How energy reforms can slow global warming

This month marks the opening of a year-long marathon of meetings focused on slowing global warming. The starting gun sounded with the summit in Lima; late in 2015 the finish line appears when governments are expected to adopt new climate accords in Paris.

The hard truth of all this is that governments have been doing a terrible job with global warming. The last successful climate marathon was run in 1997 when governments adopted the Kyoto Protocol; since then emissions of the gases that cause warming have risen by one-third. Indeed, ever since the global warming topic hit the international agenda in the early 1990s, governments have proved more adept at attending meetings and filing reports than actually making a dent in the problem.

Gridlock on global warming comes from many quarters, but most important is that the problem is deeply embedded in national energy policy. The vast majority of emissions are intrinsically linked to the ways we use energy – fossil fuels in particular. Big changes in energy policy are politically difficult to adopt because they can gore the interests of powerful lobbies and because the cost of energy has a direct impact on national economic competitiveness – something governments are rightly keen to preserve and advance. That’s why, for all the hype about the road to Paris, the future of serious global warming policy depends less on this year’s marathon of meetings and a lot more on whether the world’s biggest emitters can reform their energy policies. Serious reform is a task that hinges on politics within, rather than between, nations.

A new report from the World Economic Forum and the consultancy company Accenture puts a focus on just how difficult serious energy policy reforms are to implement, while also offering some hope. The cleanest and richest countries, not surprisingly, are in Europe. These countries score well because they have invested massively in energy efficiency; and the top scorers are those, such as Norway and France, that depend massively on clean nuclear and hydro power. (See figure drawn from the report.)

The United States scores lower (its rank is #37) largely because its emissions are much higher, although that picture is now changing – in part because massive new supplies of gas are outcompeting coal in the electricity market, and the emissions from gas are about half those of coal. New regulations also play a part. The US is one of the top scorers in the section of the index that measures diversification and self-sufficiency of energy supply – a reminder that every index can be sliced and diced in different ways.

While the rankings are interesting, what matters for the future of the planet is how the emerging economies behave – in particular, seven big emerging countries, dominated by China, that together account for nearly half of all the world’s emissions and essentially all of the expected growth in emissions.

The bad news in this report is that nearly all the emerging economies lag far behind the advanced industrialized world in their energy intensity. That is, the amount of energy needed to create a given unit of economic output. The rich countries excel by this measure because they have adopted aggressive energy-efficiency policies that affect the numerator, while high-value services and light manufacturing boost the denominator. Switzerland, the report’s highest flier, is an ultra-rich banking and technology centre with an extremely efficient energy system dominated by clean hydroelectricity. Emerging economies, on the other hand, struggle with numerator and denominator alike.

The good news is that political leaders are getting a lot smarter in their efforts to adopt serious energy policy reforms. They know that reform has big winners, including the environment, but also many losers. And the keys to success lie with managing the losers while harnessing the winners into a politically strong coalition. Perhaps the best example of this smart reform strategy is on display in Mexico, where the government is using reforms in the energy sector to bring in foreign investment and lower energy prices, and shift the country on to a new path that will see lower consumption of energy, cleaner fuels like natural gas and a big boost in economic growth: all of which will add up to big cuts in energy intensity.

Smart reformers have also learned that success depends on broader reforms in a country’s economic institutions. For example, in Mexico it hasn’t been possible to reform the energy sector until other reforms in the nation’s tax code were in place, so that the government would be less dependent on energy production (in particular from the state oil company Pemex) to make the books balance. The new Forum report makes it clear that most of the successful reformers are countries that also have high-quality national institutions for governance. (China is an interesting exception: a country that scores poorly on most Western indexes for governance yet has done perhaps more than any other nation in recent years to boost energy efficiency and clean up supply. Visitors to China, who have seen the air, know that the country still has more to do.)

Until the global financial crisis, this linkage between national economic institutions and energy reforms was a virtuous cycle.  Economic growth led to better institutions (and vice-versa) and that, in turn, made reforms easier to adopt. The persistent slowdown in the global economy has created a trap with the opposite effect—economic malaise forces countries to turn inward and makes for nastier politics of reform. Energy exporters such as Mexico offer some of the few cases of successful reform during the global slowdown because, frankly, they have no other choice. Mexico’s oil output is dwindling and the oil price has plummeted—all of which means financial bloodshed for the state oil company and the government unless they change business as usual.

This way of thinking about the world – in which the emissions from energy systems depend first and foremost on national policies rather than intergovernmental diplomatic marathons – puts a spotlight on what to watch as the Paris deadline approaches. If big countries adopt energy reforms, then the rampant rise in global emissions will slow and reverse. China, the world’s biggest emitter and the most pivotal player for success in Paris, is doing just that. Indonesia is making progress, while also making huge progress in emissions from its forestry sector (an area where Brazil has improved markedly).

India and Russia are notably outliers, and all eyes should be on how those countries can make progress – and also on where outsiders can help with ideas and technical assistance. For India, the new technocratic government led by Narendra Modi is already pointed in this direction, and the West can help with proper expectations. India’s reforms will boost efficiency, but they will also boost the consumption of coal because the country’s vast population needs to keep the lights on. For decades, India has been an irredentist and thus a usually uncooperative force in global diplomacy. More flexible partnerships and agreements with that country can help focus on practical action that contributes to the Paris objectives rather than endless United Nations debates on who’s to blame for the many inequalities in the global economic system.

Russia could become the most surprising reformer, thanks to lower oil and gas prices that will force the government to embrace the reality that reform is long overdue. Outsiders can help with a productive discussion on that topic – including a relaxation of some sanctions related to energy efficiency technologies. As the Russian balance sheet bleeds red, Putin could react spasmodically with more harmful adventures such as the crisis he has brewed in eastern Ukraine, or there could be an opening to the West. Which path is followed depends as much on the West as it does on Putin’s own unpredictable mind.

When you add all this up, the prospects for movement on energy are bright in the coming years. And as reforming ideas spread and energy systems become cleaner and more efficient, the prospects for slowing global warming look brighter now than they have been in decades.

The Global Energy Architecture Performance Index 2015 was published this week.

Author: David G Victor is Professor of International Relations at University of California San Diego and author of Global Warming Gridlock: New Strategies for Protecting the Planet. He chairs the World Economic Forum’s Global Agenda Council on Governance for Sustainability. 

Image: Early morning smog hangs over Cape Town, the product of smoke and fumes from fires, factories and automobiles, August 3, 2003. REUTERS/Mike Hutchings