In the run up to the London terror meeting, there have been some tentative signs of hope.  Yemeni officials have now confirmed that they are willing to pursue economic and political reform in the hopes of building a more stable country.  Improving the security situation would be aided if economic outcomes were to improve, as Yemen is by far the poorest country in the Arab world.  Additionally, undertaking reforms that would yield a more representative government that is responsive to the needs of society would also be a step in this direction.  After all, one of the major predictors of passive support for terrorism among members of society, which can provide critical resources to radicalized group, is a negative judgment of one’s government. Unfortunately, the Yemeni regime has not provided specifics regarding the nature of the proposed reforms.  Moreover, given the political deliberalization which has taken place in recent years, such a broad pronouncement seems unlikely to be fully realized.  Often, the regime has made cosmetic changes when under the international spotlight only to backtrack at a later time.  Thus, it is critical that foreign governments continue to encourage reforms to prevent a repeat of this pattern. Yet, at the same time such calls should be made behind the scenes when possible, to prevent the perception that the regime is simply bowing to Western demands which could hamper the reform effort.

Link: http://news.bbc.co.uk/2/hi/uk_news/politics/8482265.stm

Michael Robbins is a research fellow with the Dubai Initiative at Harvard Kennedy School's Belfer Center.

Private land-use decisions can be affected dramatically by public investments in highways, waterways, flood control, or other infrastructure.  The large movement of jobs from central cities to suburbs in the postwar United States and the ongoing destruction of Amazon rain forests have occurred with major public investment in supporting infrastructure.  As these examples suggest, private land-use decisions can generate major environmental and social externalities – or, in common language, unintended consequences.

In an analysis that appeared in 1990 in the American Economic Review, Adam Jaffe of Brandeis University and I demonstrated that the depletion of forested wetlands in the Mississippi Valley – an important environmental problem and a North American precursor to the loss of South American rain forests – was exacerbated by Federal water-project investments, despite explicit Federal policy to protect wetlands.

Wetland Losses

Forested wetlands are among the world’s most productive ecosystems, providing improved water quality, erosion control, floodwater storage, timber, wildlife habitat, and recreational opportunities.  Their depletion globally is a serious problem; and preservation and protection of wetlands have been major Federal environmental policy goals for forty years.

From the 1950s through the mid-1970s, over one-half million acres of U.S. wetlands were lost each year.  This rate slowed greatly in subsequent years, averaging approximately 60 thousand acres lost per year in the lower 48 states from 1986 through 1997.  And by 2006, the Bush administration’s Secretary of the Interior, Gale Norton, was able to announce a net gain in wetland acreage in the United Sates, due to restoration and creation activities surpassing wetland losses.

What Caused the Observed Losses?

What were the causes of the huge annual losses of wetlands in the earlier years?  That question and our analysis are as germane today as in 1990, because of lessons that have emerged about the unintended consequences of public investments.

The largest remaining wetland habitat in the continental United States is the bottomland hardwood forest of the Lower Mississippi Alluvial Plain.  Originally covering 26 million acres in seven states, this resource was reduced to about 12 million acres by 1937.  By 1990, another 7 million acres had been cleared, primarily for conversion to cropland.

The owner of a wetland parcel faces an economic decision involving revenues from the parcel in its natural state (primarily from timber), costs of conversion (the cost of clearing the land minus the resulting forestry windfall), and expected revenues from agriculture.  Agricultural revenues depend on prices, yields, and, significantly, the drainage and flooding frequency of the land.  Needless to say, landowners typically do not consider the positive environmental externalities generated by wetlands; thus conversion may occur more often than is socially optimal.

Such externalities are the motivation for Federal policy aimed at protecting wetlands, as embodied in the Clean Water Act.  Nevertheless, the Federal government engaged in major public investment activities, in the form of U.S. Army Corps of Engineers and U.S. Soil Conservation Service flood-control and drainage projects, which appeared to make agriculture more attractive and thereby encourage wetland depletion.  The significance of this effect had long been disputed by the agencies which construct and maintain these projects; they attributed the extensive conversion exclusively to rising agricultural prices.

In an econometric (statistical) analysis of data from Arkansas, Mississippi, and Louisiana, from 1935 to 1984, Jaffe and I sought to sort out the effects of Federal projects and other economic forces.  We discovered that these public investments were a very substantial factor causing conversion of wetlands to agriculture, with between 30 and 50 percent of the total wetland depletion over those five decades due to the Federal projects.

More broadly, four conclusions emerged from our analysis.  First, landowners had responded to economic incentives in their land-use decisions.  Second, construction of Federal flood-control and drainage projects caused a higher rate of conversion of forested wetlands to croplands than would have occurred in the absence of projects, leading to the depletion of an additional 1.25 million acres of wetlands.  Third, Federal projects had this impact because they made agriculture feasible on land where it had previously been infeasible, and because, on average, they improved the quality of feasible land.  Fourth, adjustment of land use to economic conditions was gradual.

Government Working at Cross-Purposes

The analysis highlighted a striking inconsistency in the Federal government’s approach to wetlands.  In articulated policies, laws, and regulations, the government recognized the positive externalities associated with some wetlands, with the George H.W. Bush administration first enunciating a “no net loss of wetlands” policy.  But public investments in wetlands – in the form of flood-control and drainage projects – had created major incentives to convert these areas to alternative uses.  The government had been working at cross-purposes.

The conclusion that major public infrastructure investments affect private land-use decisions (thereby often generating negative externalities) may not be a surprise to some readers, but it was the 1990 analysis described here that first provided rigorous evidence which contrasted sharply with the accepted wisdom among policy makers.

The Ongoing Importance of Induced Land-Use Changes

As wetlands, tropical rain forests, barrier islands, and other sensitive environmental areas become more scarce, their marginal social value rises.  In general, if induced land-use changes are not considered, the country will engage in more public investment programs whose net social benefits are negative.

The former Iranian deputy oil minister, Mohammad Nejad-Hosseinian, argued in a recent interview that Iran should develop the oil fields it shares with Iraq as a method to receive what the Iranian leadership reasons are justly owed reparations. Many in Iran blame Iraq for precipitating the eight-year carnage during its mortal combat with Saddam Hussein’s Baathist regime. While much of the global news focuses on the purportedly warm ties between Iraq’s Shiite-led government and the Islamic republic, the increasingly bellicose language emanating from Iran towards its Western neighbor belies that amicable image. While the current Iraqi-Iranian dispute is ostensibly about oil fields and war reparations, Arab Persian geopolitical rivalry stretches back to the Battle of Dhi Qar. It was in Dhi Qar where confederated Arab tribes visited a humiliating defeat on the imperial Persian army of Khosrau II in 609-610 C.E., just south of the Iraqi city of Kufa.

On Dec. 19, 2009, an Iranian parliamentarian and leading member of the National Security and Foreign Policy Committee, Hossein Ebrahimi, led the charge against Iraq by arguing that due to its eight-year war with Iran, Iraq owes its neighbor at least trillion dollars in war reparations. In an escalation of the nascent animosity between the two countries, Iraq charged that in mid-December, Iran had occupied an Iraqi oil well in the Maysan province-al-Fakkah oil field-close to the border that separates these nations.

Even though Iran denied that it had occupied the territory, Gen. Ray Odierno, the US commander in Iraq, affirmed that a violation had taken place, but asserted that the Iranians had subsequently evacuated their troops. An Iraqi oil company employee disputed that version of events and asserted that the Iranians left a five man garrison inside the facility, along with perhaps an even more potent insult to Iraqis – an Iranian flag fluttering overhead.

Many observers assume that because both Iraq and Iran share Shiite- run governments, there is a natural affinity to cooperate on security, economic and political matters. While relations between the two countries are much warmer than when the secular Arab nationalist Baath party battled the theocratic Iranian state, the shared sectarian basis obscures the very real tension that bubbles underneath the two countries’ relationship.

The tension runs the gamut from a barely concealed ethnic antagonism that pits many Iranians, who harbor a haughty attitude toward their Arab neighbors, against a pro-Arab orientation amongst many Iraqi Shiites. Iran has been accused repeatedly of having a barely concealed discriminatory policy against its own Arab citizens, most notably the Ahwazi Arabs who reside in the Khuzestan province (homeland to five million Iranian Arabs). Iran believes that many of these Arabs are separatists, who are treasonous to the state and wish to form their own Arab-dominant nation.

In Iraq, Moqatada al-Sadr’s father, Muhammad Sadiq al-Sadr, began his self-consciously pro-Arab Sadrist movement in the 1990s as a backlash against the allegedly bloated and corrupt Shiite parties that many disenfranchised Shiite Iraqis concluded paid excessive homage to Iran. Today, Moqtada al-Sadr continues his father’s brand of militant Iraqi nationalism that is both anti-American and anti-Persian. In a sharp rebuke to the image of Iraqi Shiites as passive subjects in the Iranian puppet theater, in 2007, more than 300,000 Iraqi Shiites reportedly signed a petition that condemned Iran for interference in domestic issues and for stirring violence in Iraq.

In addition to the ethnic bias exhibited on both sides, the very real theological rift between the so-called Najaf School in Iraq, and its Iranian counterpart located in Qum, has poisoned relations. This theological enmity has real-world ramifications, because it is centered upon the foundational philosophical tenets of the Iranian state, particularly the Velayat-e Faqih (Guardianship of the Islamic jurists) religious and spiritual concept that the Ayatollah Ruhollah Khomeini propagated.

During the Iranian revolution, Ayatollah Khomeini, who represented what is now popularly known as the Qum school of thought, authored a treatise titled Hokumat-e Islami: Velayat-e Faqih (Islamic Government: Authority of the Jurist), which argued that the true Islamic state is administered by those with a thorough understanding of Islamic law, i.e., Islamic clerics. Many Najaf adherents, under the guidance of Grand Ayatollah Ali al-Sistani, criticized Khomeini’s attempt to bring clerical rule to Iran in the absence of the occulted Imam, also known as the hidden Imam. Ali al-Sistani, who advocates a quietest view for Shiite scholars, does not believe that Shiite religious leaders should assume overtly political roles.

Abdolkarim Soroush, the noted Iranian scholar of Islam, concluded that if al-Sistani’s followers played a more political role in the Iraqi government, Iraq – and perhaps Iran – may edge closer to a truly “democratic version” of Islam. The antipathy of al-Sistani’s followers toward a theocratic Islamic government brings to mind the opposition of some orthodox Jews, such as the Neturei Karta, to the state of Israel and political Zionism.

All the above demonstrates that while Iraq’s Shiites are fiercely religious, they have an ardent nationalism that does not lend itself easily to Iranian political or religious domination. Iraqi Shiite independence was most aptly illustrated in the first Gulf war, when Iraq’s Shiite soldiers disregarded Khomeini’s siren call to mutiny and spread his Islamic revolution to Iraq’s interior. Nearly all Iraqi Shiite soldiers loyally served their state, and defended their territory from Iranian incursions.

As any country, Iraq appears opaque to the outside observer. However, Iraqi Shiites are both nationalistic and jealous guardians of their sovereignty. While Iranian-Iraqi relationships usually defy facile classifications, all indications are that their relationship will be complex and challenging in the years ahead.

http://www.mehrnews.com/en/NewsDetail.aspx?NewsID=1010114

http://www.reuters.com/article/idUSTRE6061W620100107

http://www.washingtonpost.com/wp-dyn/content/article/2007/11/21/AR2007112102190.html

Whether you like it or not, for the time being the most important product of the December meeting in Copenhagen of the Fifteenth Conference of the Parties (COP-15) of the United Nations Framework Convention on Climate Change (UNFCCC) is the “Copenhagen Accord,” which I assessed in my December 20^th blog post (“What Hath Copenhagen Wrought? A Preliminary Assessment of the Copenhagen Accord”).  In the long term, however, it is quite possible that another outcome of the December meetings may prove to be equally or more consequential.  I’m referring to the decreased credibility of the UNFCCC as the major institutional venue for international climate policy negotiation and implementation.

One has to be cautious about taking too seriously some of the assertions that have been made in the printed press and the blogosphere about the death of the UNFCCC, partly because many of those commentaries come from people in the press and NGOs who – like me – suffered in Copenhagen because of the terrible logistics provided by the UNFCCC, which kept thousands of people standing outside in the bitter cold for 8 hours waiting to receive their credentials (for which they had been pre-registered) only to be turned away from the Bella Center.  I’ve written about that in my December 18^th blog post (Chaos and Uncertainty in Copenhagen?).  However, the problems with the UNFCCC that became so apparent in Copenhagen are more fundamental than the logistical failures.

Problems with the UNFCCC Process

The two weeks of COP-15 illustrated four specific problems, most of which were apparent long before the Copenhagen meetings.  First, the UNFCCC process involves too many countries – about 196 at last count — to allow anything of real significance to be achieved.  As my colleague, Professor Jeffrey Frankel, observed in a panel session in which he and I participated at the ASSA meetings in Atlanta, “it’s difficult enough to reach agreement in a room with 30 people, let alone close to 200.”  What is particularly striking about involving 196 parties in the discussion of international climate change policy is the reality that just 20 of them account for about 90% of global emissions!

The second problem – again, illustrated in spades at the Copenhagen sessions – is that the UN culture tends to polarize many discussions into two factions:  the developed world versus the developing world.  This is troubling, because the world is much more diverse than such a dichotomous distinction would suggest.  Clearly, emerging economies such as China, India, Brazil, Korea, Mexico, and South Africa have more in common – along some key economic dimensions – with some countries in the so-called developed world than they do with the poorest developing countries, such as those of sub-Saharan Africa.

The third problem is that the voting rules of the UNFCCC process require consensus for nearly all decisions, that is, unanimity.  It was lack of unanimity, by the way, which resulted in the Conference not “adopting” the Copenhagen Accord, but rather “noting” it.  After all, only 190 of 196 countries supported it.  Six nations threatened to vote in opposition, ironically accusing the 190 of “undemocratic procedures:”  Bolivia, Cuba, Nicaragua, Sudan, Tuvalu, and Venezuela.

Fourth and finally, the UNFCCC leadership in Copenhagen was – to phrase it politely – problematic, not only administratively, but substantively as well, according to delegates from a diverse set of countries.  (It should also be acknowledged that some responsibility for the problematic leadership of the Conference — both administratively and substantively — rests with the Danish presidency of the Conference.  Members of a diverse set of delegations, as well as other observers, have commented on this.)

These problems (as well as others on which readers will probably comment) have caused many observers (as long as eight to ten years ago in the case of some academic economists and political scientists) to question whether the UNFCCC is the best institutional venue for productive negotiations and action on global climate change policy, or at least whether it ought to be the sole venue.  So, what are the possible alternatives?

Potential Alternative or Supplementary Institutional Venues

One promising venue was initiated in 2007 by the Bush administration as the “Major Emitter Meetings” – the “MEM process.”  It was roundly condemned by environmental advocacy groups and by many supporters of the UNFCCC process.  Greenpeace labeled it a “dead-end diversion” – “an attempt by the Bush Administration to deflect international criticism on their do nothing attitude on climate change.”  Whether or not that was the Bush administration’s cynical motivation, the fact remains that it was a sensible venue for discussion.

Fortunately, the Obama administration recognized that this was a promising approach, adopted it, changed its name to the Major Economies Forum on Energy and Climate, and continued the process, now commonly referred to as the “MEF.”  Several meetings have taken place – in Washington, Paris, and Mexico City – bringing together Australia, Brazil, Canada, China, the European Union, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, South Africa, the United Kingdom, and the United States.  Those 17 countries and regions account for about 90% of global emissions.  The U.S. Deputy National Security Advisor for International Economic Affairs, Michael Froman, chairs the meetings.  Naturally, some nations (and some advocates) are concerned about a small set of large countries reaching decisions; and no doubt some are not comfortable with a process chaired by the United States.

Another conceivable institutional venue would be the G-20, the “Group of Twenty Finance Ministers and Central Bank Governors,” established in 1999 to bring together the leading industrialized and developing economies to discuss key issues.  They recently turned their attention to climate change policy (in Pittsburgh in September, 2009).  The make-up of this group is similar to that of the MEF, but there are differences:  Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, and the United States.  For some people, the good news about the G-20 playing a key role as a venue for negotiations is the presence of economic thinking; of course, this is precisely what troubles many others.

No doubt, there are other conceivable multilateral negotiations that could be convened, as well as bilateral approaches, including, of course, ongoing talks between China and the United States.

Don’t Nail Shut the Coffin

Anyone who predicts the death of the UNFCCC is probably letting their hopes infect their predictions.  It is simply much too soon for obituaries to be written for this quite durable institution.

The Kyoto Protocol continues at least until the end of its first commitment period, that is, through 2012.  The Clean Development Mechanism (CDM) and annual national reporting functions (such as those that are key parts of the Copenhagen Accord) are likely to work through the United Nations, most likely the UNFCCC.

Also, the UNFCCC has a very large constituency of support, including at a minimum most, if not all, of the G-77 group of developing countries, which actually numbers much closer to 140.  In addition, the UNFCCC has significant international legitimacy, and is potentially key for implementation, no matter what the venue may be for initial negotiation.

The Path Forward

Whether the next steps in international deliberations should be under the auspices of the UNFCCC or some smaller deliberative body, such as the MEF or the G-20, is an important and open question.  Given the necessity of achieving consensus in the United Nations processes as currently defined and the open hostility of a small set of countries, other bilateral and multilateral discussions could be an increasingly attractive route, at least over the short term.

There are many questions, however, that need to be addressed before anyone can identify the best institutional venue (or venues) for international climate negotiations and action.  Such questions are now among the major foci of research by the Harvard Project on International Climate Agreements.  More about this in future posts.

Evidence has been mounting that al-Qaeda is building a strong presence in Yemen.  This reality is even clearer given an upsurge in activity in recent days including two separate attacks by Yemeni forces against al-Qaeda bases and the claim by the suspect in the attempted Amsterdam-Detroit airline bombing that he received the necessary explosives in Yemen.

Yemen is at a great risk to infiltration by al-Qaeda.  It is an extremely poor state where a vast majority of individuals still live in rural areas and existing evidence suggests that the local population is more likely to be sympathetic to terrorist activities given the deep resentment towards both the Yemeni regime and United States foreign policy.  Most importantly, the state does not control all (or arguably even most) of Yemeni territory, allowing al-Qaeda to operate with potential impunity.

Additionally, the Yemeni regime continues to follow an unclear policy towards al-Qaeda.  Officially, Yemen is an ally of the US and cooperates with the US in the fight against al-Qaeda.  However, the locations of numerous well-known al-Qaeda suspects are known to the regime which refuses to take action against them.  Moreover, when action does take place, it tends to have a striking correlation with other events in Yemen, such as escalations in the war in Sa’ada, anti-democratic moves by the regime, or terrorist attacks that are linked to Yemen.  Thus, it appears that Yemen’s commitment to tacking al-Qaeda is often intended to limit foreign intervention in Yemeni affairs.

This presents a unique challenge for US policymakers.  Given the weakness of the regime, it is unclear if greater pressure could yield tangible results.  The regime remains in power due to a careful balancing act and fears taking on individuals with ties to powerful tribes or clans.  Additionally, it is challenging for the regime to take action in areas where it has limited if any de facto control.  Limiting the growth of al-Qaeda in this region will be a long battle that necessitates the strengthening of the Yemeni state.

While evidence suggests that the US is bolstering military aid to Yemen, additional steps are necessary.  First, the US and other countries must also concentrate on dealing with the broader spectrum of problems facing Yemen, including ending the war in Sa’ada and addressing the concerns of southerners to limit a growing secessionist movement.  If these ongoing crises could be resolved, it would free up resources that could be used to address ongoing issues of concern to ordinary citizens including economic development, the water issue, and the corruption problem.  In the long-term, the success at addressing these issues will prove critical to stopping al-Qaeda’s growth in Yemen.

Link:

http://news.bbc.co.uk/2/hi/americas/8430699.stm

http://news.bbc.co.uk/2/hi/middle_east/8429370.stm

http://news.bbc.co.uk/2/hi/middle_east/8417773.stm

http://news.bbc.co.uk/2/hi/middle_east/8429843.stm

The National Journal asks for reactions to a recent blog post by Greg Mankiw regarding the reasons why US investment has fallen sharply.

I agree with Greg that the dominant empirical fact about investment is its procyclical volatility (the main reason investment has been depressed for the last two years is that the economy has been depressed), and also that the recent credit crunch made it worse. But I don’t agree with a third item on his list: “the policy environment seems adverse to business.” As in many areas, it is when we get to the politics that I disagree.

Greg cites trade policy, fiscal imbalances, and energy costs, in support of his proposition that the current policy environment is anti-business. Let’s consider each of the three.

Trade. I wasn’t happy in September when the White House put tariffs on imports of Chinese tires. But President Obama, despite the pressures of the most severe recession since the 1930s, has yet to succumb to any protectionist measures as big or as blatantly in violation of international trade agreements as were Ronald Reagan’s quotas on Japanese auto imports or George W. Bush’s tariffs on steel imports. (Greg, of course, was the Chair of Bush’s Council of Economic Advisers.)

Budget. Most of us think that the $787 billion fiscal stimulus and the distasteful banking rescues were minimal necessary responses to the recession. But let’s address the serious question of the bleak longer term fiscal outlook. It is known to those who look carefully at the budget numbers that Obama’s recent actions are a distant 5th on the list of contributors. #1 in the long term (by far) are the future costs of Social Security and Medicare. #2 are the long term effects of Bush’s tax cuts. A close #3 are the effects of Bush’s spending increases (including the wars in Iraq and Iran and the expansion of Medicare benefits, among other things). #4 is the loss of tax revenues from the recession that began December 2007. A distant #5, as I say, is the recent fiscal stimulus. (The banking layouts are being repaid, usually with a high return for the Treasury – as the Administration had predicted, to critics’ ridicule.) I believe that as the recovery becomes better established Obama will, as he says, take much more serious steps than his predecessor in the direction of long-run fiscal consolidation. But only time will tell.

Energy costs. Greg Mankiw in fact believes that a system of energy taxes or cap-and-trade would increase the efficiency of the economy, even though it would raise the relative price of energy. (This is all the more true if the comparison is to past policies of subsidizing oil and other fossil fuels.) Greg founded the Pigou Club on this principle, and I heartily congratulate him for it.

I am skeptical that investment is currently depressed by perceptions of an anti-business climate. But if the average businessperson does in fact have the perception that recent Democratic administrations have been worse for business than Republican administrations, I suggest setting aside campaign rhetoric and looking at actual history. Start with the fact that, in the graph in Greg’s blog post, investment growth was substantially higher during the Clinton Administration than during the Reagan or Bush Administrations. Investment will recover when the economy does.

In the wake of the global food crisis from 2007-2008, the Gulf countries have been shaken out of their complacency regarding their lack of a sustainable agricultural sector.  The dramatic rise in food prices caused an arc of economic instability and social unrest in both developed and developing countries. The Gulf countries are particularly vulnerable to disruptions associated with food production and export due to their dearth of arable land. Because most Gulf countries must import foodstuffs, they view agricultural commodities as essential to their national security. The concern is understandably heightened, because the bulk of these precious commodities pass through the turbulent Strait of Hormoz.

In response, Saudi officials announced a comprehensive plan to produce rice and other staple crops in African nations as diverse as Mali, Senegal, Sudan and Ethiopia. Rather than adulation, the Saudi initiative generated a bitter outcry amongst many NGOs, distressed that a wealthy developing nation would use as a breadbasket the continent that is not only the poorest, but has difficulties in sustaining its own populace. In order to stave off criticism, Saudi Arabia donated $500 million to the World Food Program in 2008. Saudi Arabia was not the only GCC nation that attempted to meet its food import needs by leasing or buying agricultural land in developing nations – the UAE and Qatar have announced their own ambitious plans as well.

The tendency is to classify all new phenomena into existing conceptual frameworks. There is no question that the cited African nations lack the bargaining power or the global reach of the Saudis or of any other Gulf State. Framing the issue as a neo-liberal colonialist endeavor is certainly unfair if the classification does not fit. The jury is still out as to whether the NGOs correctly assert that this leasing of land is a form of “neo imperialism.” Are these international transactions neo imperialistic simply because they place the resources of an impoverished territory in the de facto hands of the relatively powerful, or because the compensation is fundamentally inadequate in comparison to the benefits given and received? There is also the risk that, if the Gulf nations do not benefit from such contracts, other nations will step in and experience trade benefits in a period of food shortages. Nor are Gulf nations the only pioneers in this effort; India and South Korea did so with varying degrees of success. In fact, South Korea’s land acquisition efforts fueled extensive protests in Madagascar.  For a relatively non-biased overview of this issue, see here

Even though the Gulf nations are relatively wealthy, they are still considered developing nations. They are also threatened by a monumental population increase by 2030, which translates into increased food needs. On the other hand, approximately 8 million Ethiopians suffer malnutrition, and Africans will likely experience increased desiccation with global warming. Gulf nations contend that they in fact assist the developing nations’ efforts to enhance their food productivity – a policy that, if true, measurably benefits all stakeholders. There is also a question as to whether investing nations could avoid pejorative labels if they had exclusive purchase rights from independent, local farmers. No simple calculus can solve these complex problems. Few issues are more passion-driven than access to food and wealthy Gulf nations are always sensitive to their public image. Until the parties resolve these pressing food issues, the neo imperialism label could compromise the GCC nations’ collective image.

http://www.nytimes.com/2009/11/22/magazine/22land-t.html

After years of preparation, the Fifteenth Conference of the Parties (COP-15) of the United Nations Framework Convention on Climate Change (UNFCCC) commenced on December 7^th, 2009, and adjourned some two weeks later on December 19^th after a raucous all-night session.  The original purpose of the conference had been to complete negotiations on a new international agreement on climate change to come into force when the Kyoto Protocol’s first commitment period comes to an end in 2012.  But for at least the past six months, it had become clear to virtually all participants that such a goal was out of reach — and the COP-15 objective was publically downgraded in mid-November to a non-binding agreement by heads of state at a meeting in Singapore of the Asia-Pacific Economic Conference.

I begin by describing what were reasonable expectations going into the Copenhagen negotiations and appropriate definitions of success for COP-15, and then turn to the unprecedented process which unfolded over the final 36 hours of the conference.  Next, I describe the fundamental architecture of the sole product that emerged – the Copenhagen Accord – and describe its key provisions, with an assessment of each component.  I close with an examination of the major pending issues and the available procedural routes ahead.

Sensible Expectations and Definitions of Success for Copenhagen

There was much hand-wringing in the months leading up to COP-15 about how difficult the negotiations had become.  I saw this as something of “A Silver Lining in the Climate Talks Cloud,” because the difficulty was largely a consequence of key countries of the world taking very seriously the task of expanding the coalition of the willing.

Going into Copenhagen, the challenge was very great, largely because of fundamental economic (and hence political) realities, as I explained in a previous post, “Chaos and Uncertainty in Copenhagen?” Given legitimate concerns about issues of efficiency, on the one hand, and distributional equity, on the other hand, it was not surprising that the industrialized countries (particularly the United States) insisted that China and other key emerging economies participate in a future agreement in meaningful and transparent ways, nor that the developing countries insisted that the industrialized countries foot much of the bill.

The key question was whether the negotiators in Copenhagen could identify a policy architecture that is both reasonably cost-effective and sufficiently equitable to generate support from the key countries of the world, and thus do something truly meaningful about the long-term path of global greenhouse gas emissions.  There were (and are) some promising paths forward, as we have documented in the Harvard Project on International Climate Agreements, and as we examine in a pair of current books (Post-Kyoto International Climate Policy: Summary for Policymakers; and Post-Kyoto International Climate Policy:  Implementing Architectures for Agreement).

At the final hour in Copenhagen, the leaders of a small number of key countries worked creatively together to identify a politically feasible path forward.  I have previously argued (“Defining Success for Climate Negotiations in Copenhagen”) that the best goal for the Copenhagen climate talks was to make progress on a sound foundation for meaningful, long-term global action, not some notion of immediate, numerical triumph.  That has essentially been accomplished with the “Copenhagen Accord,” despite its flaws and despite overt challenges from five of some 193 countries represented (Bolivia, Cuba, Nicaragua, Sudan, and Venezuela).

An Unprecedented Process

Before turning to the substance of the Copenhagen Accord, it is worthwhile taking note of the quite remarkable process that led up to its “last-minute” creation.  From all reports, the talks were completely deadlocked when U.S. President Barack Obama arrived on the scene at 8:00 am on Friday, December 18^th, the scheduled final day of the conference.  Through a series of bilateral and eventually multilateral meetings of President Obama with Chinese Premier Wen Jiabao, Indian Prime Minister Manmohan Singh, Brazilian President Luiz Inacio Lula da Silva, and South African President Jacob Zuma, a document gradually emerged which was to become the Copenhagen Accord.

It is virtually unprecedented in international negotiations for heads of government (or heads of state) to be directly engaged in, let alone lead, negotiations, but that is what transpired in Copenhagen.  Although the outcome is less than many people had hoped for, and is less than some people may have expected when the Copenhagen conference commenced, it is surely better – much better – than what most people anticipated just three days earlier, when the talks were hopelessly deadlocked.

The Copenhagen Accord – Its Fundamental Architecture

The fundamental architecture of the Copenhagen Accord is one we recently analyzed in the Harvard Project on International Climate Agreements in “A Portfolio of Domestic Commitments: Implementing Common but Differentiated Responsibilities,” and about which I blogged at the end of November (Approaching Copenhagen with a Portfolio of Domestic Commitments).  Essentially, under such an approach each nation commits and registers to abide by its domestic climate commitments, whether those are in the form of laws and regulations or multi-year development plans.  This is essentially the “schedule approach” introduced by the Australian government in spring 2009.

After its release, President Obama characterized the new Accord as “an important first step” at his press conference shortly before returning to Washington.  I would prefer to amend that characterization to call the Accord a potentially very important third step.  Step One was the UN Earth Summit in Rio de Janeiro in 1992, which produced the U.N. Framework Convention on Climate Change.  Step Two was the Kyoto Protocol, signed in Japan in 1997.  But what many policy wonks (myself included), not to mention the United States Senate, immediately recognized was the absence from the Kyoto Protocol of involvement in truly meaningful ways of the key, rapidly-growing developing countries, a small set of important nations that are now better termed “emerging economies” – China, India, Brazil, South Africa, Mexico, and Korea.  This was a primary deficiency of Step Two, as well as the lack of serious attention to the long-term path of emissions (as opposed to the five-year time horizon of Kyoto).

The Copenhagen Accord establishes a framework for addressing both deficiencies, and thereby can be characterized as a potentially very important third step – expanding the coalition of the willing and extending the time-frame of action.  With this step, all of the seventeen countries of the Major Economies Forum– which together account for some 90% of global emissions – are agreeing to participate.  Nevertheless, let’s be honest about the difference between the outcome of the 1997 negotiations in Kyoto (a detailed 20-page legal document, the Kyoto Protocol) and the outcome of the 2009 negotiations in Copenhagen (a general 3-page political statement, the Copenhagen Accord).  Still, it remains true that the COP-15 negotiations were “saved from utter collapse” by the creation and acceptance of the Copenhagen Accord.

The Copenhagen Accord – Key Provisions and Preliminary Assessment

It is unquestionably the case that the Accord represents the best agreement that could be achieved in Copenhagen, given the political forces at play.  Indeed, were it not for the spirited – and as I suggested above, quite remarkable – direct intervention by President Obama, together with the other key national leaders, there would have been no real outcome from the Copenhagen negotiations.  That said, let’s take a critical look at the Accord, item by item.  The key provisions (as I interpret them, with my own numbering, not that of the Accord) are these:

1.      The signatories validate their will to “urgently combat climate change in accordance with the principle of common but differentiated responsibilities and respective capabilities.”  The signatories agree that deep cuts in global emissions are required to hold global temperature increases to 2 degrees Centigrade, and commit to take actions to meet this objective, “consistent with science and on the basis of equity.”

Assessment: Although the Accord notes the importance of the frequently-discussed 2 degrees Centigrade target, it does not spell out actions that will achieve it.  The Accord also notes the importance of the principle of “common but differentiated responsibilities,” which is of great importance to developing countries.

2.      Action and cooperation on adaptation is urgently required, particularly in the least developed countries, small island developing states, and Africa.  Developed countries commit to provide financial resources to support adaptation measures in developing countries.

Assessment: Recognizing the importance of adaptation and providing financial resources to support it in developing countries is an important departure from Kyoto.  Targeting the funds to the “least developed countries” is sensible.

3.      Annex I Parties of the Kyoto Protocol (the 1997 list of the industrialized countries and the emerging market economies of Central and Eastern Europe) commit to implement mitigation actions (specified in Appendix I), and Non-Annex I Parties (the developing world, as defined in the Kyoto Protocol) also commit to implement mitigation actions (specified in Appendix II), all of which will be submitted to the UNFCCC Secretariat by January 31, 2010.

Assessment: These appendices (“schedules”) of domestic mitigation targets, actions, and policies are the heart of the Portfolio approach, as I described above.  This is where the action is.

It is unfortunate (but was probably politically necessary) that the Accord maintains the distinction of Annex I versus non-Annex I countries from the Kyoto Protocol.  I have characterized this distinction in the Kyoto Protocol as the “QWERTY keyboard” (unproductive path dependence) of international climate policy, because it has been the greatest impediment to developing a meaningful international arrangement.  It is because of the presence of this distinction that developing countries have insisted on a continuation of the Kyoto Protocol for a second (post-2012) commitment period.

Note that even if the Annex I list was appropriate in 1997, it surely no longer is:  more than 60 non-Annex I countries now have greater per capita income than the poorest of the Annex I countries.

An important improvement would be to employ a formulaic mechanism that takes a variety of factors into account, including per capita income, to determine the stringency of ambition, targets, or actions for individual countries, rather than the dichotomous distinction of having targets or not (“Global Climate Policy Architecture and Political Feasibility: Specific Formulas and Emission Targets to Attain 460 PPM CO2 Concentrations”).

If a continuous spectrum with all countries listed in the same table is not politically feasible, then a mechanism is needed for countries to transition from one list to the other.  Korea and Mexico joined the OECD six months after Kyoto, but they remain off the Annex I list.

4.      Emissions reductions for the Annex I parties will be measured, reported, and verified according to guidelines (to be established), which will be rigorous and transparent, whereas mitigation actions taken by non-Annex I parties will be subject to domestic measurement, reporting, and verification (MRV) reported through national communications, with international consultation and analysis.

Assessment: There was a great deal of attention to this issue in Copenhagen, with all members of the U.S. delegation talking about the importance of “transparency.”  The compromise seems acceptable:  developing countries employ domestic measurement, reporting, and verification, but it is subject to “international consultation and analysis.”

Interestingly, the Accord is silent on the issue of “international competitiveness” and the possible use of border adjustments (border taxes or import allowance requirements in national cap-and-trade systems).  This is a controversial point, since inclusion of such mechanisms is important in domestic U.S. politics, but is anathema to China, India, and other developing countries.

5.      Least developed countries and small island developing states may undertake actions voluntarily and on the basis of support (from other countries).  Such actions will be subject to international measurement, reporting, and verification.

Assessment: This is the third element of the national schedules, reserved for the poorest developing countries (which contribute only trivially to greenhouse gas emissions), and it seems acceptable, although a graduation mechanism would again be desirable.  Interestingly, if their actions are funded by developed countries, then those actions are subject to the most stringent MRV.  So-called technology transfer mechanisms are included in this context.

6.      The parties will establish positive incentives to stimulate financial resources from developed countries to help reduce emissions from deforestation and degradation.

Assessment: This is a potentially important change, as the lack of meaningful attention to retarding deforestation was a significant deficiency of the Kyoto Protocol.  We have investigated appropriate mechanisms in the Harvard Project on International Climate Agreements (“International Forest Carbon Sequestration in a Post-Kyoto Agreement”).

7.      The parties agree to pursue opportunities to use markets to achieve cost-effective mitigation actions.

Assessment: As we have documented in the Harvard Project (“Linkage of Tradable Permit Systems in International Climate Policy Architecture”), it is very important that future international agreements facilitate or at least not discourage voluntary linkage of national and multi-national cap-and-trade systems.  Needless to say, this provision in the Accord – like virtually all of the provisions – will require specific details to make it operational.

8.      Predictable and adequate funding will be provided to developing countries for emissions mitigation, reduction of deforestation, and adaptation.  There is a collective commitment from developed countries “approaching” $30 billion for the period 2010-2012, “balanced between adaptation and mitigation,” with adaptation funding being prioritized for the most vulnerable developing countries.

Assessment: To whatever degree the funding for mitigation is of government-government form (expanded foreign aid), legitimate concerns exist about both the feasibility of marshalling the necessary amounts and the efficiency of its use.  The private sector needs to be employed, as I have previously argued (“Only Private Sector Can Meet Finance Needs of Developing Countries”).

9.      The developed countries commit to a goal of jointly mobilizing $100 billion annually by 2020 from sources both public and private.

Assessment: It is important that the Accord notes that the funds can come from either public or private sources.  Governments can — through the right domestic and international policy arrangements — provide key incentives for the private sector to provide the needed finance through foreign direct investments for emissions mitigation (clearly a role exists for government assistance for adaptation).  For example, if the cap-and-trade systems which are emerging throughout the industrialized world as the favored domestic approach to reducing CO₂ and other greenhouse gas emissions are linked together through the existing, common emission-reduction-credit system, namely the Clean Development Mechanism (CDM), then powerful incentives can be created for carbon-friendly private investment in the developing world.

Clearly the CDM, as it currently stands, cannot live up to this promise, but with appropriate reforms there is significant potential.  Of course, problems of limited additionality will inevitably remain.  Therefore, what is needed is for the key emerging economies to take on meaningful emission targets themselves (even if equivalent to business as usual in the short term), and then participate directly in international cap-and-trade, not government-government trading as envisioned in Article 17 of the Kyoto Protocol (which will not work), but firm-firm trading through linked national and multi-national cap-and-trade systems.

Such private finance stands a much greater chance than government aid of being efficiently employed, that is, targeted to reducing emissions, rather than spent by poor nations on other (possibly meritorious) purposes.

10.  Evaluation of the Accord’s implementation is to be completed by 2015, including consideration of strengthening the long-term goal as the science indicates.

Assessment: Depending upon when the Accord is implemented, completing an assessment by 2015 might or might not be reasonable.  A provision to strengthen the long-term goals of the Accord may be sensible, but it would seem that the provision should provide more generally that the long-term goal should be “adjusted as the science indicates,” so as not to pre-judge what future scientific research may reveal.

11.  In the official version of the Accord released by the UNFCCC, Appendix I (quantified 2020 economy-wide emissions targets for Annex I countries) and Appendix II (nationally appropriate mitigation actions of developing country parties) are left blank, to be completed by January 30, 2010.

Assessment: It is unfortunate that no numbers or other specifics were included in the two appendices, because many of the various parties have previously made public statements regarding commitments, plans, or expectations that would actually have provided considerable information.  Some specificity of the tables – both numerical pledges from Annex I countries and “voluntary pledges” from developing countries — would have better demonstrated the compelling substance of the Accord, and would thereby have given the agreement greater credibility, at least in news media reports.

The Way Forward

Many details regarding these elements of the Accord as well as other unspecified issues remain on the table, and will presumably be examined and negotiated if nations move forward with the Copenhagen Accord and the basic architecture it promulgates.  We are already at work on many of these issues in the Harvard Project on International Climate Agreements, including:

·         metrics for evaluating commitments

·         climate policy review mechanisms

·         compliance mechanisms

·         afforestation and deforestation mechanisms

·         facilitating international market linkage

·         fostering technology transfer

·         methods of negotiating and updating climate agreements

·         methods of providing incentives for developing country participation

·         methods of carbon finance

·         making an international climate agreement consistent with international trade rules

Whether the next step in international deliberations should be under the auspices of the UNFCCC or a smaller deliberative body, such as the Major Economies Forum (MEF), is an important question.  Given the necessity of achieving consensus (that is, unanimity) in United Nations processes and the open hostility of a small set of nations, bilateral and multilateral discussions, including via the MEF, could be an increasingly attractive route, at least over the short term.  (Such questions about preferred institutional venues for international climate negotiations and action constitute an important topic on which we are focusing research in early 2010 in the Harvard Project on International Climate Agreements, and about which I will write in future posts.)

The climate change policy process is best viewed as a marathon, not a sprint.  The Copenhagen Accord – depending upon details yet to be worked out – could well turn out to be a sound foundation for a Portfolio of Domestic Commitments, which could be an effective bridge to a longer-term arrangement among the countries of the world.  We may look back upon Copenhagen as an important moment – both because global leaders took the reins of the procedures and brought the negotiations to a fruitful conclusion, and because the foundation was laid for a broad-based coalition of the willing to address effectively the threat of global climate change.  Only time will tell.

Epilogue

After I completed writing this blog post, I came across a superb essay on the same topic by David Doniger, Policy Director of the NRDC Climate Center in Washington, D.C.  It deserves to be read (and distributed).

Earlier today, I was asked by the Financial Times, “who is responsible for the chaos and uncertainty” at COP-15 in Copenhagen?  I’m not sure those are the words I would have chosen to characterize the situation at the climate negotiations in the Danish capital, but here is my response for the FT’s Energy-Source Climate Experts panel — with some elaboration.

There are two aspects to what has been characterized as the “chaotic and uncertain” nature of the COP-15 conference at the Bella Center in Copenhagen.  One is the substantive process and eventual outcome, which remains uncertain as of this hour, and the other is the shocking logistical failure.

An Uncertain Outcome for the Negotiations

It should not be surprising that the outcome remains in doubt, because of some basic economic realities.  First of all, keep in mind that climate change is the ultimate global commons problem, because greenhouse gases uniformly mix in the atmosphere.  Therefore, each country incurs the costs of its emission-reduction actions, but the benefits of its actions are spread worldwide.  Hence, for any individual nation, the benefits it receives from its actions are inevitably less than the costs it incurs, despite the fact that globally the total benefits of appropriate coordinated international action would exceed the total costs (and for many countries the national benefits of coordinated international action would exceed their national costs of action).

This creates a classic free-rider problem, and is the reason why international cooperation – whether through an agreement under the United Nations Framework Convention on Climate Change or through some other multilateral or bilateral arrangements – is necessary.

Second, addressing global climate change will be costly and it raises profound distributional implications for the countries of the world.  In particular, addressing climate change at minimum cost (i.e., cost-effectively) requires that all countries take responsibility for their emissions going forward, and indeed necessitates that all countries control at the same marginal abatement cost.

On the other hand, addressing climate change in an equitable fashion clearly requires taking account of the dramatically different economic circumstances of the countries of the world, and may also involve looking backwards at historic responsibility for the anthropogenic greenhouse gases which have already accumulated in the atmosphere.   These are profound issues of distributional equity.

This classic trade-off between cost-effectiveness (or efficiency), on the one hand, and distributional equity, on the other hand, raises significant obstacles to reaching an agreement.

So, I place the fault for the substantive uncertainty in the negotiations neither on the industrialized countries (including the United States, for insisting that China and other key emerging economies participate in meaningful and transparent ways), nor on the developing countries (for insisting that the industrialized world pay much of the bill).

The key question going forward is whether negotiators in Copenhagen today and tonight, or in Bonn several months from now, or in Mexico City a year from now, can identify a policy architecture that is both reasonably cost-effective and sufficiently equitable, and thereby can assemble support from the key countries of the world, and thus do something truly meaningful about the long-term path of global greenhouse gas emissions.  There are promising paths forward, and – if you’ll forgive me – I will remind readers that many have been identified by the Harvard Project on International Climate Agreements.

Rather than pointing fingers at who is to blame for the current uncertainty at this hour, I can attribute credit to a number of countries and institutions for having brought the negotiations to the point where it appears at least possible that a successful outcome will be achieved in Copenhagen or subsequently.

First of all, tremendous credit must be given to the national leaders and the negotiating teams of the seventeen major economies of the world who together represent about 90% of global emissions, because these countries have worked hard to produce what each considers a sensible outcome over the months and years leading up to COP-15.

This includes not only the European Union, Australia, Japan, New Zealand, and Canada, but also the United States, which at least since January of this year has been an enthusiastic and intelligent participant in this international process.  It also includes many of the key emerging economies of the world – China , India, Brazil, Mexico, Korea, South Africa, and Indonesia, among them – as well as a considerable number of poor, developing countries, which likewise take the problem seriously and have been trying to find an acceptable path forward.

Finally, credit should be given to the Danish government and its leadership, the Secretariat of the United Nations Framework Convention on Climate Change, and UN Secretary-General Ban Ki-moon, who have worked tirelessly for months, indeed years, to prepare for the substance of these negotiations at COP-15 in Copenhagen.

That’s the “good news,” but now I should turn to the other aspect of the “uncertainty and chaos” in Copenhagen.

Chaos at COP-15’s Bella Center

As I noted at the outset, there are two aspects of the “chaos” in Copenhagen, and for the second aspect it is (sadly) possible to identify the apparently responsible parties.  I am referring to the fact that the organizers – the Secretariat of the United Nations Framework Convention on Climate Change (UNFCCC) and the hosts, the Danish government – apparently approved a list of some 40,000 observers from 900 official, accredited organizations around the world, knowing that the Bella Center could accommodate at most 15,000 persons at any one time.  The result is that thousands of people – including not only NGO representatives, but also government negotiators – stood in line outside of the Bella Center in the bitter cold on Monday and Tuesday of this week waiting 8-10 hours to get inside to receive their credentials.  Thousands of others never got inside to receive their credentials, despite having waited up to 8 hours, standing in the cold.  These are not exaggerations.  It is remarkable and very fortunate if no one died in the process.

Then, on Wednesday through Friday, the Bella Center was essentially closed to all representatives of civil society, despite the fact that side-events had been organized by them months in advance with the approval of the COP-15 organizers.

The result is that thousands of people, who had been informed by the COP-15 organizers many months ago that they were approved to attend, had flown to Copenhagen from all over the world, incurred those costs plus the costs of their accommodations, yet never were able to get inside the Bella Center to carry out any of the work they had planned, and flew back home having wasted their time and resources (and having contributed to the COP-15 carbon footprint in non-trivial ways).

Now, I have never been an enthusiast of what some people have described as the annual “circus” of the COPs, a circus – if it is that — which is largely due to the fact that the actual government negotiators are vastly outnumbered by the civil society representatives (“official observers” in the UNFCCC language) and the press.  However, if the participation of civil society representatives is going  to be encouraged (as required under the original UNFCCC agreement), and if the attendance of those representatives is going to be approved in advance, then surely they should not be denied admission when they arrive, nor forced to stand in line outside in the cold for 8 hours waiting to be admitted.

No doubt, both the UNFCCC and the Danish government will point fingers at the other, but ultimately the responsibility must be shared.  In seventeen years of these annual conferences, going back to the 1992 Earth Summit in Rio de Janeiro, there has never been such a disastrous logistical failure.  It could have been anticipated.  And it should have been prevented.

A Final Word

Of course, as of this hour, I — along with millions of others — hope that the negotiators in Copenhagen will achieve agreement on some truly meaningful steps forward in this important process.

“Should Central Banks Target Asset Prices?” That is the question addressed by the current symposium in The International Economy (2009, no.4).

My answer:

Alan Greenspan was right to raise the question “How do we know when ‘irrational exuberance’ has unduly escalated stock prices?”, which is what he actually said in 1996. But he was wrong to conclude subsequently that monetary policy should ignore asset prices (or even that it should take asset prices into account only to the extent that they contain information about future inflation, as the Inflation Targeters would have it). More specifically,
(1) Identifying in real time that we were in a stock market bubble by 2000 and a real estate bubble by 2006 was not in fact harder than the Fed’s usual job, forecasting inflation 18 months ahead;
(2) Central bankers do have tools that can often prick bubbles; and
(3) The “Greenspan put” policy of mopping up the damage only after run-ups abruptly end probably contributed to the magnitude of the bubbles, while yet being insufficient to head off the worst recession since the 1930s. All three points run contrary to what was conventional wisdom among monetary economists and central bankers a mere two years ago.

As Claudio Borio and Bill White at the BIS pointed out before the financial crisis, many of the worst economic collapses of the last 100 years have occurred after excessively easy monetary policy had shown up in asset prices but not in inflation: US 1929, Japan1990, East Asia 1997, and now the US 2007.

A final point: “Targeting asset prices” is the wrong phrase. The word “target” (for example, with respect to the money supply, exchange rate, or inflation) implies a number, or at least a numerical range. I don’t know anyone who thinks that the central bank should contemplate setting a numerical range for the stock market. Rather, the claim, which I think the evidence now supports, is that central bankers would be well advised to monitor prices of equities and real estate and to speak out, and eventually to act, on those rare occasions when asset prices get very far out of line.