COP27 fiddling as world warms

Hezri A Adnan and Jomo Kwame Sundaram

KUALA LUMPUR, Nov 15, 2022 (IPS). The latest annual climate conference has begun in the face of a worsening climate crisis and further retreats by rich nations following the energy crisis induced by NATO sanctions after the Russian invasion of Ukraine.

Copping out again

The 27th Conference of the Parties (COP 27) to the United Nations Framework Convention on Climate Change (UNFCCC) is now meeting in Sharm-el-Sheikh, Egypt, from 6 to 18 November 2022.

COP27 takes place amidst worsening poverty, hunger and war, and higher prices, exacerbating many interlinked climate, environmental and socio-economic crises.

The looming world economic recession is likely to be deeper than in 2008. The likely spiral into stagflation will make addressing the climate crisis even more difficult.

Invoking the Ukraine war as pretext, governments and corporations are rushing to increase fossil fuel production to offset the deepening energy crisis.

Resources which should be deployed for climate adaptation and mitigation have been diverted for war, fossil fuel extraction and use, including resumption of shale gas ‘fracking’ as well as coal mining and burning.

          War causes huge social and economic damage to people, society and the environment. The wars in Ukraine, Yemen and elsewhere impose high costs on all, disrupting energy and food supplies, and raising prices sharply.

Russia’s Ukraine incursion has provided a convenient smokescreen for a hasty return to fossil fuels, as military-industrial processes alone account for 6% of all greenhouse gases.

The future is already here

All these have worsened crises facing the world’s environment and economy. The most optimistic Intergovernmental Panel on Climate Change (IPCC) scenario expects the 1.5°C rise above pre-industrial levels threshold for climate catastrophe to be breached by 2040.

Crossing it, the world faces risks of far more severe climate change effects on people and ecosystems, especially in the tropics and sub-tropical zone.

But the future is already upon us. Accelerating warming is already causing worse extreme weather events, ravaging economies, communities and ecosystems.

Recent floods in Pakistan displaced 33 million people. Wildfires, extreme heat, ice melt, drought, and extreme weather phenomena are already evident on many continents, causing disasters worldwide.

In 2021, the sea level rose to a record high, and is expected to continue rising. UN reports estimate women and children are 14 times more likely than adult men to die during climate disasters.

Popular sentiment is shifting, even in the US, where ‘climate scepticism’ is strongest. Devastation threatened by Hurricane Ida in 2021 not only revived painful memories of Katrina in 2005, but also heightened awareness of warming-related extreme weather events.

Stronger climate action needed

In international negotiations, rich nations have evaded historical responsibility for ‘climate debt’ by only focusing on current emissions. Hence, there is no recognition of a duty to compensate those most adversely impacted in the global South.

Last year’s COP26 Glasgow Climate Pact was hailed for its call to ‘phase-out’ coal. This has now been quickly abandoned by Europe with the war. And for developing countries, Glasgow failed to deliver any significant progress on climate finance.

At COP27, the Egyptian presidency has proposed an additional ‘loss and damage’ finance facility to compensate for irreparable damage due to climate impacts.

After failing to even meet its modest climate finance promises of 2009, the rich North is dithering, pleading for further talks until 2024 to work out financing details.

Meanwhile, the G7 has muddied the waters by counter-offering its Global Shield Against Climate Risks – a disaster insurance scheme.

Get priorities right

What the world needs, instead, are rapidly promoted and implemented measures as part of a more rapid, just, internationally funded transition for the global South. This should:

·                  replace fossil fuels with renewable energy, including by subsidizing renewable energy generation for energy-deficient poor populations.

·                  promote energy-saving and efficiency measures to reduce its use and greenhouse gas emissions by at least 70% (from 1990) by 2030.

·                  implement a massive global public works programme, creating ‘green jobs’ to replace employment in ‘unsustainable’ industries.

·                  develop needed sustainable technologies, e.g., to replace corporate agricultural practices with ‘agroecological’ farming methods, investment and technology.

Another world is possible

Another world is possible. A massive social and political transformation is needed. But the relentless pursuit of private profit has always been at the expense of people and nature.

Greed cannot be expected to become the basis for a just solution to climate change, let alone environmental degradation, world poverty, hunger and gross inequalities.

The COP27 conference is now taking place in Sharm-al-Sheikh, an isolated, heavily policed tourist resort. Only one major road goes in and out, as if designed to keep out civil society and drown out voices from the global South.

The luxury hotels there are charging rates that have put COP27 beyond the means of many, especially climate justice activists from poorer countries. The rich and powerful arrived in over 400 private jets, making a mockery of decarbonization rhetoric.

Thus, the COP process is increasingly seen as exclusive. Without making real progress on the most important issues, it is increasingly seen as slow, irrelevant and ineffective.

Generating inadequate agreements at best, the illusion of progress thus created is dangerously misleading at worst.

By generating great expectations and false hopes, but actually delivering little, it is failing the world, even when it painstakingly achieves difficult compromises which fall short of what is needed.

Multilateralism at risk

Multilateral platforms, such as the UNFCCC, have long been expected to engage governments to cooperate in developing, implementing and enforcing solutions. With the erosion of multilateralism since the end of the Cold War, these are increasingly being bypassed.

Instead, self-appointed private interests, with means, pretend to speak for world civil society. Strapped for resources, multilateral platforms and other organizations are under pressure to forge partnerships and other forms of collaboration with them.

Thus, inadequate ostensible private solutions increasingly dominate policy discourses. Widespread fiscal deficits have generated interest in them due to the illusory prospect of private funding.

Private interests have thus gained considerable influence. Thus, the new spinmeisters of Davos and others have gained influence, offering seductively attractive, but ultimately false, often misleading and typically biased solutions.

Meanwhile, global warming has gone from bad to worse. UN Member States must stiffen the backs of multilateral organizations to do what is right and urgently needed, rather than simply going with the flow, typically of cash.

Selected IPS readings

Climate Hypocrisy Ensures Global Warming. Jun 28, 2022.

https://www.ipsnews.net/2022/06/climate-hypocrisy-ensures-global-warming/

Climate Inaction, Injustice Worsened by Finance Fiasco. Jan 25, 2022.

https://www.ipsnews.net/2022/01/climate-inaction-injustice-worsened-finance-fiasco/

Climate Change: Adapt for the Future, Not the Past. Dec 07, 2021.

http://www.ipsnews.net/news/economy-trade/

Profiting from the Carbon Offset Distraction. Nov 30, 2021.

http://www.ipsnews.net/2021/11/profiting-carbon-offset-distraction/

Climate Injustice at Glasgow Cop-Out. Nov 23, 2021.

http://www.ipsnews.net/2021/11/climate-injustice-glasgow-cop/

Limits to Growth: Inconvenient Truth of Our Times

Hezri A Adnan and Jomo Kwame Sundaram

KUALA LUMPUR, Nov 08, 2022 (IPS). Ahead of the first United Nations environmental summit in Stockholm in 1972, a group of scientists prepared The Limits to Growth report for the Club of Rome. It showed planet Earth’s finite natural resources cannot support ever-growing human consumption.

Limits used integrated computer modelling to investigate twelve planetary scenarios of economic growth and their long-term consequences for the environment and natural resources.

Emphasizing material limits to growth, it triggered a major debate. Authored by Donella H. Meadows, Dennis L. Meadows, Jørgen Randers, and William W. Behrens III, Limits is arguably even more influential today.

Within limits

Limits considered population, food production, industrialization, pollution and non-renewable resource use trends from 1900 to 2100.

It conceded, “Any human activity that does not require a large flow of irreplaceable resources or produce severe environmental degradation might continue to grow indefinitely”.

Most projected scenarios saw growth ending this century. Ominously, Limits warned of likely ecological and societal collapses if anthropocene challenges are not adequately addressed soon enough.

Failure would mean less food and energy supplies, more pollution, and lower living standards, even triggering population collapses.

But Limits was never meant to be a definitive forecast, and should not be judged as such. Instead, it sought to highlight major resource threats due to growing human consumption.

Off-limits?

Gaya Herrington showed three of Limits’ four major scenarios anticipated subsequent trends. Two lead to major collapses by mid-century. She concluded, “humanity is on a path to having limits to growth imposed on itself rather than consciously choosing its own.”

Limits stressed the urgent need for radical transformation to achieve ‘sustainable development’. The ‘international community’ embraced this, in principle, at the 1992 Earth Summit in Rio de Janeiro, two decades after Stockholm.

With accelerating resource depletion – as current demographic, industrial, pollution and food trends continue – the planet’s growth limits will be reached within the next half-century. The Earth’s ‘carrying capacity’ is unavoidably shrinking.

For Limits, only a “transition from growth to…a desirable, sustainable state of global equilibrium” can save the environment and humanity.

The report maintained it was still possible to create conditions for a much more sustainable future while meeting everyone’s basic material needs. As Gandhi said, “The world has enough for everyone’s need, but not enough for everyone’s greed.”

No other environmental work then, or since, has so directly challenged mainstream growth beliefs. Unsurprisingly, it attracted strong opposition.

The 1972 study was long dismissed by many as neo-Malthusian prophecy of doom, underestimating the potential for human adaptation through technological progress.

Many other criticisms have been made. Limits was faulted for focusing too much on resource limits, but not enough on environmental damage. Economists have criticized it for not explicitly incorporating either prices or socioeconomic dynamics.

Beyond limits

In Beyond the Limits (1993), the two Meadows and Randers argued that resource use had exceeded the world environment’s carrying capacity.

Using climate change data, they highlighted the likelihood of collapse, going well beyond the earlier focus on the rapid carbon dioxide build-up in the atmosphere.

In another sequel, Limits to Growth: The 30-Year Update (2004), they elaborated their original argument with new data, calling for stronger actions to avoid unsustainable excess.

Dennis Meadows stresses other studies confirm and elaborate Limits’ concerns. Various growth trends peak around 2020, suggesting likely slowdowns thereafter, culminating in environmental and economic collapse by mid-century.

Limits’ early 1970s’ computer modelling has been overtaken by enhanced simulation capabilities. Many earlier recommendations need revision, but the main fears have been reaffirmed.

Limitless?

Two key Limits’ arguments deserve reiteration. First, its critique of technological hubris, which has deterred more serious concern about the threats, thus undermining environmental, economic and other mitigation efforts.

As Limits argued, environmental crisis and collapse are due to socioeconomic, technological and environmental transformations for wealth accumulation, now threatening Earth’s resources and ecology.

Conventional profit-prioritizing systems and technologies have changed, e.g., with resource efficiency innovation. Such efforts help postpone the inevitable, but cannot extend the planet’s natural limits.

Of course, innovative new technologies are needed to address old and new problems. But these have to be deployed to enhance sustainability, rather than profit.

The Limits’ critique is ultimately of ‘growth’ in contemporary society. It goes much further than recent debates over measuring growth, recognizing greater output typically involves more resource use.

While not necessarily increasing exponentially, growth cannot be unlimited, due to its inherent resource and ecological requirements, even with materials-saving innovations.

This Earth for all

Thankfully, Limits’ fourth scenario – involving significant, but realistic transformations – allows widespread increases in human wellbeing within the planet’s resource boundaries.

This scenario has inspired Earth for All – the Club of Rome’s Transformational Economics Commission’s 2022 report – which more than updates Limits after half a century. Its subtitle – A Survival Guide for Humanity – emphasizes the threat’s urgency, scale and scope.

It argues that ensuring the wellbeing of all is still possible, but requires urgent fundamental changes. Major efforts are needed to eradicate poverty, reduce inequality, empower women, and transform food and energy systems.

The comprehensive report proposes specific strategies. All five need significant investments, including much public spending. This requires more progressive taxation, especially of wealth. Curbing wasteful consumption is also necessary.

More liquidity – e.g., via ‘monetary financing’ and International Monetary Fund issue of more special drawing rights – and addressing government debt burdens can ensure more policy and fiscal space for developing country governments.

Many food systems are broken. They currently involve unhealthy and unsustainable production and consumption, generating much waste. All this must be reformed accordingly.

Market regulation for the public good is crucial. Better regulation – of markets for goods (especially food) and services, even technology, finance, labour and land – is necessary to better conserve the environment.

Limited choice

The report includes a modeling exercise for two scenarios. ‘Too Little Too Late’ is the current trajectory, offering too few needed changes.

With growing inequalities, social trust erodes, as people and countries compete more intensely for resources. Without sufficient ‘collective action’, planetary boundaries will be crossed. For the most vulnerable, prospects are grim.

In the second ‘Giant Leap’ scenario, the five needed shifts are achieved, improving wellbeing all around. Everybody can live with dignity, health and security. Ecological deterioration is sufficiently reversed, as institutions serve the common good and ensure justice for all.

Broad-based sustainable gains in wellbeing need pro-active governance reshaping societies and markets. This needs sufficient political will and popular pressure for needed reforms.

But as the world moves ever closer to many limits, the scenario looming is terrifying: ecosystem destruction, gross inequalities and vulnerabilities, social and political tensions.

While regimes tend to bend to public pressure, if only to survive, existing discourses and mobilization are not conducive to generating the popular political demands needed for the changes.

Adnan A Hezri is an environmental policy analyst and Fellow of the Academy of Sciences, Malaysia. He is author of The Sustainability Shift: Reshaping Malaysia’s Future.

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Related IPS readings

Finance Global Green New Deal for Sustainable Development. Sep 27, 2019.

http://www.ipsnews.net/2019/09/finance-global-green-new-deal-sustainable-development/

More Public Spending, Not Tax Cuts, for Sustainable, Inclusive Growth. Sep 26, 2017.

http://www.ipsnews.net/2017/09/public-spending-not-tax-cuts-sustainable-inclusive-growth/

Finance Global Green New Deal for Sustainable Development. Sep 27, 2019.

http://www.ipsnews.net/2019/09/finance-global-green-new-deal-sustainable-development/

Ensuring Shared Progress for Sustainable Development and Peace. Nov 24, 2016.

http://www.ipsnews.net/2016/11/ensuring-shared-progress-for-sustainable-development-and-peace/

Is Sustainable Development Hindering Economic Recovery? Jul 14, 2016.

http://www.ipsnews.net/2016/07/is-sustainable-development-hindering-economic-recovery/

Addressing Climate Change Through Sustainable Development. Nov 29, 2015.

http://www.ipsnews.net/2015/11/addressing-climate-change-through-sustainable-development/

A Global Green New Deal for Sustainable Development. Nov 11 2013.

http://www.ipsnews.net/2013/11/op-ed-a-global-green-new-deal-for-sustainable-development/

Developing countries need monetary financing

Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and DAKAR. Nov 01, 2022 (IPS). Developing countries have long been told to avoid borrowing from central banks (CBs) to finance government spending. Many have even legislated against CB financing of fiscal expenditure.

Central bank fiscal financing

Such laws are supposedly needed to curb inflation – below 5%, if not 2% – to accelerate growth. These arrangements have also constrained a potential CB developmental role and government ability to respond better to crises.

Improved monetary-fiscal policy coordination is also needed to achieve desired structural transformation, especially in decarbonizing economies. But too many developing countries have tied their own hands with restrictive legislation.

A few have pragmatically suspended or otherwise circumvented such self-imposed prohibitions. This allowed them to borrow from CBs to finance pandemic relief and recovery packages.

Such recent changes have re-opened debates over the urgent need for counter-cyclical and developmental fiscal-monetary policy coordination.

Monetary financing rubbished

But financial interests claim this enables national CBs to finance government deficits, i.e., monetary financing (MF). MF is often blamed for enabling public debt, balance of payments deficits, and runaway inflation.

As William Easterly noted, “Fiscal deficits received much of the blame for the assorted economic ills that beset developing countries in the 1980s: over indebtedness and the debt crisis, high inflation, and poor investment performance and growth”.

Hence, calls for MF are typically met with scepticism, if not outright opposition. MF undermines central bank independence (CBI) – hence, the strict segregation of monetary from fiscal authorities – supposedly needed to prevent runaway inflation.

Recent International Monetary Fund (IMF) research insists MF “involves considerable risks”. But it acknowledges MF to cope with the pandemic did not jeopardize price stability. A Bank of International Settlements paper also found MF enabled developing countries to respond countercyclically to the pandemic.

Cases of MF leading to runaway inflation have been very exceptional, e.g., Bolivia in the 1980s or Zimbabwe in 2007-08. These were often associated with the breakdown of political and economic systems, as when the Soviet Union collapsed.

Bolivia suffered major external shocks. These included Volcker’s interest rate spikes in the early 1980s, much reduced access to international capital markets, and commodity price collapses. Political and economic conflicts in Bolivian society hardly helped.

Similarly, Zimbabwe’s hyperinflation was partly due to conflicts over land rights, worsened by government mismanagement of the economy and British-led Western efforts to undermine the Mugabe government.

Indian lessons

Former Reserve Bank of India Governor Y.V. Reddy noted fiscal-monetary coordination had “provided funds for development of industry, agriculture, housing, etc. through development financial institutions” besides enabling borrowing by state owned enterprises (SOEs) in the early decades.

For him, less satisfactory outcomes – e.g., continued “macro imbalances” and “automatic monetization of deficits” – were not due to “fiscal activism per se but the soft-budget constraint” of SOEs, and “persistent inadequate returns” on public investments.

Monetary policy is constrained by large and persistent fiscal deficits. For Reddy, “undoubtedly the nature of interaction between [fiscal and monetary policies] depends on country-specific situation”.

Reddy urged addressing monetary-fiscal policy coordination issues within a broad common macroeconomic framework. Several lessons can be drawn from Indian experience.

First, “there is no ideal level of fiscal deficit, and critical factors are: How is it financed and what is it used for?” There is no alternative to SOE efficiency and public investment project financial viability.

Second, “the management of public debt, in countries like India, plays a critical role in development of domestic financial markets and thus on conduct of monetary policy, especially for effective transmission”.

Third, “harmonious implementation of policies may require that one policy is not unduly burdening the other for too long”.

Lessons from China?

Zhou Xiaochuan, then People’s Bank of China (PBoC) Governor, emphasized CBs’ multiple responsibilities – including financial sector development and stability – in transition and developing economies.

China’s CB head noted, “monetary policy will undoubtedly be affected by balance of international payments and capital flows”. Hence, “macro-prudential and financial regulation are sensitive mandates” for CBs.  

PBoC objectives – long mandated by the Chinese government – include maintaining price stability, boosting economic growth, promoting employment, and addressing balance of payments problems.

Multiple objectives have required more coordination and joint efforts with other government agencies and regulators. Therefore, “the PBoC … works closely with other government agencies”.

Zhou acknowledged, “striking the right balance between multiple objectives and the effectiveness of monetary policy is tricky”. By maintaining close ties with the government, the PBoC has facilitated needed reforms.

He also emphasized the need for policy flexibility as appropriate. “If the central bank only emphasized keeping inflation low and did not tolerate price changes during price reforms, it could have blocked the overall reform and transition”.

During the pandemic, the PBoC developed “structural monetary” policy tools, targeted to help Covid-hit sectors. Structural tools helped keep inter-bank liquidity ample, and supportive of credit growth.

More importantly, its targeted monetary policy tools were increasingly aligned with the government’s long-term strategic goals. These include supporting desired investments, e.g., in renewable energy, while preventing asset price bubbles and ‘overheating’.

In other words, the PBoC coordinates monetary policy with fiscal and industrial policies to achieve desired stable growth, thus boosting market confidence. As a result, inflation in China has remained subdued.

Consumer price inflation has averaged only 2.3% over the past 20 years, according to The Economist. Unlike global trends, China’s consumer price inflation fell to 2.5% in August, and rose to only 2.8% in September, despite its ‘zero-Covid’ policy and measures such as lockdowns.

Needed reforms

Effective fiscal-monetary policy coordination needs appropriate arrangements. An IMF working paper showed, “neither legal independence of central bank nor a balanced budget clause or a rule-based monetary policy framework … are enough to ensure effective monetary and fiscal policy coordination”.

Appropriate institutional and operational arrangements will depend on country-specific circumstances, e.g., level of development and depth of the financial sector, as noted by both Reddy and Zhou.

When the financial sector is shallow and countries need dynamic structural transformation, setting up independent fiscal and monetary authorities is likely to hinder, not improve stability and sustainable development.

Understanding each other’s objectives and operational procedures is crucial for setting up effective coordination mechanisms – at both policy formulation and implementation levels. Such an approach should better achieve the coordination and complementarity needed to mutually reinforce fiscal and monetary policies.

Coherent macroeconomic policies must support needed structural transformation. Without effective coordination between macroeconomic policies and sectoral strategies, MF may worsen payments imbalances and inflation. Macro-prudential regulations should also avoid adverse MF impacts on exchange rates and capital flows.

Poorly accountable governments often take advantage of real, exaggerated and imagined crises to pursue macroeconomic policies for regime survival, and to benefit cronies and financial supporters.

Undoubtedly, much better governance, transparency and accountability are needed to minimize both immediate and longer-term harm due to ‘leakages’ and abuses associated with increased government borrowing and spending.

Citizens and their political representatives must develop more effective means for ‘disciplining’ policy making and implementation. This is needed to ensure public support to create fiscal space for responsible counter-cyclical and development spending.

Related IPS commentaries

Inflation targeting constrains development. 8 Mar 2022. https://www.ipsnews.net/2022/03/inflation-targeting-constrains-development/

Inflation paranoia threatens recovery. 1 Feb 2022. https://www.ipsnews.net/2022/02/inflation-paranoia-threatens-recovery/

Central banks must address pandemic challenges. 3 Aug 2021. http://www.ipsnews.net/2021/08/central-banks-must-address-pandemic-challenges/

Boldly finance recovery to build forward better. 22 Jun 2021. https://www.ipsnews.net/2021/06/boldly-finance-recovery-build-forward-better/

Urgently needed deficit financing no excuse for more fiscal abuse. 8 Dec 2020. https://www.ipsnews.net/2020/12/urgently-needed-deficit-financing-no-excuse-fiscal-abuse/

Pandemic relief policies need more resources, better design. 1 Jun 2021. http://www.ipsnews.net/2021/06/pandemic-relief-policies-need-resources-better-design/