Climate conferences and the just transition — a slow, messy and painful process (Part 2)

21 Jan 2024

Global transitions to net zero are going to be messy and difficult and will produce losers unless there is vigilance in navigating competing national interests and an increasingly tricky climate-diplomacy terrain.

This is Part Two of a two-part article. Read Part One here

‘Solution aversion… if we don’t like a proposed solution to a problem, we use motivated reasoning to deny that the problem exists in the first place” – Misbelief, Dan Ariely

As I wrote in Part One of this two-part article, a common flawed assumption by Western activists – and on many occasions they have unsophisticated ventriloquists in the South – is that transitions are happening on economically level playing fields. They are not.

The second unacknowledged assumption is that without an honest and judicious state, transitions will invite unscrupulous characters and bad faith downstream within the transition-technology value chain.

Today’s miner of one thing is tomorrow’s miner of the more “angelic” stuff. For example, go to Pilbara in Australia to meet that country’s “Iron Lady”, Gina Rinehart (a moniker earned on the back of her father, Lang Hancock, who owned Australia’s largest iron ore deposits).

Rinehart is not giving up on iron, but is savvy to the fact that critical minerals is where all the new money lies.

The Iron Lady herself is involved in seeking to control the next big thing: Lithium from spodumene mines. Rinehart’s Hancock Prospecting and Sociedad Quimica y Minera (SQM), of Chile, lodged a $1.7-billion bid for Azure Minerals last year. And, as the story goes Down Under, when the Iron Lady wants something, she gets it.

The same Rinehart is a vocal opponent of climate change policies. Calling climate change science “propaganda”, she called for Australian schools to “strongly guard against propaganda intruding on real education and rational thinking” and variously she has also attacked Australian policies for curbing greenhouse gases from agriculture and called solar panels an “eyesore”.

Transitions… need to demonstrate that they do not create extra costs to people who are already being left out of the existing economic model.

As it is, old mining mavericks are also afflicted with FOMO and so getting into bed with the new transition game is par for the course.

And greed, it seems, is all over and not limited to Australia.

See what greed is doing in Panama as Canadian copper mining company First Quantum has been the subject of protests for causing environmental damage and other transgressions. The Panamanian Supreme Court has declared its mining right unconstitutional.

First Quantum, in turn, is taking Panama to court under an investment treaty protection. About 7,000 people stand to lose their jobs. Investment treaties can be used to undermine national sovereignty and we will see a lot of this in the global just-transition process. This is what the protesters had to say: “The Canadians take most of the riches and leave Panama in misery.” Doing green does not mean you do not need a social licence to operate.

The scale of extraction needed to support the global just transition is a Sisyphean task and the processes will be slow and painful – nothing is going to happen without conflicts with national interests and geopolitical rivals, and with indigenous communities and environmental groups.

The third injustice is to expect the rest of the world to make the transition on the terms and standards of the dominant, mainly Western players. New measures being imposed through trade and other policy instruments are increasingly being perceived as anti-development and as being for the protection of the industries of the countries which are imposing new forms of restrictions on imports from those countries that are still looking to industrialise.

On the one hand you have the rich countries telling developing countries to get off oil, and then you have the EU taking Indonesia to the World Trade Organization (WTO). Indonesia holds the largest deposits of nickel in the world and is keen to ensure it is able to participate in the global value chain for electric vehicles, and so imposed a ban on exports of raw nickel.

The WTO ruled against Indonesia, and Jakarta has appealed the ruling, but because the US has blocked the formation of a WTO appellate body, the case has stalled. The EU is considering taking enforcement actions such as tariffs on Indonesian goods.

In Africa we face another type of EU blunt instrument – another case of just transition dissonance.

The EU wants to impose a carbon price, called the Carbon Border Adjustment Mechanism (CBAM), on carbon-intense imports into the EU market. This can be destabilising for African industrialisation given the unilateral way in which it is being implemented.

Time must be given for adjustments, and the revenues generated from CBAM should be used to help industries to make the transition. For African economies, CBAM can have serious consequences for key industries that are export-related, but also for investments in the agriculture, transport and construction industries.

Global transitions to net zero are going to be messy and difficult and will produce losers unless there is vigilance on the part of citizens and the leaders they appoint to do the important task of navigating competing national interests and an increasingly tricky climate-diplomacy terrain.

Transitions can be managed, but require high levels of political consensus, unwavering compacts between key players, and they need to demonstrate that they do not create extra costs to people who are already being left out of the existing economic model. This is harder to do in democracies than in states that are dominated by a single authoritarian figure or political party.

If climate summits are about justice against historical wrongs and fairness, and enshrine the principles of common but differentiated responsibility, those who consume more than their fair share of the carbon budget should do the right thing: Radically reduce their emissions and pay the cost – which Bill Gates calls the “green premium” – in order to lower the cost of transition for countries that will lag behind.

The historical obligation of high-income countries remains: About 2,400 gigatonnes (GT) of carbon has been emitted over the industrial era, the majority of which is from industrialised economies and which contributed to the 1.1°C rise in temperature.

To stay below 1.5°C, we have 300-500GT of carbon budget left. The Paris process failed to allocate the remaining rights, but chose the weaker bottom-up approach of countries voluntarily deciding annual ambition to bring down emissions.

This is clearly not good enough.

Let us not even consider the constant bemoaning of the need to fill the coffers of climate funds. The Independent High-Level Expert Group on Climate Finance estimates that, between now and 2030, emerging-market and developing economies will need to mobilise $2.4-trillion annually to fight climate change, with $1-trillion of that sum coming from external sources.

According to Wright’s Law (not to be confused with Moore’s Law in the computer industry) the cost of technology should come down with each unit that is manufactured over time – richer countries should fast-track their emissions reductions and surge the technology adoption rate to support a cost reduction that will benefit poorer countries when they are ready to adopt the cheapest options.

At present, there are larger quantums of fossil fuel subsidies and trillions of petrodollars from fossil fuel super-profits swirling in sovereign wealth funds than there are in climate and green funds.

Inflation effects on transitions can also be a result of too much money being thrown to beef up supply in transition technology.

Transition processes should be a global public good paid for through a global pool of transition finance, possibly grants and exceedingly low concessional funds, but it will never see the day, just like Keynes’s idea of a bancor – an international unit of account to facilitate forms of trade that were more equitable.

Those who can pay for the rapid pace of transitions will want to secure their own green industrial capabilities first and see their own offers of finance as market-seeking endeavours. Despite the historical carbon debt, new green industrialism does not want to offer a free lunch.

Fourth, at the national level, transitions ought to increase social welfare benefits, not decrease them.

https://www.youtube.com/watch?v=REeWvTRUpMk

Good intentions can have unintended consequences. Transitions are also taking place in the context of rising inflation, and even though it has come down, respected economists like Charles Goodhart and others believe we are in for longer periods of high inflation due to demographic changes in developed economies.

Inflation effects on transitions can also be a result of too much money being thrown to beef up supply in transition technology. The post-pandemic inflation was demand driven – supply could not meet demand.

In some spheres of transition, demand inflation is a result of price gouging from companies that have market advantage, as the work of the economist Isabella Weber shows – she termed it “seller’s inflation”.

There can be bottlenecks and coordination problems, as, for example, Norway and Germany are discovering with switching from gas to heat pumps. First, there is the fear of it being more costly (if it is just imposed), and second it needs enough installers to deal with the demand surge. Never mind misinformation campaigns from political opponents who want to paint the German Green Party’s transition push as being inflationary when Germans are already struggling to pay their energy bills.

The degree to which citizens are prepared to endure discomfort will determine the support for and pace of transitions.

Additionally, transition domestically can involve unequal processes and lead to social unrest. For example, South Africa is facing energy insecurity due to corruption and failures at its electricity utility, Eskom. However, reforms have unblocked who can generate electricity. South Africans are being frog-marched into self-production led by private firms and households.

Energy insecurity and load shedding in South Africa have already pushed up inflation, let alone done damage to the economy, and raised the cost of the government’s ability to raise money domestically and internationally for its programmes.

We cannot escape the social and political conditions that will govern the transition debate within the sovereign sphere. Particular types of energy dependencies inevitably come against established interests. These interests will be resistant to disruption by a new set of technology incumbents and entrepreneurs unless they have a stake in the transition process itself.

There is also a psychological element to this – the degree to which citizens are prepared to endure discomfort will determine the support for and pace of transitions. Societies with multiple stresses may well see climate transitions that do not produce immediate or short-term social and other benefits as an unnecessary imposition. They may be climate conscious, but not willing to make the necessary sacrifices in lifestyle changes.

Understanding the nature of national politico-economic forces is crucial to understanding the nature of change. This is not just about the transition from one technology to another, but with it too the financial, technological and political networks that govern it.

Read more in Daily Maverick: Our Burning Planet

The status quo only changes if the same network of interests transitions to the new because they gain higher rewards, or do not face the spiral of death for being too dependent on old technology and old forms of production.

To enjoy the lifestyles we currently do we will need alternative energy sources that have the same flexibility, output per energy density and price parity – perhaps even better than the current system.

We could sacrifice all of this for less by living a minimalist life. That, it would seem, would require a very different kind of moral universe and civilisational model to the current system. Such a transition – a migration to a way to live with just enough – is still at the furthest edges of the transition debate and social consciousness. DM

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This is Part Two of a two-part article. Read Part One here