Copenhagen’s Eleventh Hour
The Copenhagen climate talks are set to wind down tomorrow and the countries seem as divided as at the start of the summit almost two weeks ago, suggesting that any compromise will defer the difficult decisions till next year. As Kavitha Cherian and I pointed out about a week and a half ago in Economics of Climate change the key debate is over who will finance the transition to the lower carbon economy, and who will monitor emissions reductions and climate change mitigation policies.
Although country groupings have splintered and discussions this week have been stalled by the G77 walkout, the political will to deliver a deal remains and some late proposals are entering the debate. President Obama will arrive tomorrow for the final day and some compromises are starting to circulate (on the U.S. joining a climate finance fund, on forests and an overall target), but a binding comprehensive deal seems out of reach.
Yet, despite these road blocks, it’s worth pointing out that 2009 is a year in which government investment in renewable energy and energy efficiency programs increased due to green stimulus projects. Although the jury is still out on these projects in terms of their ability to promote jobs, reduce emissions and use less energy, investment in clean technology should pay dividends. Linking public and private funds and providing a clearer regulatory environment in the sector will be key. I spoke more about some of these developments on CNBC Asia this morning.
No Responses to “Copenhagen’s Eleventh Hour”
Note in particular the following lines from Copenhagen: “…a panel of experts should be given just six months to examine more reliable and “innovative” funding methods such as new fuel taxes on shipping and aviation, the sale of carbon credits, a new “Tobin tax” on financial transactions, or the use of IMF assets.”Whichever way the official “spin” is likely to go, the policy action(s) would sooner or later involve an additional (substantial) “tax” on the productive capacities of the major economies around the world.This is what could happen: Many governments (especially those facing possible electoral backlashes in the midst of general elections) would be resorting to fiscal subsidies (which widens budget deficits further) and/or far more relaxed stances of monetary policies than is warranted (which would heighten inflationary expectations, although the actual “inflation” threat may be far more muted).Here are the implications for markets:First, the road ahead for equities could become an even more bumpy one because risk aversions (as at the present calendar-yearend period) could rise sharply and then fall back just as suddenly before rising yet again in an irregular oscillating fashion. This could make short-term technical charts more problematic for the trader/investor.Second, the cross currents of very expansionary US fiscal policiy and laxed monetary policies, set against others like Norway and Australia that are likely to continue withdrawing monetary stimulus through interest rate hikes (together with some limited fiscal policy tightening to limit the creation of new public debt) makes for a substantial weakening in the USD (against the NOK and AUD ahead) possible. Thus, despite the current risk-aversion-induced strengthening of the USD against the other major currencies (including the NOK and AUD), the USD is likely to weaken against all other major currencies for a while yet.Third, the outlook for bonds,(especially US Treasury bonds) is indeterminate ahead, given these countervailing influences.mf1660