ClimateOne

Greg Dalton: Welcome to Climate One, a conversation about America’s energy, economy and environment. I’m Greg Dalton. Today we’re discussing international efforts by governments and corporations to reduce the carbon pollution that is disrupting the Earth’s climate. United Nations’ negotiations on a global deal are adrift at sea and the United States Comprehensive Climate Legislation is a political non-starter.

 

People hoping for some progress toward a low-carbon economy are pinning their downsized hopes on a June meeting in Rio de Janeiro to commemorate the 20th anniversary of the 1992 Earth Summit attended by President George H.W. Bush and other world leaders.

 

In the next hour, we’ll assess markets and policies that can begin weaning the world off fossil fuels with our live audience at the Commonwealth Club in San Francisco. And we are pleased to be joined by a scholar, a reporter and an investor. Tom Heller is the Executive Director of The Climate of Policy Initiative and Professor Emeritus at Stanford Law School. He’s an authority on global energy use and international law. Mark Schapiro is a Senior Correspondent at the Center for Investigative Reporting and has written extensively about carbon markets for the Atlantic Monthly, Harpers and other publications. Marc Stuart is co-founder of Ecosecurities and aggregator of carbon oxide projects sold in 2009 to JP Morgan Chase for $200 million and is now a private equity investor. Please welcome them to Climate One.

 

[applause]

 

Greg Dalton: Gentlemen, thank for coming. Tom Heller, what is the role of the United Nations negotiation – the international negotiation process and how is that different than what was envisioned when it started 20 years ago?

 

Tom Heller: I’m trying to not be too prejudicial here.

 

Greg Dalton: Ok.

 

Tom Heller: You used the analogy that it was adrift at the present time after the Durban meetings which brought up the image to me of one of these coastal liners out there with Somali pirates all around it and somebody tugging it into shore. I don’t think it’s that bad. To start the – I’m not a big fan of these – of these negotiations, but I think it’s been a very interesting process and in many ways, the negotiations that took place in Durban recently were a bit of pulling a cat diplomatically out of a hat. I mean, it was a very difficult situation and I’ll just suggest that the reason it was a very difficult situation was that Durban, as many of you know, in 2011, was dealing with a problem that the Kyoto Protocol was going to end in 2012. And the Kyoto Protocol which reflects in many ways the original model that people developed all the way back in the early 1990s about how to deal with climate has been a continuing development that in my view, in a great many ways, no longer fits the situation in the world, and we can talk about that but it was a real negotiation with huge numbers of people, organizations, negotiators who had deep commitments to this type of process and these types of goals.

 

And you may remember in 2009 that major negotiations in Copenhagen, there was a substantial breakdown of what many people hoped would be a breakthrough period. And out of that negotiation in Copenhagen which in many ways was a failure of the original model to be successfully resolved, arose another line of approach to the climate problem. That line came in something called the Copenhagen Accord, it was further developed at the meetings in Cancun the subsequent year, and I think the real trick in Durban was somehow Janus-like moving away from the older style of negotiation onto the newer style of international collaboration without having any real diplomatic breakdown where people walked out. And in this thing called the Durban Mandate, they managed to do that reasonably well. Now, I’ll just stop by saying none of this has any real impact on whether we’re solving climate problem but diplomatically, it was a pretty cool move.

 

Greg Dalton: Marc Stuart, let’s talk about markets. Are markets having a real impact or they are kind of moving forward while there’s this diplomatic – slow-moving diplomatic process, transitioning diplomatic process that Tom Heller just mentioned?

 

Marc Stuart: Well, right now, markets are very, you know, at best static and probably going backwards. The reality is that the markets were built out for the expectation of an expansion from Kyoto through Copenhagen, and to the post-Kyoto phase and sort of the amount of infrastructure and capital that was devoted to help us raise by companies, you know, and by funds and other things to create that was not based upon the demand and supply curves of the Kyoto but was based upon something that was going to happen after that with the inclusion of the United States, with the inclusion of other – of other major economies and with deeper cuts.

 

So right now, we’ve seen a complete reversal of that with this repudiation of the Kyoto trajectory. And what that means is that markets right now are vastly over-served with capital and with capability versus what the actual demand is. So right now, when it comes to actual admissions, mitigation, what markets are doing, I think it’s fairly minimal. What markets have done which is really important over the last ten years, which is that idea that 1997 in Kyoto – and I was in Kyoto – but Durban was the first meeting of this in quite a while with this – but in 1997, there was no idea of having, you know, a private sector that’s going to seek out emissions mitigation throughout the entire global economy. And that’s what Kyoto created, created to undersee, and what the clean development mechanism part of Kyoto created, was you have this huge profile of people wherever ranging from you know, people within GE and Siemens, and ABB to people in garages in India, and Malaysia, and China, looking for ways to mitigate emissions whether it was in agriculture, whether it’s in land use, whether it was in energy, waste management, whatever it may be. So it’s a cultural change of tremendous import. Whether it actually had any real impact overall on emissions, ultimately, you know, the only demand for those types of emission reductions came from the European Union of Japan, it was probably no more than maybe a billion to a billion point two tons overall. Which when you consider that since Kyoto, the world has emitted somewhere between 300 and 400 billion tons is pretty meaningless but that cultural shift to create as people out there searching for these – that didn’t exist in 1997 and the thing that that would have created without this – the market drivers that Kyoto set up and then the European Emissions Trading System and several other systems. To think that whether it would just magically appear is naïve.

 

So I mean, again, you know, from a qualitative perspective, it’s extraordinarily important. From a quantitative perspective, virtually meaningless at this juncture because the expectation was that infrastructure they were building up from 2003 or 2009 when Copenhagen fell apart, whether that infrastructure was going to go on to bigger and greater things with more demand and more supply and right now, it’s over-supplying a very, very small amount of supply and demand.

 

Greg Dalton: So the political process in transition markets contracting, not realizing expectations. But Mark Schapiro, let’s get you in here in terms of this moment where we are. How do you cover this very closely, how do you see the combination of the markets in a protocol dynamic right now?

 

Mark Schapiro: Well, first of all, it’s very interesting to hear Mr .Stuart ‘cause I know you’ve been in the middle of this market for quite sometime and I think that if you wanted to create a foreign aid program that actually helps for interesting kind of innovative new level projects in developing countries around the world, then, you might actually come up with the emissions reduction scheme like that that was invented at the United Nations to deal with emission offset which is really what we’re talking about, that buying and selling of emission offsets in different parts of the world.

 

The question that was decided in 1997, essentially by US – very heavy US pressure three years in court before we pulled out from Kyoto but essentially it was a Clinton and Gore who basically pushed through the market approach and the rest of the world somewhat begrudgingly went along with it and then we are left with what became known as cap and trade market. And of course in 2001, a bunch pulled out so the rest of the world is left to execute this program.

 

So the question is, this is the program that was the world decided upon to pursue to reduce emissions so it’s a legitimate question to ask how effective it’s been at reducing emissions. I think it’s interesting what the Mark says in that, it actually has had an effect of steering money from the developed world to the developing world to places that they’d never would have gone before. And if you like that idea which actually probably many of us do, I mean that’s – that’s kind of a nice idea. But if you’re actually hoping to get emission reductions, I think there have been repeated demonstrations that the market has failed significantly at getting the reductions. It’s an economic transaction – it’s the world – the precious resources that we have is the world obtaining the emission reductions that they’re paying for. And I think basically the answer to that is for the most part, no.

 

Greg Dalton: Tom Heller, you agree?

 

Tom Heller: Yeah. Partly and partly not. And since I was part of that pressure in 1997 –

 

Greg Dalton: Oh, okay.

 

Tom Heller: I was there. This issue is to be taken in light of a very strong mea culpa. But markets are complex things and – and we have to think about what they’re doing and Mark can certainly elaborate on this. But the idea of a market was basically to set a price on carbon which everybody thinks is necessary. You can do it through a tax, you can do it through a market and what you do is by putting a cap on the amount of any commodity that’s allowed to be in play. You make it scarcer. Now, it’s an artificial market because it’s established by government decrees, not simply sugar market, although most markets have a lot of mix of regulation and other behavior, and with an artificial market, it becomes really important that the quality of the regulator, like any financial market be very high, and I’m going to leave that to Mark to talk about.

 

But I want to say the following. The market that was created was a market that is primarily functioned within Europe, and we tried to create a market here in the United States, and many of you remember, and it failed badly in our -- in our own political system. And so the principal market we really have to look at to gain experience is the European market called the European Trading System, and it’s a nicely designed system. A cap is on there, and every year, that cap gets tighter by 1.74 % all the way out to 2050, when there would only be 20% of current – of 1990 revo-European emissions left within the European system.

 

Now, there was an addendum to that which is what we are talking about a moment ago which is to say, well, maybe you can bring some assets in from the outside, it’s not just a market within Europe, and that has been a real problem and I’m going to not elaborate on that at the moment and let my colleagues do so. But I think the interesting thing is that the bulk of the market was always within Europe. And the really interesting question is: Why had that, which had prices as high as what – 28 euros not very long ago -- $35 depending on the exchange rate was – now collapsed, it was down as low as six or seven euros, it’s now up to 9 or so? And these – these funny CVM or trading between Europe and developing countries in effect, traded with somewhat of a discount to that because people are not sure that it will have the same quality. But the most interesting thing has been the real price decline in Europe, and that one, I’ll just say or suggest to you, has a couple of important reasons behind it, a lot has to do with other policies the Europeans have put into play. So, for example, they have required that there be 20% renewables energy activities in each country of the European Union.

 

Now, that of course means that they’re going to reduce emissions by increasing the effect of renewables. They are now struggling right in the – in the European Parliament with another decree that would require them to have mandatory energy efficiency. But you can see that if you do things through other policies, the amount you need to demand within the market is going to go down because you’re going to have fewer emissions. And the price has come down enormously. It could drop to zero. But it doesn’t mean that Europe is not reducing its emissions. It might be if they’re putting in what could be arguable phony assets but if they’re reducing their emissions through other policies, even though the market price may go to zero. They may still be meeting their emissions targets.

 

Now they are – they’re meeting their targets in part because their economy is as bad as ours and when you have a bad economy, emissions go down. But these other things are operating too. So we have to be careful to think about the instruments, what it’s supposed to do, whether it’s – and why it may be working or prices show up in different places, and then we can easily come back to this other source of supply which is what’s getting done in China, or what’s getting done in South Africa, that the Europeans may be allowed to count as if they were doing it in Europe if they pay for it.

 

Greg Dalton: Tom Heller is the Executive Director of The Climate Policy Initiative. We’re talking about carbon trading at Climate One. Marc Stuart, Tom Heller mentioned that the system was well-designed. But do you think it might be have been designed to be gamed?

 

Marc Stuart: I’m not quite sure I would agree with that. You know, I think the European Emissions Trading System was well-designed and I think you know, the notion of using or abusing the developing world and the tremendous emission efficiencies are available out there is a noble cause. I mean the reality is just that, you know, when we – when we signed Kyoto at the time, you know, China’s emissions were approximately what – 40, 50% of the United States’ and as of the year and a half or two years ago, they passed the US is overseeing.

 

There are clearly, clearly substantial opportunities from a global perspective to produce a emissions in these places, of very strong emissions growth and of – and of great opportunities. So, you know, to leave those alone, I think it’s also somewhat full-hearted. I think we had that – we have to find ways to do both and I’m not – not disagreeing with you, Tom, but I’m saying that, you know, where I would see the real issue right now is not in – not in the European system but in the fact that you know, first of all, as you mentioned, it’s all about supply and demand. When the United States pulled out of Kyoto and Canada functionally pulled out of Kyoto and when Australia pulled out of Kyoto, we pulled approximately a billion tons –

 

Greg Dalton: Japan has now pulled out.

 

Marc Stuart: Japan – but Japan pulled out a lot. Japan did a lot as well but even prior during the Kyoto period, you know, that brought about a billion tons of demand for emissions mitigation out of the market. Okay, from the perspective, you know, which meant that, you know, there was a much lower need for those emission reduction potential that was out there in the developing world so if the over-supplies we talked about before was focused into Europe and to a lesser extent into Japan. What would the world look like had the Kyoto System and the targets that were agreed in Kyoto come into play?

Difficult to say but I would say that you would have a much, you’d have a more robust pricing signal globally than we do right now.

Greg Dalton: Mark Schapiro, you want your opinion?

 

Mark Schapiro: Yeah. I just wanted to make a point here. Let’s not – just not – to not lose sense of what ultimately we’re talking about is applying a price to carbon. So basically, the – what – we’re trying to apply a price to carbon, what does that mean? That means that the amount of money that we now spend on our fossil fuel generated energy does not reflect anything close to the actual cost of that energy. That’s essentially what this whole apparatus is all about. That’s what the Kyoto was about it, that’s what the Durban was about, that was what every negotiations about how do you apply a price to carbon?

So there has been a – the markets were one approach of trying to apply a price to carbon and – and it has had the effects that we’ve discussed to you very briefly. And that the fundamental question is how do you apply a price that reflects the actual cost of energy? It’s actually – I’m thinking about this – as I wrote a very critical story about the, you know, workings of the – of the club in market and really what –

 

Greg Dalton: Are you getting the cover story in Harpers called Conning the Climate?

 

Mark Schapiro: Yeah, the headline tells you the story. And – but then, three months or four months ago, I actually wrote a piece in the Atlantic which was actually about the renaissance of the United States to actually join a carbon trading system when it comes to the emissions of aviation – of airplanes because the European Union has a whole new policy to require that airplanes pay for their emissions with emission credits with emission allowances which essentially introduces aviation into the carbon market.

And whenever you think about the carbon markets and their effectiveness, the basic principle that airplanes – that airlines should pay for the emissions that they’re releasing directly into the atmosphere is a very important fundamental principle. And so that principle kind of – in this case – that’s how you find as a journalist anyway that you can look at the markets in one way and look at it in another way, and actually talking about the extreme renaissance of the United States in engaging with international system designed to create a design to put a price on carbon that actually reflects its actual cost. And I think more and more across the world now, what you’re seeing without an agreement, without a – without a successor to Kyoto, what you’re saying is very diverse approaches to this question of how we apply a price to carbon.

 

Greg Dalton: So it’s opening game but’s that the European airline thing. This is really interesting as US carriers on one side are saying, “No, we will not going to tax our planes coming in to Europe.” European carriers say –

 

Mark Schapiro: Right.

 

Greg Dalton: “Hey, we’re already living with this system –“

 

Mark Schapiro: Yes, right.

 

Greg Dalton: “… within Europe, that’s fine with us. We want to be level playing field with the US carriers as lots of environmentalists and governments lined up with the European carriers.” Mark or Tom, do you have some thoughts on that?

 

Tom Heller: It’s interesting. US as all the developing countries including China were in firm alliance with them, threatening to sue the Europeans just as we threatened to sue the Chinese for subsidizing solar power, it’s a carbon trade dispute – it’s a trade war – 16 minutes

 

Greg Dalton: Okay.

 

Tom Heller: Yeah.

 

Tom Heller: In effect – and I mean – I agree very much with what you just said. We thought we were going to do this at the international level. Before we had want to have a global cap at the beginning, we thought we are going to divide up the amount of carbon in the world country by country. Each country was going to get each one in cap and when you added all the caps together, you would get the global cap and that’s exactly where Mark was suggesting that the demand was going to come from. And gradually, these negotiations that had magically given out here’s how much you can do, China, here’s how much you can do or how much – it’s not – to start the game rolling, to start the training system rolling, these – there were going to be constrictions overtime until we got to the proper price on carbon which is much higher than the price that anybody initially suggested, which was determined by the quantities that were being allowed.

 

Now, that broke down, and it broke down much earlier in Copenhagen. It was not going to happen because no one could agree on these assignments that is to say who got what percentage of the emissions permits that were out there because these are valuable assets. They’re just like a bond or any other financial asset. If you hold them, you are richer, if you need them, you are poorer because you have to go out and buy them. So the international system, I think, in all of its complexity, which was whatever economist wondered because this was a global good and everybody participated in it, textbook case of what you were supposed to do, I think was really on a bad track well before Copenhagen occurred. Copenhagen was perhaps the engine running off the edge on this agreement.

 

Now that’s not to say that things don’t happen nationally. And at the national level, a great deal may be involving markets. Okay? It may be the way things are done. What’s most interesting to me about the European market is that they designed it way into the future so that if you were someone like a paper mill or a concrete factory, or an airline, as long as they were covered by this, and you thought about your future, you said, well I’m not sure I really need these permits now because my emissions aren’t that high. But I can see that in the future, I’m going to need a lot when they start to get more expensive as the supply constricts, you would go out and buy them. And you would buy them to store them or to trade them if you wanted to.

 

And the interesting thing is why has the price come so low when the market is actually structured way out into the future, to 2050? Why aren’t people buying to store them oove the hedge and that may be the most interesting question itself there right now because what it implies and seems to imply is that many of the investors in the market will need this. Don’t believe that the targets will be credible. Okay? There’s a loss of credibility in the political future of that constriction which is an extremely interesting question. At the same time, Australia now has a market. There are experiments with markets going on in China. There are –I don’t think markets are going away because they are a good way of establishing a price. I don’t think it’s how a lot has happened that has happened that we don’t notice yet and we can talk about that but again, markets must be well-regulated where you get some of the kinds of problems that Mark pointed to in his article.

 

Greg Dalton: Marc Stuart, do you want to get in this?

 

Marc Stuart: Yeah. Just – just a couple of comments. You know, in regards to, you know, what we did over these number of years, you know, my company alone interfaced for several hundred projects around the world in China and India, South Africa, Brazil, Mexico, et cetera. And we were you know, working with – with firms, they were looking at the ways to mitigate emissions, and it was a very obscure thing they had to do. They had to go through this whole documentation process of what they were doing on their landfill or their wind energy project or their building efficiency project wherever it was. Put it through a regulatory process in Bond, Germany, okay, which they have never even heard of probably, and then work their way back so that that created commodity that would go in to this bizarre European market but they didn’t really understand anyway.

 

But what was happening – you have to take what was going on on the ground. People on the ground were doing things. They were building the wind projects, they were patching the landfill gaps, they were building the scrubbers on the back end of the – of the chlorofluorocarbon plants. Therefore maybe they were doing it. There was physical activity going on, now with the – with the sort of diminishment of this market, Tom is absolutely right. What you’d now have countries such as Thailand and Chile and China and India and South Africa looking to put together sort of alternative value mechanisms that can keep those businesses moving. They recognized that they’ve created good businesses, they are good for their country, they’re good for employment, good for local pollution, good for building added technology and capability but there’s no longer this ability to shove it through this obscure UN system in Bond. So you have the emergence of things like feed in tariffs in places like Thailand, and Indonesia, and Chile. You have depreciation systems going into play, depreciation allowances happening in various markets. You have an energy efficiency screen-based trading system going on in India right now. All of these things are replacing what occurred. Would we have gone to that point without this, you know, grand experiment which you know, is probably in many ways a failure, I doubt it. But without that sort of broader, you know, political will, and I would go a little bit further Tom would say that it was, you know, did the whole Kyoto process was doomed once it came to the point of the United States and China having to come together on a deal. With the idea that China and the US had, both agree in emissions number, that doomed it right. That’s 40 to 45% of the world’s emissions between two countries who are involved in a global geo-political fight on many, many different levels and this is just one of them.

 

Those two countries weren’t going to ever agree on anything along those two lines and therefore the idea of a global system was doomed. So, once you come to a recognition that the global system cannot happen in the current construct of the power transition that we are undergoing as a global society, you come to the point where national – where governments realize that there really are some benefits to pushing these types of projects whether it’s clean energy, whether it’s energy efficiency, whether it’s methane capture, whether it’s agricultural change, whether it’s land use protection. Whatever it may be, and these are happening in many different places. Indonesia is pushing the world on forestry management as is Brazil to a great extent. Once they come to realize – they say we have to do this domestically, you have a much more stable set of incentives that frankly, investors like myself and others can then invest in.

And that’s – the point is you can’t necessarily buy into a system when you look at it and say this only happens if the United States and China happened to agree on this. You can invest on something when you hear – you know, when you hear the Indonesian parliament say we’re going to do a feed-in tariff because we see the strategic advantages are diversifying our energy system.

 

Greg Dalton: So enlightened self-interested national action will create –

 

Marc Stuart: Absolutely.

 

Greg Dalton: …this framework for this to happen.

 

Mark Schapiro: And I think – I think that – I think that is largely what is happening and so you end up with this somewhat chaotic situation. I think the most amazing – the trade case that I’ve got in, if you had a chance to research, I work in the Center for Investigative Reporting which thankfully gives you time to get into these kinds of topics, non-profit journalism organization. And the one of the fascinating trade cases, you eluded to this, Mr. Heller, was for years, certainly starting in the late 90s coming out of chaotic United States was pushing China to essentially reduce its energy use and to promote more renewable energy sources. So a year and a half ago, this few workers have been trying to put their workers back to working green industries just like a 200-page portfolio outlining essentially how – how China had been subsidizing it’s – it’s solar and wind energy. It’s a fantastic document and everybody is interested in what’s going on in China and that later led to a – sent to the US TR which send/filed of the trade complaint against China for subsidizing its wind and solar energy.

 

So number one, the surrealism of that flip is – is pretty interesting when the United States puts a cutback on its own subsidies to wind and solar over several decades before that moment. And is testing is – which like gets you the trade work but also it tells you something about what the world’s leading emitter is putting its money into, its public money into which is kind of green renewable technology. So there’s a – it maybe worth people being aware of what China’s calculations are –

 

Greg Dalton: Let’s talk about that –

 

Marc Stuart: … sentimental about, you know –

 

Greg Dalton: What China’s calculations? They’re pumping a lot of public money into these technologies. Do they want to run away with these technology? Some people even suggested that in Copenhagen, China was stalling to get a little bit of a lead so they could get it further down on batteries and new technologies that the west owned in the 20th century, that they can own in the 21st century. Marc Stuart?

 

Marc Stuart: Well, I mean I think that you know, China’s indication in Durban that they were ultimately going to be willing to take on some sort of cap probably by 2020 or something like that, is clearly the signal the world’s been waiting for and a while for that. And you know, clearly, China is trading treasury bills for green technology as fast as it can right now. The hundred billion a year whatever it might be at this juncture that China has put into this market, whether it is in technology or project development. You know, you looked at – you know, I remember in the Bali conference in 2007, the head of the World Global Wind Energy Council said to me, I was on a buffet line with them he said, “I was just in China. You know, two years ago China didn’t really have a single wind fad, in two years, it will be the biggest in the world,” like I laughed at him and suggests China has the most markets when they put their mind to it, and they put their capitals to it, they take them over and that’s what happened in solar, that’s what happened in wind, absolutely right. But the point is, is that if you were China thinking strategically and you were sitting on an enormous number of treasury bills right now, would you be trying to trade those for productive assets? I would. You know I think it’s a pretty substantial risk to be sitting on US currency if you’re China right now and I think it’s a pretty – it’s – you know, it’s a very logical thing to do and if they start pushing the global market into – into, you know, a lower carbon future, they want to be a supplier into that. You and –

 

Greg Dalton: Tom Heller?

 

Tom Heller: I mean – yeah, I have pretty strong views on this and we have lots of people working in China so some exposure to the questions that you’re asking. And – and I think it’s a combination of several different things. One thing that we all know is it always depends on when you look, just figure out what you see. Okay? And if you’re looking for various types of carbon taxes or cap and trade systems whether it’s the international level or the national level, that’s not what you’re going to see. If you look in Brazil or if you look in China or if you look in Indonesia, you may see that in a few years for reasons that we can think about. What you see right now are very large amounts of money that are flowing out of the public sector, that is out of the government to give incentives. Sometimes they were set up in ways that are not consistent with the trade rules when they specifically subsidize exports. But the Chinese stopped that pretty quickly and now they are quite consistent with the trade rules and what they’re doing.

 

And they basically do the reverse of the cap and trade system. Right? Instead of putting a cap that puts a price on the stuff that produces carbon, they in effect give an incentive to do the stuff that doesn’t produce carbon. And this is what we see in very large amounts. Call it a subsidy if you want. I think it’s actually very hard to define in western terms whether the Chinese or the Brazilians are subsidizing because what we think of is a financial system where you’ve got a cost of capital established in markets by private institutions, private banks, private actors -- that’s never been the case in China. It’s not the case in Brazil either. You have a public system of banking that has always been used as a way of delivering finance for developmental purposes and this is flourishing but it’s not easily transparent to us in many ways because very often, the real subsidy is in the terms of the loan or the terms of the – or the nature of the grant that is given in a complimentary way. So, you have to start to unpack the way these systems do policy which is different than the way we do policy in – in our own countries.

 

Now having said that, the Chinese who have spent a great deal of money ended up spending it in the past five years principally to put new equipment that is much more efficient than the equipment they were using. And so it is much less energy which was largely coal-based, so it had much less carbon come out of it, and they did this in their top thousand companies that are owned by the central government, something we don’t have. And they paid for this, out in this very complex financial system that supplied the capital to do this. A totally different type of activity but what was it reflecting and then I’ll turn this fact open. I think it’d reflecting an understanding that for very specific reasons, is appearing first in the places we didn’t expect it to occur. I think that what is being grasped certainly in countries like Brazil and Indonesia, which are really resource suppliers if you think of them, and certainly in China which is the largest resource consumer in the world. They are looking at the fact that the price of resources is going up and it’s going to stay up. And when that happens, you’re going to have to readjust your production profiles, your investment profiles and they are anticipating the fact that this is going to be the trend of the next 20 years which is already upon us.

 

Why aren’t we doing that? Well, I’ll just suggest that we’re preoccupied. We’re preoccupied with the financial crisis that is more than a business cycle problem. That goes back to some of the assumptions we made about how financial markets worked that the Chinese and the Brazilians never fully bought into. And I think it has a lot to do with the shift of production from the west into east Asia. And so this clouds our vision because these are short-term problems and the resource productivity problem is a long-term problem but more – correct me – if we go back to when we thought about the carbon trading system. What was the price of oil? $10 ago, 1992, 1993 when it started? Where was all the capital in the world? In was in the west. What was happening? Europe was completing its market. The United States was triumphant over the Soviet Union.

 

Greg Dalton: Yup.

 

Tom Heller: China – India was bankrupt in 1990. China had not really started to grow. Ask yourself what the world we’re living in now compared to that and how likely is it that the ideas we came up with under those conditions are the ones that are likely to prevail under the world into which we’re moving.

 

Greg Dalton: Tom Heller is the Executive Director of The Climate Policy Initiative. Other guests today here at Climate One are Mark Schapiro, the Center for Investigative Reporting and Marc Stuart, a private equity investor. I’m Greg Dalton. Marc Stuart, let’s get you in on this quickly that wanted to mention. India, which we haven’t touched on yet and we’re going to go to audience questions in just a minute. So, you want to talk about what Tom just said there?

 

Marc Stuart: He’s – he’s – Tom is dead-on. I mean the reality is you know, when we saw the commodity price spikes of the sort of 2007-2008 range, you know, before the crash, you know, we had developing countries that were recognizing that they were extraordinarily vulnerable. I’m not even talking about China necessarily but you know, the ones that I had mentioned before. The Chiles, these Thailand’s of the world where all of a sudden, you know, when you’re subsidizing in energy flow, you know, it’s sort of the equivalent of 75 to 80 to your local people and all of a sudden, our oil is running 140 a barrel and you have a choice at that point of two things. One is you – you let – you take the subsidy off and you have revolution in the street, or two, you go broke. The choices are pretty, pretty stark at that point.

And so the idea of you – of you know, the vast majority of countries in other world cannot drill or dig their way to energy independence. They are very, very you know, energy chains are getting longer and longer around the world and there’s – and there’s far greater instability in main places we are getting energy from. So countries recognize that efficiency and you know, and the use of – of their own domestic resources which in many cases tend to be cleaner energy sources, are really vital to try to tap right now because it takes the top end of that of energy spike off. And that’s – you know, and that’s some level of – of domestic security that many countries are willing to pay for today in order to take the risk away from later.

 

Greg Dalton: Let’s touch on India then we’re going to put the microphone up here and invite you to come participate with a brief question or a comment. One – one part question or comment. If you need some help keeping it short, I’m here for you. And if you’re on this side of the room I invite you to please go through that other door and not across this camera line, and the line starts with Jan, our producer, are there in green. And while we get that going, please – you are welcome to participate.

Let’s talk about India. A lot of people say this problem can’t be solved without really China and India. We talked a fair amount about China. Let’s tackle India. What’s happening there? Marc Stuart?

 

Marc Stuart: Fairly – fairly substantially good policies around solar other renewables in efficiency. Fairly – you know, fairly progressive across the board now going through a substantial growth but still on a per capita basis and India’s emissions are still a fraction of China’s which are a fraction of us. So they have a long way to go before – before I think they’re really making a substantial impact on the global atmosphere.

 

Greg Dalton: Mark Schapiro.

 

Mark Schapiro: I would question your – I mean – and I think you two gentleman know a lot more about the specifics in India than I do but I think there is a question here to be focusing on China and India and other countries when in fact it’s our own country that has actually falling rapidly behind the rest of the world when it comes to these questions. So for example, it was in the scene that you see that China coming out of Durban, it was – very little happen in Durban -- one of the things that China came out saying was that we are not even going to think about compulsory targets until the United States imposes compulsory charges, which was an extraordinary turn of events given that the argument for withdrawing from Kyoto ten years ago was essential because the Chinese wouldn’t sign out, we wouldn’t sign out.

 

Now, at least rhetorically speaking the Chinese are going to be flip in the argument. So there are enormous changes in the world now and I think it’s a – for us to be thinking about what was happening in India, China, and Brazil, it’s of course roaring very powerful force on the international stage and the question is now we are in the United States, the largest economy in the world, why is this country – and I was looking actually at a survey by the global legislators for a bounced environments or something -- a group of kind of international legislators on environment, and they registered kind of the initiatives at a global level. The United States, at least in terms of policies, is falling rapidly behind many other countries around the world, many developing countries.

 

So the questions is, number one, what are they doing that we’re not? Why is China initiating these programs for renewable energy et cetera, at cetera? If you look at the EU’s plan flawed – as it deeply flawed the ETS system is, if you took that independent of climate change but you look at the – you know, the economic planning that’s going on in the European Union, independent of climate change, you would find a major economy in the world making an enormous bet on renewable energy in the future. A huge factor of its political and economic system.

So –

 

Greg Dalton: And we’re not making this question of a bet here.

 

Mark Schapiro: Right. So the question why we’re not making that bet here? Just to keep that in.

 

Greg Dalton: Tom Heller, briefly and then we’ll go to our questions.

 

Tom Heller: Yeah, very – just two very brief points and people can – can bring them up. Mark raised the question here why they are not where we expected it ‘cause we were supposed to go first. And I think the answer has a lot to do with the growth of the economy and where economies are growing. Because where economies are growing, therefore your government received you’re growing. And when government received you’re growing, it means that every year, there are moneys available to the government that are not already allocated into somebody’s budget. And those moneys are what are driving these subsidies and these financial changes. If you want to change anything in the United States given our situation, you must take money away from somebody’s budget to put into a new budget and that turns out to be politically the hardest thing I can imagine.

 

One point about India, very quickly. Points properly made about the energy system but I – I think it really helps and it took me a long time to see that the climate problem is not kind of an isolated environmental problem. It’s about two things. It’s about how we produce food and how we produce fuel. Okay? And it’s about the productivity you get for the resources that you put into food and fuel. So India, I think will ultimately become a very important country because if you brought the level of agricultural production in India, only up to what China has, you would create enough food that would deal with a lot of the food security problem and take tremendous pressure of the farce that are being cut down for more agricultural production.

 

Greg Dalton: Let’s have our first audience question. Yes, please? Welcome.

 

Greg Dalton: Yeah.

 

Female Speaker: Okay. I was on the Climate negotiating team during the Clinton-Gore administration. This has been a superb panel in terms of your insights on the evolution of the global system for the last 20 years in that climate treaty regime. Could you please comment on what you see not just at the evolution of the past but what you expect to happen going forward in the UN system or any other international scheme for limiting global greenhouse gas emergence?

 

Greg Dalton: Quick look into the crystal ball and then we’ll get to our next audience question. Who wants to take that first? Mark Schapiro?

 

Mark Schapiro: I think – I think one, you’re going to have more – I think one think you have centripetal force emerging. So you have actually much more like what you’re talking about earlier, much more initiatives happening on independent natural levels and at the same time, what may end up happening because of that that you may end up with more and more trade tensions which is already happening in the aviation industry and—and as you get this kind of disharmonious international system, you’re probably going to have more international tensions around.

 

Greg Dalton: Perhaps more involvement of the world trade organization?

 

Mark Schapiro: Possibly.

 

Greg Dalton: Anyone else quickly before we go to the next? Marc Stuart?

 

Marc Stuart: I’m fairly skeptical over the UN’s role over the coming next – you know, say, next half decade or more. Maybe – maybe once you start seeing some of these domestic system start to take effect and you start seeing a really, you know, bottom up carbon pricing coming from these various different policy initiatives there occurring, then maybe some sort of coordinating role or you know, right now, there’s really a need for some information provision around. What policies are working, where and where they can be replicated efficiently in the other markets? I think that there might be a role for UN and something like that to be a repository of you know, an information sharing type of thing. But I think in terms of being a regulatory construct, I don’t see it for – for the foreseeable future.

 

Greg Dalton: Yes, sir. Next question please?

 

Kyle Gracie: My name is Kyle Gracie from the Global Footprint Network and I guess building on that question, the other challenge is Rio and having been at the climate negotiation and also going to Rio, I’m curious what progress, if any, you think, could come out of Rio on climate issues whether that’s fossil fuel subsidies or nothing?

 

Greg Dalton: Tom Heller, what’s going to happen in the end?

 

Tom Heller: You know, nobody wants to be the bearer of unwanted news. Nothing significant will come. A lot of talk which usually is the inverse of substance and the – there will be a lot of targets hit, extensions of things that were done in the past, it might be a little bit on water, some – some new pledges there. But I think on the – on the climate issues where this is going to be a very tough year, going forward to Qatar because developing countries having realized that the emerging markets have said that they will consider some sort of coordinating targets in 2015 that will be implemented in 2020 are now going to say, “Well, you guys haven’t delivered on what you promised in the first place.” So this is going to be a year that’s very testy.

But I would say over the next few years, you will see a shift in the alignment of climate. Not at Rio. In which what you will – what you will see is more coordinated behavior, not taking fixed targets as – as Mark was suggesting earlier – but coordinated behavior among the emerging market countries and the top tier developing countries, and the developed countries, but more on the lines of kind of coordinated pledging and financing and multiple agreements. And I think by 2020 when the Durban mandate is supposed to take effect, we’re going to be living in a world that we will have recognized.

 

Greg Dalton: Marc Stuart, anything that will happen in Rio?

 

Marc Stuart: No. The reality is anybody who’s ever been to one of these meetings is that you know, the climate meetings alone are a complete circus. The ones that cover all the entire sustainable development, you know, Rio, Johannesburg, Rio, are – you know, it’s – it’s – it’s the circus where they’re cubed at that point. And really, you know, the reality is that you know, 15 countries deal with 85 – are 85% of the world’s emissions. Okay, and you know, ultimately, it’s those conversations among those countries that truly matter and you know, the UN process and the process that brings in lots of frankly extraneous opinions frankly, you know, when – when the country of Tuvalu can shut down Copenhagen for two days over a point of order, you know, when 0:51:26.6 seriously, this happened, okay.

Tuvalu shut down all the negotiations for two days. Okay. So you know, reality is this – that this is, you know, it’s a good place for information sharing, for people to make, you know, grand statements, things like that but in terms of real negotiations around the kind of thing Tom was about the kind of collaboration that’s really possible, fairly meaningless. 4:30 minutes

How many people are going to Rio? The audience?

 

Greg Dalton: Yes, sir. Next audience question, please.

 

Dick Henry: Yes. My name is Dick Henry, I’m the executive director of the Jordan Institute which is a small amount in profit. Actually looking on trying to implement solutions. And one of the things I wanted to ask you in ’97, when we started this whole process, we had sort of one level of understanding of what climate change was actually going to happen. Now, you know, 25 years later, we know it’s a whole lot worse than we thought in ’97 and the amount of methane hydrates in the permafrost in Siberia and Northern Canada, not to mention the oceans, some people are saying what do we have, 10, 15, 20 years before five times the level of carbon dioxide in the atmosphere equivalence is going to be the least and then it’s game over.

 

And what – you know, we have to be implementing on an absolute reduction basis and not on a sort of –

 

Greg Dalton: With your question, you know, why –

 

Dick Henry: The question is what do you see that we can do to express the urgency and actually get people doing something rather than talking about how they might make it happen?

 

Greg Dalton: We had a lot of conversations here. The scientists are very concerned –

 

Mark Schapiro:  I mean, what – this is a – there’s actually something, the flipside of that. This is an enormous question and the notion that nothing’s happening, I don’t think its correct. I think that there’s an enormous amount happening at different levels all over the world. You know, one thing you’ll have real is probably quite a few entrepreneurial types you’re trying to get in and make some money out of like some green technology.

There’s an enormous amount of energy that his happening. So the notion that nothing’s happening, to begin with, is not really the – the case. What you can do is keep – keep – and also I think there has been a deep – you know –

 

Male Speaker: But it’s not fast enough.

 

Mark Schapiro: Not fast enough. Yeah, but you know, there’s no magic to both. This guy’s been in the middle of diplomacy, Mark’s been in the middle of the markets, I’m from the outside looking at all this, it’s – it’s – it’s – it’s a – it’s a – it’s a complex and – I mean, it’s unpredictable.

 

Greg Dalton: Marc Stuart.

 

Marc Stuart: Markets can move fast, capital can move quickly. I mean, the things is – when we look at what is going on in the good side of stuff, it’s quite remarkable. And you know, in 1997 we’re putting up maybe a 2000 megawatts of wind a year globally. In the last couple of years, it had been doing 40,000 and growing, commentary you see solars doing the same thing, you see, you know, the capabilities of batteries, of electrification, all of these are happening. Okay. It’s happening very well and capital is as cheap as it’s ever been right now. So you look at the technology trajectory in terms of price, you look at the capabilities of firms to put things into place, you look at the cost of capital, it’s going well.

What you need to do is push every policy lever you can around the world to have – create more and more capability to do this stuff and whether that’s in China, in Schezuan, or in Russia or in the US, whatever it may be, it’s a diversified issue right now and that’s the only thing that can be done because you know, complaining about the world’s system not – you know, not getting there is kind of a waste to your breathe.

 

Greg Dalton: We got – we got nine minutes, so let’s quickly and then –

 

Marc Stuart: Just real quickly. I mean we’re on – we’re on a path to somewhere between 650 and 750. Right now, the goal is some people think 350 but the official goal is – is 450. My sense is that – that where we are is if we did everything right on – on the way we’re heading, we probably could just stabilize at 550 or so. Three – three and a half degrees.

If – if you have serious non-linear effects of the type – you know, these cataclysmic effects that are there over the next 10 to 15 years, there’s nothing we can do about except to live or do something else.

 

[laughter]

 

Marc Stuart: There are people who want to shoot ions to the atmosphere and walk out the sun. There are ideas out there.

 

Greg Dalton: We’re talking about climate change at Climate One with Tom Heller from the Climate Policy Initiative, Mark Schapiro from the Center for Investigative Reporting, and Marc Stuart, a private equity investor. Let’s have our next audience question.

 

Audience Member: So might have just answered that. But as – as individuals who are trapped in this sort of slow-moving and somewhat bleak tragedy of the commons and aren’t necessarily involved in our day-to-day work in this, is there anything we can do? Should we be writing checks non-profits or writing to congressmen or –

 

Greg Dalton: First I want to ask you. What meaningful personal action can – can happen?

 

Mark Schapiro: I am the journalist. You know – you know, I think you can educate yourself and educate other people and if you go and to comprehend – look, you know, right now, and I’m looking pretty deeply at the – at – climate change is still considered by most people to be a very abstract idea. And it’s actually happening in 10, 20, 30 years down the line. It’s kind of rolling out the slow motion and hot – and I think really hot in 20 years, whereas in fact now, right now people are living with the consequence of climate change. So, you know, I mean I had been going up and down the state, dealing with the effect of climate change on agriculture. The State of California is actually going through very profound challenges when it comes to the growing capacity for food in the state, the “bread basket” of the country.

And these are people who – what’s interesting is that farmers are very conservative parts -- participate don’t like the term “climate change” but everything that they’re going through right now, almost by the book, is exactly what the scientists say climate change are doing to the agricultural areas of this state. And the same thing applies in the United States nationally. So as we begin to comprehend that this notion of climate change is not to the abstract idea but it’s actually being experienced right now in ways – in ways that – that that can be told, is I think an important part of this process.

 

Tom Heller: I’ll give you – I’ll give you a real quick answer in my part by just quoting you know, a major American model philosopher, Spike Lee. “Do the right thing.” Alright? Do the right thing. Do cut down – cut down your – be conscious of your own energy use. Write to your congressman, go out and protest and – and you know, support education in the United States. Don’t believe in self-help. I – I – do the right thing.

[laughter]

 

Mark Schapiro: That’s what we could do.

 

Marc Stuart: I think it’s telling the –

 

Greg Dalton: Marc Stuart.

 

Marc Stuart: … we’re 20 years in – into the – you know, the idea of a low-carbon world since the first Rio conference and there is no low-carbon business icon. There is no Google of low carbon. There is no Facebook, no Apple, no – you know, then we’ve have huge companies created around many different areas and there is not one of those and that’s – where is the company that’s going to achieve logarithmic growth over sustainable period of time delivering low-carbon solutions? And that’s, I think, you know, you know, one thing, you know, that would be find that company, be that company.

 

Greg Dalton: The one that comes to my mind –

 

Marc Stuart: Invest in that company.

 

Greg Dalton: The one that comes to my mind is Suntec from China. Yeah. Okay, next audience question, please.

 

Audience Member: Yes. Reverend Candy Jr.[ph] spoke here before and spoke about the inability for alternative energy users to sell energy back to the grid or to the lack of infrastructure to make the most use of those alternative energies and – I don’t know, he used the numbers that I can’t really figure out but can you talk a bit about that and maybe touch on the earlier – but –

 

Greg Dalton: Selling back into the grid?

 

Audience Member: Yeah. Is that something that you see happening soon? What’s keeping that from happening?

 

[crosstalk]

 

Tom Heller: Its is happening. I’ll say something about that. We’ve got this global scale problem that we’ve been talking about and then when you go to try and change something, what you run into are masses of local stuff that steep under the hood. It’s really quite technical so the way in which we price electricity in the United States causes different prices for what you’re drawing from the grid as to what if you have a solar operation in your house or something else, you pay back into the grid. Because the regulatory system we have fits the technology that it grew up with. And part of the reason why things are slow, is that historically, even for the Googles of this world, you had the huge government investments being made in the 1960s, in the ARPANET and structures that 30 years later began to produce them. We haven’t had that in the appropriate level, in the appropriate way with – with climate.

It’s not to say it can’t move more quickly but when you start to move, you run into a whole series of deep regulatory structures and that’s just true in China as it is here. And you have to fight them one by one.

 

Greg Dalton: Next audience question. Yes, sir?

 

Male Speaker: I am [unclear],I am a student at Stanford right now and my question is you spoke about some of the changing mistrust dynamics like the price oil and how that was different 20 years ago and maybe you – how that’s providing and incentive for renewable development in developing countries. So I’m curious if you could talk about just how possibly some of the new developments in fossil technologies like the Shell gas boom in the US and the coming Shell gas boom potentially in China might affect that from it.

 

Greg Dalton: Marc Stuart, you talked about whether, you know, gas becomes a global commodity?

 

Marc Stuart: I think it’s a – it’s a really fascinating question. We talked about you know, US, you know, putting aside leadership in many low-carbon technologies. Well, I don’t understand all the implications of fracking and I’m not sure too many people do right now but if the fracking revolution around gas turns out to be what it looks like here and other parts of the world, we may have found that bridge fuel that we are looking for, you know, much faster than we thought was possible. I mean, the idea that the US would be self-sufficient in gas let alone what should be probably an exporter of gas if the gas could -- if the Shell gas companies had their way, is you know, a remarkable shift. So, I think you know, the – you know, ultimately, one thing that the US would – I think that Shell gas companies here in the US would like to do is to be able to export what they’re doing as opposed to paying gain $2 in MMBTU -- probably getting six or seven at the global market which would ultimately be better for renewables here because right now, I can’t do wind projects in Texas because gas is $2 in MMBTU.

 

So you know, there’s – it’s a very fascinating dynamic, it’s probably – I have one minute I don’t think I can go into that but it’s a really, really interesting question particularly around gas as opposed to alternative oil.

Tom Heller:  Sir, if I could make a real quick comment on that. We’ve all been focused for a long time on the supply side when we think about these resources. Take your eyes away from the supply side for a moment. What’s going on in the world is we have now about somewhere between 800 million and a billion consumers in Asia who have household incomes between 50 and 150. They’re not poor, they’re not rich like we are, but what they want is food and fuel. That numbers go into three billion over the next few years, okay? It’s the demand side that’s going to drive these prices. And that Shell is going to contribute to holding it down assuming that we don’t, you know, poison our water systems and I have no idea what the answer to that question is but it’s the demand side to focus on, the supply side problems are not as severe as some people think, and you’re not as constraining as others think.

 

Greg Dalton: We have to end it there. Our thanks to Tom Heller, executive director of The Climate Policy --