2018 which is its highest ever. Assuming that China buys the same amount for 12 months it would yield only $9 to $10 billion in revenue! In a similar calculation for coal and LNG, Clyde Russell, in an article for Reuters, concludes that in order to fulfill the above target (of $27 Billion) China would have to double the amount of these imports from US!

Moreover, the Phase One agreement has a snapback clause which implies that upon quarterly reviews if the Chinese side isn’t holding true to their promises the agreement can become null and void.

Even if China fulfills its promise, the purpose wouldn’t be served:  the US. deficit won’t reduce significantly.  The US trade deficit with China for the first 10 months of 2019 was $294 Billion – in other words, roughly 40 percent of the country’s total trade gap. However, for the same period, Chinese sold goods more than four times that amount (or about $382 bn). China will need to half its exports to the U.S. for a “meaningful” drop in the deficit – something that seems highly unlikely.

Also, the US might even end up more dependent on China. Increased demand for US oil will spike its prices and might trigger other suppliers of China to increase their output in order to fight for the market share. The global energy and commodity markets could face disruption. Similarly, Brazil and other countries, beneficiaries of this trade war, can decrease soy bean prices in order to retain their market share, giving farmers in the US a tough time.

As the U.S. Treasury Secretary, Steven Mnuchin, said that tariffs can remain in place even after a Phase Two agreement, we, therefore, have to be patient and observe the trajectory of Phase One trade agreement carefully.  Chinese promise of $200 bn purchases, the lack of a proper dispute resolution mechanism and technical loopholes in language puts the future of the agreement in doubt.

Both sides are keeping some cards in their deck; we have yet to witness the end of this trade-war saga.

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