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Counting carbon in global trade: why imported emissions challenge the climate regime and what might be done about it

5. Juni 2020 - 11:17

Counting carbon in global trade: why imported emissions challenge the climate regime and what might be done about it

 

 

(Written with Aarti Krishnan)

 

The two of us have collaborated on the rise of emissions traded across national borders, and the growing emphasis on measuring, reporting and certifying emissions, nationally and in global trade.

In 2019, we organized a workshop on the topic at ODI and published our reflections: ‘Climate action: why developed countries should track imported emissions, and how to make certification and labelling work for developing countries.

Now, we have edited jointly a monograph with papers from the workshop: ‘Counting carbon in global trade: why imported emissions challenge the climate regime and what might be done about it’. We have also thought about the implications for the global climate regime.

The author list is extraordinary (Box 1): experts from Government and the private sector, from universities and think-tanks, and with developed and developing country perspectives.

Box 1

A full list of the 16 chapters in the report is pasted in at the end. Here, we summarise the main findings, dealing with the five questions we set out to cover. Examples and Figures are taken from the main report.

  • How and why is the geography of carbon emissions changing?
  • How are carbon emissions measured and how are the boundaries set?
  • What are the opportunities and challenges of carbon reporting and certification?
  • What are the implications for developing countries?
  • How should the climate regime adjust to ensure efficient and equitable outcomes?

How and why is the geography of carbon emissions changing?

Three decades ago, most Greenhouse Gas (GHG) emissions originated in developed countries, and most were associated with domestic consumption. That is no longer the case. Emissions have grown rapidly in developing countries, but with a considerable share associated with exports. China now accounts for the largest share of total emissions, and with per capita emissions close to those of the EU (Figure 1).

Figure 1

Emissions traded across national borders currently account for up to 38% of global emissions, with developed countries being net importers and emerging economies mostly net exporters (Figure 2).

Figure 2

The consequence is that territorial emissions are an increasingly unreliable guide to a country’s climate footprint; and reductions in such emissions an unreliable guide to a country’s contribution to climate action. In the UK, for example, both the absolute volume and share of imported emissions have grown, with imported emissions now accounting for 43% of the country’s total footprint, up from 15% in 1990. Consumption emissions are diverging from territorial emissions.

How are carbon emissions measured and how are the boundaries set?

National figures are mostly based on modelling. For companies to measure their own carbon emissions, or the emissions embodied in their products, they need to be able to define the boundaries of the company, and to allocate emissions correctly between subsidiaries, joint ventures and so on. They need to decide whether to include end-of-life and recycling issues. And, most important, they need to decide whether to count only the emissions included within their own direct control, or to include also emissions generated in the supply chain. The way to measure and report on carbon content is well established, thanks to initiatives like the GreenHouse Gas Protocol.

Emissions are formally classified as falling into Scope 1, Scope 2, and Scope 3:

  • Scope 1 inventory covers a reporting organization’s direct GHG emissions.
  • Scope 2 inventory covers a reporting organization’s emissions associated with the generation of electricity, heating/ cooling, or steam purchased for own consumption.
  • Scope 3 inventory covers a reporting organization’s indirect emissions other than those covered in scope 2.

It is easy to understand that measuring Scope 1 emissions is much easier than measuring Scope 3; and that measuring company emissions is much easier than measuring the emissions of dozens of different products, each of which contains dozens of different materials. In all cases, however, the principles are clear: accounting should be relevant, complete, consistent, transparent and accurate. Accounting should also be linked to action, through target-setting and reporting.

 

What are the opportunities and challenges of carbon reporting and certification?

There are various certification options available to companies large and small: for example footprint labelling from the Carbon Trust, CarbonNeutral Certification from Natural Capital Partners, or Smart Sustainability labelling from Avieco. In the UK, it is mandatory under the Companies Act 2006 to report on direct emissions within enterprises, and on energy use. New Streamlined Energy and Carbon Reporting arrangements were introduced in 2019, also covering Limited Liability Partnerships: more than 12,000 UK businesses are now covered by these regulations.

Standards can help spread best practice along supply chains and can create local spillovers, for example in technology or management practice. For example, Swire beverages reduced the packaging weight of soft drinks by 34%, and invested in more efficient refrigerators for retailers, saving up to 40% of electricity costs. Betty and Taylors, marketing tea and coffee, have worked with farming households in Kenya, Uganda and Malawi, to improve productivity and reduce pollution, for example by supporting clean cookstoves. Fair Trade offers a model, providing a premium payment for communities to invest in higher productivity and better community services.

On the other hand, the application of standards can be difficult and costly. Often, standards are adopted in developed countries and then pushed down the supply chain to second and third tier suppliers, offering few opportunities for consultation, and entailing additional costs. This can be described as a ‘green squeeze’ on suppliers.

There is also evidence of developing country companies outsourcing to other countries, in order to reduce their own headline emissions: a ban on domestic tanning factories led to India and China importing raw and tanned leather from Ethiopia, Kenya and Uganda, effectively externalising environmental costs.

What are the implications for developing countries?

Developing countries need to be aware of changing standards. Failure to comply may see them facing Border Carbon Adjustments, for example from the EU. To avoid a green squeeze, it will important for poorer countries and suppliers within them, including small farmers, to have a voice and to be able to participate in the design and implementation of standards. The objective is to be co-creators of rules and standards, rather than simply rule-takers.

Of course, being active in this way is not straightforward, especially when capacity is limited, resources are constrained, technology is carefully guarded, and power is concentrated elsewhere. Aid donors and philanthropic organisations have a role to play: in finance, technology and in support of innovative approaches to catalyzing action, for example by developing ‘climate clubs’.

How should the climate regime adjust to ensure efficient and equitable outcomes?

It is surprising that the international climate regime remains so strongly focused on territorial emissions rather than on consumption emissions and total footprints. Policy makers have begun to pay attention. For example, the Science and Technology Select Committee of the UK House of Commons has concluded that ‘we do not accept that territorial emissions should be the sole basis for international negotiations’. This seems an important point for the UNFCCC, given the renewed urgency of climate action, and the emphasis in 2020 on renewing National Determined Contributions, with greater ambition. The question is whether the UNFCCC, at an appropriate time, should consider asking countries submitting revised NDCs also to report on traded emissions, and propose how they might be reduced.

(A version of this summary was published here by the Climate and Development Knowledge Network (www.cdkn.org). A further article on the publication was published by the Thomson Reuters Foundation, here.)

 

 

Kategorien: english

The conversation we need to have about the recovery from COVID: what’s easy, quick and cheap?

18. Mai 2020 - 8:35

The conversation we need to have about the recovery from COVID: what’s easy, quick and cheap?

 

 

This is the third piece I have written on COVID-19. The first, ‘Loaded after COVID: priming policy for after the pandemic’ was written at the end of March, and focused on what the world might be like after the virus. The second, ‘Virus Vision and Virus Realism. In Reverse Order’, was written at the end of April, and emphasised the difficulty of recovery. This third contribution attempts to move onto more propositional terrain.

 

 (In case the Figures are hard to read, i have posted a pdf of this piece, here)

Time to be propositional

There has been a lot of focus on managing the COVID crisis, but it is also important to be propositional about the recovery phase. The Christmas tree is groaning under the weight of proposals for recovery after the virus. But fiscal space is likely to be limited in many poor countries, unless large amounts of new aid are provided. Furthermore, some proposals are administratively complex and will tax weak administrations. And some are slow-burn in terms of their impact. So what is needed is a package which is effective, green, supportive of livelihoods, socially inclusive, and so on - but also, as preconditions, easy, quick, and cheap. The analysis needs to be country-specific, but a traffic light system is proposed as a way to provide an initial gateway to more thorough analysis.

On the range of options, the recent Oxford study is very useful. It started with 700 fiscal stimulus policies, simplified down into 25 ‘policy archetypes’, of which 19 were classed as recovery options. Note these were fiscal responses only, not monetary or in the realm of the incentive and regulatory framework. The full list of 25 archetypes is shown in Figure 1. The recovery options are in Figure 2.

Figure 1

Source: https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf

Figure 2

Source: adapted from https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf

It should be noted that the recovery options presented in Figure 2, at least as synthesised by the authors from the original longlist, focus mainly on green investments, with only some picking up wider issues, like investment in education (L) and healthcare (M), ‘rural support policies’ (P) and general R and D spending (X). This is not a complete ‘New Deal’ package, for example including enhanced social protection – although, as I have argued elsewhere, the terms ‘New Deal’ or ‘Green New Deal’ are being used to cover a wide and divergent range of environmental, economic and social proposals, depending on the authorship. Thus, the US version of the Green New Deal, promoted by Alexandria Ocasio-Cortez, differs significantly from that promoted by the British Labour Party. The Oxford list does not include popular Green New Deal elements like a housing programme, or measures to reduce inequality, or universal access to social services. Nor, by design, does it cover non-fiscal elements of a Green New Deal, like trade union rights, or, in the case of the UK Labour Party version, nationalisation of key industries. Trade policy and migration are not covered.

But, anyway, this is not about the comprehensiveness or otherwise of the Oxford list, but rather about the wide range of options on the agenda for recovery. As I noted back in April, the visions on offer amount to ‘a reaffirmation of both the idealistic underpinning and practical target-setting of the Sustainable Development Goals’. And the key point is this: the interventions proposed vary greatly in speed, scale and administrative complexity.

There is a further point, that the transition from ‘rescue’ to ‘recovery’ will inevitably be messy. The so-called ‘scarring’ will be more evident in some sectors than others, and some countries than others, but in some cases very serious. For example, it is hard to imagine countries dependent on long-haul tourism being dormant one minute and wide-awake the next. Similarly, the clothing sector is likely to take a long time to recover. There will be a lot of pressure to help re-establish the status quo ante, rather than try new things.

Complex decision-making

The Oxford study recognised the complexity of decision-making. It noted that ‘several factors are relevant to the design of economic recovery packages: the long-run economic multiplier, contributions to the productive asset base and national wealth, speed of implementation, affordability, simplicity, impact on inequality, and various political considerations’. For purposes of analysis, however, the study focused on three criteria, viz (a) the long-run multiplier (effectively growth), (b) climate impact, and (c) speed. The packages were tested against these criteria via an expert survey, with the overall results given in Figure 3. None of the best options in the top right hand quadrant is fast, but R and D spending comes out well, as do investment in clean energy and connectivity, and health care investment. For low and middle income countries, the same priorities feature, but mostly with lower impact on both dimensions.

Figure 3

Source: https://www.smithschool.ox.ac.uk/publications/wpapers/workingpaper20-02.pdf

We can take the discussion further: first, by looking more carefully at criteria; and, secondly, by seeing what options, fiscal and non-fiscal, might fit the mould.

On the first, there is a large literature on multi-criteria decision-making. The field has expanded greatly since, inspired by Robert Chambers’ work on rural development, we used multi-criteria tables in food security planning.  This goes back to the 1980s, with the criteria being: scale; speed; cost-effectiveness; equity; consistency with Government policy; administrative feasibility; and sustainability. I have just checked. There are now over 250 million hits on Google for multi-criteria decision-making. There is even a Wikipedia entry, listing more than 40 different approaches, many supported by software. Lots of issues arise, including about scaling and weighting of different criteria. Some items can easily be quantified, but some cannot. Politics is often central.

Not to make things too complicated, however, let me focus on the ‘easy, quick and cheap’ in the title of this piece. Easy because administrative capacity is limited in many countries. Quick because the recovery needs to start as soon as possible. And cheap, because resources are always limited.

Fiscal space

‘Easy’ and ‘quick’ do not need much discussion at this stage of the pandemic, but ‘cheap’ needs a brief review. This is because fiscal space to implement recovery packages is likely to be a dominant theme in future decision-making. Fiscal space, remember, is defined by the IMF as ‘the room for undertaking discretionary fiscal policy relative to existing plans without endangering market access and debt sustainability’: so it not just about the investment and current spending, but also about domestic and foreign debt payments.

Personally, I remain of the view that fiscal space will be a major issue after COVID, even in rich countries. That is despite reading the many articles saying that interest rates will either be low naturally, or can be manipulated down, and that rich countries can live with much higher levels of debt than at present, and even constantly rising debt (see e.g. Paul Krugman, here). Maybe. But maybe not: see, for example, William Buiter, on why paying for the pandemic will be painful. And even if countries decide to carry on increasing debt, what are the realistic prospects for aid in the years ahead?

In any case, the argument may not apply to developing countries which are already heavily indebted and already have limited fiscal space. Some countries will be hit harder by the virus than others. The most vulnerable countries will be those which face a larger shock to GDP and simultaneously have less fiscal resilience. The fragility of the exchange rate will also be an issue if countries borrow in foreign exchange.

Thus, the IMF warned at the beginning of May 2020 that

‘Supporting the recovery with fiscal tools while managing higher government debt levels is a delicate balancing act. For advanced economies with ample room in the budget such as Germany and the Netherlands, spending more on public investment is worthwhile because the value of the resulting assets will likely exceed the liabilities incurred given how low interest rates are. . . . In emerging markets and developing economies such as Brazil and South Africa, high debt levels and rising interest payments call for financing development in a prudent and sustainable way. These countries should try to achieve more with less. Raising tax revenues over the long term would be crucial for low-income developing countries such as Nigeria.’

Similarly, and with specific reference to Africa, the World Bank Africa Pulse report of April 2020 devoted a chapter to ‘Finding the Fiscal Space to Fight COVID-19 Amid Heightened Public Debt Vulnerabilities’. It said that ‘the COVID-19 pandemic is putting unsustainable pressure on governments with large fiscal deficits, heightened debt vulnerabilities and weak health systems. The massive fiscal costs could lead several governments to default on their debt’. Specifically,

‘If the bulk of the policy responses to COVID-19 will be shouldered by African fiscal policy makers, it bears asking how countries in the region will find the space needed to finance these actions. Assuming that deficits in excess of 5 percent of GDP put macroeconomic stability in jeopardy, it can be broadly gauged how much African governments can expand their spending by comparing their 2019 fiscal balances with the threshold deficit mentioned above. In 2019, the majority of Sub-Saharan African countries (38 of 47) registered a fiscal deficit, and 13 countries had a fiscal deficit that exceeded 5 percent. The average fiscal expansion—as measured by the gap between the 2019 fiscal balance and the threshold of -5 percent of GDP—for countries in the region is about 2.6 percent. Countries with the smallest margin to expand fiscally (the bottom tercile) can spend, on average, 0.1 percent of GDP. In contrast, the countries with the largest margin of fiscal expansion (the top tercile) can deploy an average of 5.6 percent of GDP.  Some of the African countries in the bottom or top terciles are in risk of debt distress or already in debt distress. In this context, conducting countercyclical policies will come at the cost of rendering public debt unsustainable. Fighting COVID-19 in Sub-Saharan Africa will require bold policy actions. It is likely that most of the countries in the region may be unable to finance these actions without jeopardizing macroeconomic stability and debt sustainability’.

These problems are not confined to Africa. For Bangladesh, for example, Debapriya Bhattacharya identifies the hunt for fiscal space as the ‘defining task’ of the budget process, even though the country has a relatively sustainable debt level.  Indian Government Departments have apparently been told to cut budgets in order to free spending to fight the virus, by up to 60%: that will undoubtedly cause longer-term scarring when it comes to the recovery,

Fiscal space is not set in stone. Externally, it can be increased by cash grants, debt relief or additional loans.  If the IMF decides to issue additional SDRs, that will be equivalent to a grant. Internally, countries can resort to higher taxes, additional lending, or, as Bhattacharya reports for Bangladesh, lower reserve ratios which allow banks to lend more. Sherillyn Raga at ODI maintains trackers of country and donor responses to the virus, and, with Dirk Willem te Velde, has reviewed the state of play with regard to donor allocations. Mark Miller at ODI tracks the debate about fiscal responses, and has proposed appropriate fiscal strategies.

Intervention options

Turning to intervention options, it is easy to identify measures which do not fit the criteria. A wealth tax, which would take years to design and implement . . . universal basic income, ditto, and expensive to boot . . . banning coal outright, which comes with huge transition costs . . . better social protection packages, unless the infrastructure is in place. Some of these might be long-term options, but will be problematic in the short run.

It is also not difficult to find discussion of measures which fit the criteria, but might also have perverse consequences. For example, the Indian state of Uttar Pradesh has suspended labour laws, presumably reducing protection for the labour force. There are alarming lists circulating with examples of subsidies to dirty industries (for example delaying tax payments by the oil industry in Norway) or regulatory roll-back, especially environmental (examples include Indonesia, US).

So, what might be better, later this year or early next? There are many lists of options available, including from the Oxford study. See also the IMF IDEAS model (Invest for the future—in health systems, infrastructure, low carbon technologies, education, and research; adopt well-planned Discretionary policies that can be deployed quickly; and Enhance Automatic Stabilizers, which are built-in budgetary tax and spending measures that automatically stabilize incomes and consumption.). Many green groups have proposed environmental interventions. In the UK, The Committee on Climate Change has proposed six Principles for Recovery, as in Box 1.

Box 1

Principles for Recovery

Source: https://www.theccc.org.uk/2020/05/06/take-urgent-action-on-six-key-principles-for-a-resilient-recovery/

I find it helpful to think of positive and negative actions, in fiscal policy, monetary policy, and the incentive and regulatory framework. What can be dropped (apart from labour rights)? What can be introduced?

Some examples might be:

  • Increase the congestion charge in big cities which already have systems in place, to reduce traffic and improve air quality (but NB make sure to protect poor people who need access to the city’s roads) – London is doing this;
  • Reduce the regulatory cost of starting a business (but see above re labour rights);
  • Using existing aid money to make quick investments which reduce transactions costs e.g. in trade (Aid for Trade);

Other ideas are needed. It would be good to complete the traffic-light table below. The traffic lights could form the basis for a seal of approval, a gateway to more detailed analysis. In other words, these three conditions, easy quick and cheap, are preconditions for any measure to be included in a recovery package.

However, the analysis has to be context-specific, taking account of the impact of the virus in different places. As economic analysis has demonstrated, countries are affected in very different ways: commodity exporters, including oil exporters, suffering a drop in prices; textile or flower exporters, experiencing a fall in demand; tourist-destination countries with fewer or no visitors; and so on. The ODI country case studies provide excellent background material: there are now more than 30 of these for different countries in all regions of the developing world.

It would be useful to have some recovery case studies. How will the agonising choices and trade-offs be resolved?

And what's next?

And a final point. Once the immediate rescue and recovery plans are set, it may or may not be the case that ‘easy, quick and cheap’ delivers tangible progress towards the SDGs. My guess is mostly not. In that case, a further conversation looms. Not so much ‘what is easy, quick and cheap?’, but rather, ‘what will it now take to deliver the SDGs?’. That is for next time.

Image: 123RF: 34538586

Kategorien: english

Virus Vision and Virus Realism. In reverse order.

21. April 2020 - 19:14

Virus Vision and Virus Realism. In reverse order.

 

 

 

Two very different perspectives are evident as the battle with the coronavirus plays out. The first offers a vision of a better world after the virus. The second focuses on the short-, medium-, and long-term costs of the current crisis. It is tempting to focus only on the first perspective, the vision. However, the second perspective needs to come first, because whether or not visions can be realised, and how, will depend on where economies land. I look briefly at both aspects, then identify six conversation topics which might help us find a realistic vision. The six topics are:

  • Understanding the nature of the crisis: a simultaneous, global shock to both supply and demand;
  • Acknowledging the macro-economic imperative;
  • Recognising the heterogeneity of country cases;
  • Being ruthless in setting priorities for post-virus programmes - finding things to do that don’t cost any money;
  • Expecting surprises and building resilience, but cost-effectively; and
  • Hanging onto the vision.

A wide range of ambitions has been proposed for both the rescue phase and the recovery phase of the crisis response, summarised in Figure 1. As Sara Pantuliano suggests, ‘the Covid-19 recovery offers an opportunity to create a different type of ‘normal’ – one that can help restore trust in the state and reaffirm crucial economic and social rights’. She focuses on climate change, inequality and human rights, and recommends searching for a new social model, with greater involvement of non-state actors. Others have emphasised resilience, openness to migration, the strengthening of social safety nets, the inter-generational compact, and the deepening of social capital. In the UK, the National Health Service, key workers from overseas, air pollution, nature, community spirit and young people feature prominently in the public discourse. Improved global cooperation is also a common theme.

Figure 1

In essence, these visions amount to a reaffirmation of both the idealistic underpinning and practical target-setting of the Sustainable Development Goals. What is novel is the sense that the corona virus crisis offers an opportunity to make faster progress. Policy options on the table include: higher taxation of income and wealth; more liberal immigration rules; higher minimum wages; universal basic income; reduced subsidies for fossil fuels; higher vehicle emissions standards; greater investment in disaster preparedness; more support for the NHS, with more redundancy of health provision; better control over extended global supply chains; and in some cases (for example President Macron) protection of key national industries. An end to austerity is a common thread.

Whether much of this can be delivered during the immediate rescue period is extremely doubtful. It is very unlikely that policy-makers in Chancelleries or Presidential offices anywhere in the world have time to think about the fine-tuning of policy, for example to make rescue packages more or less green. That does not mean, however, that new options should not be on the table when recovery begins. And there are already some newsworthy innovations, like cheques to households in the US, and the tentative roll-out of UBI in Spain.

But what will the world look like when recovery does begin – probably in a sputtering and uneven way. In particular, will a new age of austerity inhibit policy change? And if so, what can be done to overcome the obstacles?

There is still enormous uncertainty about the progress of the battle against the virus, and about possible exit strategies. However, I suggested at the end of March that when the crisis had passed, we would be:

  • Poorer;
  • More indebted;
  • With less fiscal space;
  • Probably more unequal;
  • More regulated;
  • More inward-looking;
  • Probably less secure; and
  • Probably with new power brokers.

A few weeks on, the evidence is beginning to accumulate in support of this set of propositions. Everyone will be familiar with the news stories, and with the debate about the shape of the recovery: V, U, W or L. Here are just a few snippets.

For the UK, the Office of Budget Responsibility has produced a ‘reference scenario’, based on a three-month lock-down. It foresees a 35% fall in GDP in the second quarter of 2020, followed by a swift recovery, leading to a fall in GDP of 13% for the year as a whole. Government measures mean that borrowing increases by 14% of GDP, but then falls back somewhat, leaving the debt/GDP ratio at over 90%, and permanently ten percentage points higher than the previous forecast. Many think this scenario optimistic, because the lock down may continue for longer, or more Government funding will be required, or there is permanent ‘scarring’ to the economy. There is much coverage of the impact of the lock-down on the poor and vulnerable, and on the young, and hence on the distributional consequences of the crisis.

For the world, the IMF predicts, in a baseline scenario, that the recession caused by the Great Lockdown will be the worst since the Great Depression, with a loss to the global economy in 2020 and 2021 amounting to $US 9 trillion, equivalent to the combined economic output of Germany and Japan. Income per capita is expected to fall in 170 countries. If the spread of the virus is not contained, the impact will be significantly greater. Developing economies are especially at risk, partly because they have limited fiscal space. The ILO has estimated that the reduction in working hours worldwide is equivalent to the loss of nearly 200 million jobs.

For developing countries, in more detail, and especially for the poorest countries with weak health systems and weak economies, the risks are especially severe.  The immediate health crisis will be acute, especially for countries with large informal sectors and over-crowded housing. In economic terms, countries suffer different consequences from factors including: disruption to trade; falling commodity prices; reductions in exports; falling tourism revenues; lower remittances; capital flight; and lower foreign direct investment. Lockdowns add further disruption and lead to further increases in unemployment and poverty. The World Bank’s Pulse reports predict sharp falls in growth, with consequent increases in poverty: for sub-Saharan Africa, for example, from 2.4 percent growth in 2019 to -2.1 to -5.1 percent in 2020. Also for sub-Saharan Africa, ODI researchers have predicted a cost amounting to 5% of GDP and a $US 100bn shortfall in the Balance of Payments in 2020. A report for Oxfam suggests that 500 million people could be pushed into poverty, setting back the fight against poverty in some regions by as much as 30 years.

Commitments by the international community have gone some way towards offsetting the cost of managing the short-term consequences of the epidemic. Sherillyn Raga at ODI has a useful tracker, listing responses by the IMF, the World Bank, the Regional Development Banks, the EU, and many bilateral donors. There are some impressive totals. However, the overall impact will depend on the type of funding, whether grants, loans, or loan guarantees: some rescue packages are more useful than others.

There are many more nuggets where these came from, many speculative, and most quickly overtaken as the crisis continues. The key point, though, is not to underestimate the medium- and long-term consequences of the corona crisis. These will shape the room for manoeuvre when the crisis ends. Will there be fiscal space to implement elements of the SDG vision? Or will the crisis present not so much an opportunity as a dead end?

In thinking about this in a development context, there are six factors to take into account, six conversation topics.

First, this is not the first time that budget plans have been overturned, public sector deficits have increased, and debt levels have been high. The Global Financial Crisis of 2008-9 is often cited, but we might also look to Europe after WW2 (and indeed WW1), and, in development, to the structural adjustment crisis in the 1980s, the debt crisis leading to HIPC in the 1990s, and other shocks like successive world food crises in the 1970s, 1980s, and 2000s. Crises are like unhappy marriages, in that no two are the alike: for example, the late 1940s was a time of fixed exchange rates, with many problems caused by the evaporation of dollar reserves and the inability to import materials needed for reconstruction. Nevertheless, a recurrent feature of past crises has been the availability of large transfers to needy countries, whether via the Marshall Plan in the 1940, conditional aid transfers in the 1970s, debt relief linked to poverty programmes in the 1990s, and monetary action during and after the GFC. A key question this time is whether the global character of the crisis, acting on both supply and demand, leaves anyone standing with the resources to support others.  Will the IFIs have the long-term resources, and on the right terms? Will China play a role? 

Second, it will be essential to understand the macro-economic constraints, in both developed and developing countries. Levels of public and private debt will be much higher after the crisis than before.  The IMF has said that higher debt may be sustainable if interest rates remain low and if central banks continue to pursue unconventional approaches. However, Kristalina Georgieva, the Managing Director of the IMF, has also warned that ‘the crisis is adding to high debt burdens and many could find themselves on an unsustainable path.’

How serious is that problem? There were already concerns before the crisis about the debt sustainability and fiscal space. These two are linked:  ‘fiscal space’, according to the IMF, ‘is defined as the room to raise spending or lower taxes relative to a pre-existing baseline, without endangering market access and debt sustainability’. Africa is of particular concern. The World Bank reports that ‘due to deteriorating fiscal positions and heightened public debt vulnerabilities, Sub-Saharan African governments do not have much wiggle room in deploying fiscal policy to address the COVID-19 crisis’. Indeed, ‘the COVID-19 pandemic is putting unsustainable pressure on governments with large fiscal deficits, heightened debt vulnerabilities and weak health systems. The massive fiscal costs could lead several governments to default on their debt. Approximately 17 governments have bond spreads that exceed 1,000 basis points (bps), a threshold value that typically preceded defaults’. Measures agreed by donors will help to offset the short-term costs of dealing with the crisis, but recovery measures are yet to be agreed.

Third, on heterogeneity of country experience. Some countries have stronger debt and fiscal positions than others, and some are exposed to greater shocks than others. The ODI country case studies, now numbering 30, reveal a great variety of country situations. Pity the debt-distressed and fiscally-constrained country that depends on natural resource exports or tourism, or the country whose export markets have dried up because e.g. no-one is buying new clothes or bunches of flowers.

Fourth, fiscal constraints mean that policy-makers need to be ruthless in setting priorities. Increasing taxation may be an option for some. But they will also need to find things to do which both serve the long-term vision and do not cost any money. Lives and livelihoods during the pandemic, of course, but what about after? If the UK is any guide, there will be enormous pressure on treasuries around the world to provide medium-term support to particular sectors: retail, the airline industry, restaurants, universities, many others. There is also pressure to weaken regulation as well as providing monetary support, which may have adverse consequences. So, what can Governments do to rebuild and deliver the SDGs without costing any money? Public expenditure reviews are likely to be extremely fraught. Taxation issues also. Managing interests will be very tough.

Fifth, on building resilience. There will be many calls for redundancy in health provision, for example, and the wider debate also focuses on the fragility of global value chains. Health pandemics are not the only issue on the agenda. In the UK, for example, flood protection has been a big topic in the past year. In East Africa, the pandemic coincides with a locust outbreak. In Zimbabwe, there is malaria crisis. In Vanuatu, there has been a cyclone. The national risk register will need careful review. A key issue will be to look at the costs and trade-offs of different actions: see ODI’s work on Risk-Informed Development.

Finally, this all may sound like a jeremiad, heavy with foreboding about the economic barriers to change. It is indeed the main conclusion, that future planning should be realistic. However, that does not mean abandoning the search for a ‘new normal’. It just means thinking hard about what can be achieved, where, and when – and about working out where to find additional resources. That will be especially necessary if we are to come out on the right hand side of the scenarios I proposed in March. The next step, I think, will be to think this through, sector by sector, and country by country. Contributions welcome.

Figure 2

Source: https://www.simonmaxwell.eu/blog/loaded-after-covid-priming-policy-for-after-the-pandemic.html

Image: adapted from www.i23rf.com, image 20745786.

Kategorien: english

Technology and think-tanks: two challenges

6. April 2020 - 17:39

Technology and think-tanks: two challenges

 

 

 

A version of this article was published in the 2019-20 Annual Review of OnThinkTanks, containing articles by 20 authors on the theme of technology and think-tanks. All the artciles were written before the coronavirus crisis began. OnThinkTanks has a set of resources on the consequences of the crisis for think-tanks. See here.

The issue of ‘technology’ poses two kinds of questions to think-tanks.

First, on substance: what opportunities and problems does technical change create for the world, and how can technology be shaped and governed so that that the benefits are properly shared?

Second, on what we as think-tanks do: how will technical change affect the reach, messaging, opportunities for collaboration, and power hierarchies in policy formation?

On the first question, it is easy to paint a dystopian picture of fast-approaching ‘singularity’ – the point at which artificial intelligence becomes cleverer than us, and probably decides that we humans are dysfunctional and need to be eliminated. Before that happens, the robots will have taken most of the jobs, genetically-modified organisms will have destroyed the planet’s biodiversity, and plastic will sit on the earth’s surface a metre deep. Those humans who remain will be locked in air-filtered bubbles, filling our time playing Fortnite or browsing Facebook. There is a flourishing industry of fiction and non-fiction books predicting break-down along these lines.

On the other side of the coin, technology has transformed human possibilities and can contribute further: improving health, eliminating drudgery, protecting the environment, connecting the global community, and democratising institutions. We will all be able to devote ourselves to self-improvement and self-realisation: the Californian dream. More practically, we will find solutions to the great challenges facing the world: tackling climate change, for example, eliminating infectious disease, and providing sustainable, healthy diets to a growing population.

If we are to rescue some kind of utopia, there is work to do.  Governments play a key role in funding the research which underpins new technology, and in fostering adoption. They also have a role in regulating technology companies, for example in preventing monopoly, or in setting global tax regimes. Importantly, these tasks increasingly require collaboration and cooperation between countries. Initiatives like the International Solar Alliance illustrate the benefits of bringing countries together to tackle the Grand Challenges of the 21st century.

Developing countries might easily find themselves excluded from the research, application, and governance structures that emerge from this kind of conversation. Of course, that is not necessarily the case: the International Solar Alliance is an initiative of the Government of India. However, it is essential that think-tanks press for genuinely global participation in global endeavour. Multilateral institutions, especially the UN, need to have a voice in setting research priorities. Aid agencies, for example, need to fund universities and science centres, as well as primary schools.

More generally, think-tanks need to focus both on the short-term priorities of the Sustainable Development Goals, but also on the long-term changes, beyond 2030, that technology may facilitate. Working in a think-tank, I have often said, is like a driving a car: we need to keep an eye on the potholes in the road immediately ahead, but also look at the horizon, to see where the road may lead.

As we do this, technology can be our friend. On the supply side, the barriers to entry for knowledge workers have fallen, as the internet makes research more easily accessible.  The availability of Big Data encourages new forms of analysis. The cost of collaboration has fallen, too, as virtual conferencing has spread. Who, in 2020, would want to run a think-tank without bandwith? On the demand side, policy-makers are working faster, and often more informally. Think-tanks need to respond. Never mind the website and the regular supply of briefing papers. Which think-tanks, these days, do not live-stream meetings to the desk top monitors in Parliament or Government? Which researchers do not have a Twitter account?

Here, too, however, there are risks. In an age of media manipulation and fake news, the question of ‘Whose Voice Counts?’ and whose voice is real becomes ever more pertinent. For think-tanks, ‘brand’ becomes a pre-eminent issue. Alone, or in alliance with others, think-tanks need to guard their reputation with all the commitment they can muster. To be acknowledged as the ‘go-to’ source of authoritative advice is the greatest accolade think-tanks can garner.

Values and philosophy matter. Technology can encourage think-tank researchers to forget the world, and the ultimate clients they work for. Imagine think-tank researchers sitting in darkened rooms, leafing through back copies of the Scientific American or New Scientist, pausing only to run regressions on their laptops, or tweet their findings and opinions to an outside audience.  That would not do. Think-tanks, probably all of them, are driven by a social mission. That implies contact and engagement, not research and policy-making by remote control.

Governance and management issues also follow. Boards need to ask for regular horizon-scanning and strategy revision, to take account of changing options with regard to both substance and work planning. Managers need to build changing context and tools into institutional and programmatic work plans. Individual incentives need to be structured so as to facilitate new agendas and new ways of working. Funders, also, need to think outside conventional frames.

The ecosystem of think-tanks is highly heterogeneous, in resources and skills, as well as in many other ways. Not every think-tank will focus with laser intensity on technical change. Nor will every think-tank want to turn the office into the simulacrum of a hipster start-up. Nevertheless, we don’t want to be writing on vellum with quills, when the world invents the printing press.

Kategorien: english

Seminar at IDS, 26 March 2020: Responding to the Climate Cataclysm

27. März 2020 - 15:39

Seminar at IDS, 26 March 2020: Responding to the Climate Cataclysm

 

 

I was glad to give a seminar at IDS on climate and development on 26 March 2020. Because of the corona virus lock-down, this was delivered on Microsoft Teams, which enabled IDS to record the event. The video is embedded below (and enlarge for a full screen version), or can be seen here. The powerpoint (as a pdf, with better definition) is here.

Thanks to Terry Cannon, who issued the invitation, and chaired the event, and to IDS participants. I have not reproduced the discussion, which raised some interesting points.

Kategorien: english