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Climate change and development are closely intertwined. Poor people in developing countries will feel the impacts first and worst (and already are) because of vulnerable geography and lesser ability to cope with damage from severe weather and rising sea levels. In short, climate change will be awful for everyone but catastrophic for the poor.
Preventing dangerous climate change is critical for promoting global development. And saving tropical forests is essential to doing both. Frances Seymour and Jonah Busch's new book, Why Forests? Why Now?, illustrates how today—more than ever—saving forests is more feasible, affordable, and urgent.
Historically, the responsibility for climate change, though, rested with the rich countries that emitted greenhouse gases unimpeded from the Industrial Revolution on — and become rich by doing so. Now, some of the most quickly developing countries have become major emitter themselves just as all countries are compelled by the common good to reduce greenhouse gas emissions. A major challenge of reaching a global deal on climate change was to find a way for poor countries to continue developing under the planetary carbon limits that rich countries have already pushed too far. That will involve scaling up finance to deploy clean technologies, to adapt to the effects of climate change, and to compensate countries that provide the global public good of reducing emissions, especially by reducing tropical deforestation.
CGD’s research and policy engagement on climate and development has had two aims: to strengthen the intellectual foundation for a viable international accord to come out of the COP 21 in Paris and to provide data, research, and analysis that policymakers and others can act upon even in the absence of an international agreement.
The International Monetary Fund (IMF) and the World Bank are intergovernmental institutions. They are political in every sense of that word, from their structure to their culture. They are owned and directed by their member governments. Governments are political by construction. Consequently, we in the private sector—in think tanks, in non-governmental organizations, or as private citizens—often are frustrated because these institutions are, and should be, principally responsible to governments and only through them to us, the interested and concerned general public, even in cases where the responsiveness of member governments leaves a great deal to be desired.
Along similar lines, it is profoundly misleading and potentially dangerous to analogize about the governance of the Fund and the Bank by reference to either private corporations (whose principal objective is to maximize profits for the benefit of their shareholders) or to central banks (whose objective can be reasonably well defined along a spectrum involving full employment and price stability and which need to be protected from excessive political interference). It is misleading because these institutions at best have a changing mix of multiple objectives, and it is dangerous because over-simplification and excessive insulation would lead either to stalemate or irrelevance. Member countries will never agree entirely on the institutions’ goals—what they should do—and will never step back from trying to influence how they try to achieve those goals. Of course, their many objectives should be defined as clearly as possible, and the institutions should strive to be as efficient as possible. We should care, starting with our governments, about the institutions.
In the world in which the Fund and the Bank operate, governance issues are complicated by the profound lack of consensus among member countries about what each institution should do and how it should do it. In the case of the Fund, the principal issues are a lack of consensus about the nature of the globalized economy and financial system, the Fund’s surveillance role relative to its lending role in this context, and the Fund’s role in providing global public goods, such as improved information flows. In the case of the Bank, there is a similar lack of consensus on these issues but also a lack of consensus about how the Bank fits in with other development institutions (and with the Fund) and what its role should be with respect to the big public-good issues such as climate change, health, and the environment.
In principle, one can address governance issues without settling issues of scale and scope of mission, but this is difficult, especially given the political context in which these institutions operate. Lack of consensus on missions contributes to perpetuation of the status quo, even when many agree that the status quo is no longer appropriate. However, in what follows, I set to one side mission issues and assume, some would say naively, that governance issues can be successfully addressed independently.
With this simplification, governance issues are reduced to the moving parts of the institutions and how they relate to each other. The moving parts are the member governments, the government official principally responsible for the institution (as governor), informal committees of governors such as the International Monetary and Financial Committee (IMFC) of the Fund and the Development Committees of the Bank and the Fund, and the members of executive boards, management, and staffs. Issues of voice and vote, accountability and transparency, and responsibility and efficiency exist at—and between—each level.
Today, the Fund in particular faces a deep problem of legitimacy about its governance. This undermines its capacity to accomplish many of the tasks most of us think are, or should be, assigned to it.
Interestingly, most of the items on my list of governance reforms for the IMF are ultimately the responsibility of the member governments as a whole, meaning at the top, in the sense that collective political action is required to bring about change.
Reform Management Selection – Legitimacy and governance reform start at the top. The selection of the IMF’s managing director as well as the deputy managing directors should be chosen via an open, merit-based selection process. (The president of the World Bank should be similarly chosen. The same should apply to the heads of the regional development banks, but that should not hold up governance reform at the Fund and Bank.) As has been championed by Nancy Birdsall, the selection of the managing director should also be subject to a second (double) majority of member countries to provide a greater sense of involvement to smaller countries with small quota-based votes. These are political decisions and require decisions at the head-of-government level.
Consolidate Executive Board Representation – European representation on the IMF executive board should be reduced from its current nine (potentially 11) seats to no more than four, and the size of the executive board should be reduced from 24 back to 20 seats.1 The first seat added once the board’s size drops below 20 presumptively should be reserved for Africa. The IMF’s Articles of Agreement should be amended to provide only for elected executive directors, which should facilitate the consolidation of European representation. These are largely political decisions that must be made at the head-of-government level. Note, however, that the cost of IMF governance would be reduced with fewer executive director offices, and the efficiency of the executive board would be increased.
Revise the “New” Quota Formula – A new quota formula, which is intended to guide the distribution of quotas, which in turn determine voting power, was adopted in the spring of 2008. It is fundamentally flawed because it points in the direction of a larger combined quota for the traditional industrial countries than at present.2 It should be replaced with a formula that points in the opposite direction. If trade is included as a variable, intra-EU trade should be eliminated. The revised formula also should be implemented via a large (on the order of a doubling) increase of IMF quotas that accomplishes a shift in voting power from the traditional industrial countries to the rest of the membership of at least 10 percentage points. These are technical issues, but the political impetus for them must come from the top. Once the outlines of an agreement are firmly established, the technicians can devise the appropriate formula.
Reduce Special Majorities – The 85 percent voting requirement for selected decisions by the Fund should be reduced from 85 percent to 80 percent.3 This would remove the capacity of the United States acting alone to block these actions. A political decision would be required by the president to make this change, and its is likely to be acceptable only in the context of a political commitment by the European authorities to see the number of their executive directors reduced to a maximum of four and their combined voting share shrink over time to less than 20 percent.
Replace the IMFC with a Council – Some argue that the governance of the Fund would be enhanced by replacing the IMFC, which technically only has advisory powers, with a Council that would have formal decision-making power. The thought is that this would enhance the sense of responsibility of the governors of the Fund who sit on the IMFC/Council for the strategic direction of the Fund. I personally think that this is likely to be a case of leading a horse to water and being unable to make it drink, unless other attitudinal changes occur. However, by itself this reform would do no harm. As a formal matter, the decision could be made by the governors.
Revamp the Role of the Executive Board – The role of the executive directors and executive board should be revamped from one of day-to-day oversight to one that covers only broader strategic decisions. The role of management (and indirectly staff) should be enhanced by placing with management the responsibility for many decisions, for example on programs and surveillance judgments, subject to ex post review and criticism by the executive board. At the same time, the transparency and accountability of members of the board vis-à-vis the countries that elect them should be increased and codified. Some of these decisions—many more sensible suggestions can be enumerated along similar lines—may require amendment of the IMF’s Articles of Agreement. However, most could be implemented by agreement between the executive board and the management of the Fund.
At bottom, these IMF governance reforms require an enhanced recognition by the governments that are members of the Fund of the role and contributions of the institution in a dangerous, globalized world. The current global economic and financial crisis may provide the impetus for such greater political and policy appreciation and understanding. Even the darkest clouds may have silver linings. In the end, the member governments are the Fund, and they have to want change.
To close on a provocative pair of points, where does this leave civil society and NGOs? I see their important role in the governance of the Bretton Woods sisters as starting and largely ending with the member governments. On the one hand, they should stop urging member governments to tear down the Fund unless those interests truly believe that the world is better off with less rather than more global governance. In addition, member governments should review the many implicit and explicit mandates on executive directors in the Fund and Bank that require them to use their voices and votes to promote narrow economic interests (for example, with respect to funding steel mills) or broader social objectives (for example, environmental standards). These are important issues. The practices and policies of the Bretton Woods sisters in these areas should be open to criticism and change, but it is necessary to achieve a better balance between accomplishing these institutions’ principal assigned responsibilities and achieving a longer list of laudable goals.
* This short essay is informed primarily by consideration of the governance challenges at the International Monetary Fund. Many of the issues for the World Bank are similar. However, for the record, my view is that it has been a mistake in the past to have as much parallelism between the Bank’s and the Fund’s governance, and going forward that is even more true. There needs to be more governance distance between the sisters.
1 I include in this calculation the seats now led by Switzerland and Russia.
2 The new formula was in large part ignored in reaching a decision on a modest set of selective increases in IMF quotas.
3 I would have no strong view on the question of whether other special majorities should be reduced. Any agenda needs to leave a few degrees of freedom.
You can download a PDF version of this essay here.
I'd like to put last week's move by the U.S. Congress to eliminate a proposed contribution to the Clean Technology Fund (CTF) in perspective. At the risk of reviving an overworked metaphor from late 20th Century discussions of the Internet: the move was rather like an unexpected pothole on the onramp to what promises to be a clean technology superhighway. Which is to say, despite this setback, I am increasingly optimistic that the U.S. will lead the way to a rich-world agreement with the developing world to cut greenhouse gas emissions. And a fund very much like the CTF will be central to that agreement.
Happily, the Obama administration shows every sign of rapid, aggressive action on carbon emissions mitigation. And climate change was very much on the agenda when Secretary of State Clinton recently met with China's leaders. So we have every reason to hope for an end to the US/China impasse that has log-jammed progress toward a global agreement at Copenhagen. China itself has demonstrated a striking commitment to progress on renewable energy, which Matt Hoffman and I will document in a forthcoming blog.
It has also become clear to most actors that emissions cuts in the industrial world will only buy a few years for the global community. As Kevin Ummel and I have documented, the struggle to contain greenhouse gas emissions will be won or lost in the developing world. Global monitoring and market-based regulation of emissions would be desirable, but experience with conventional pollution regulation suggests that it will be a number of years before many developing countries can implement such an approach.
At the same time, as Kirk Hamilton of the World Bank has recently shown in a compelling economic analysis that has yet to be released, major developing-country emitters such as China and India will maximize their long-run economic interest by moving very soon on limitation of carbon emissions. The same is certainly true of the United States, European Union, Japan and Canada. Since carbon regulation in many developing countries will be difficult in the near future, it would be very desirable to pursue emissions reductions on another track (a complement to eventual global regulation, not a substitute), if one can be found.
Fortunately, such a track is clearly available: clean technology investments, principally in the power sector and subsidized by the rich countries, that will accelerate learning and scale economies so that renewable energy technologies are pushed rapidly down the cost curve to become competitive with fossil fuels. Once this happens, the private sector can propel the clean energy revolution in developing countries. Kevin Ummel and I provide an illustration in our recent paper on solar thermal power in North Africa and the Middle East.
The good news is that, as far as I can tell (and I spend a lot of time talking to relevant policy people), all the major players agree that we need a multilateral clean technology investment program. So with that in mind, I offer this prediction with considerable confidence: sometime within the next two years, probably after Copenhagen, all the world's major emitters will coalesce around a large investment fund that will cover the incremental cost of catalyzing rapid clean technology growth in the developing world. This fund will be multilateral, inspired by the recently-initiated Clean Technology Fund at the World Bank, and its governance will be shared among the major developed- and developing-country emitters. It will focus on clean technologies that hold the promise of large-scale emissions reductions, principally solar, wind and other renewables, but also including pilot applications of carbon capture and storage (CCS) for advanced coal-fired plants. If pilot CCS projects prove to be viable, safe and cost-competitive (all big if's -- we'll see), CCS will probably play a major role alongside solar, wind, hydropower and other renewables in the coming decades.
The structure and venue of the ultimate clean technology fund remain unclear, and they are not likely to be finalized until after Copenhagen. The fund may evolve from the current CTF at the World Bank, if the Bank can demonstrate to potential donors that it is a reliable steward, while also winning the trust of fund recipients. It also remains to be seen whether the Bank's staff, already hard-pressed by crucial development tasks, will be able to administer a post-Copenhagen clean technology fund whose annual investments may match or exceed the Bank's current scale of operations.
But in any case, recent developments strongly indicate that a multilateral clean technology fund will play a major role in promoting carbon emissions mitigation during the coming decades. All parties support the concept, and they are actually quite close to a consensus on operating principles. For my small part, I continue to endorse a properly-designed clean technology fund with great enthusiasm. In fact, I view it as critical for our common future.
In summary, the road ahead looks pretty sunny at this point. And that's fortunate, since we have no time to lose.
Well, the World Bank’s senior management has really done it this time: As my colleague Joel Meister reported today, Congress has reacted to its intransigence on carbon accounting and coal-fired power by deleting budgetary support for the Bank’s Clean Technology Fund. After creating this avoidable breach, the Bank’s management will now have to plead with other donors to stay, while the United States takes its business elsewhere. The new budget does contain some funding for similar activities in the coming year -- $100 million for clean energy promotion by USAID -- while the Obama administration seeks other multilateral options. As I told (subscription required) Lisa Friedman at ClimateWire, the EU and Japan seem unlikely to support the CTF without the United States, so the Bank’s self-described “flagship” program on carbon emissions mitigation seems to be headed for the rocks.
The contrast with previous Bank leadership is painful. During the 1990’s, the Bank played lead roles in multilateral programs to get the lead out of gasoline and heal the ozone layer. Now, despite a professed commitment to carbon mitigation, the Bank’s management can’t even muster the common sense to begin carbon accounting and focus its clean technology program on truly clean technologies (see Upcoming World Bank Vote Threatens Future of Clean Tech Fund). It’s not for want of expertise: For nearly a year, Bank senior managers have been sitting on an internal technical report that lays out the options for carbon accounting. It’s not rocket science, and Bank staff could easily implement it. Nor is it for lack of professional interest: Many Bank staff want to begin carbon accounting now, and they would happily support a focus on clean technologies. Nor is it really for want of developing-country support: India, China and other developing countries would undoubtedly be satisfied with a CTF that used carbon accounting to hold donors’ feet to the fire on financing the incremental cost of clean technology.
It is, quite simply, a stunning failure of the Bank’s senior management to take off their blinders – to see that in the new era, the World Bank will not be assigned global leadership on clean technology investment if it refuses to assume responsibility for its own carbon footprint.
Why did this happen? Perhaps the Bank’s senior managers really had the hubris to believe that the global community had no alternative to the Bank. Or perhaps they thought Congress would blink; or they didn’t understand the stakes; or they didn’t try hard enough to sell carbon accounting to developing countries. Whatever the reason, a failure of this magnitude is ultimately just a failure – and these senior managers, like their private banking counterparts, are paid not to screw such things up.
Where do we go from here? Stay tuned: senior U.S. Treasury staff who support the CTF could certainly make a final push for CTF funding to be attached to the bill as Congress makes its way through the appropriations process. So now, just maybe, the Bank’s management will blink, pull that carbon accounting options paper out of the drawer, and get serious about leaving coal behind. Maybe. In any case, no one could say that they haven’t been warned – repeatedly – for over a year (see here, here, and here).
Now they – and, unfortunately, we – seem likely to pay the piper. It’s the last thing the global community needs at this critical moment.
The U.S. Congress today passed its omnibus appropriations bill for Fiscal Year 2009, H.R. 1105. Missing in action: the U.S. contribution to the World Bank's so-called Clean Technology Fund (CTF), which has repeatedly come under fire from CGD's David Wheeler and others for including coal-fired power plants among those potentially eligible for CTF support.
Previous bills introduced in the 110th Congress had authorized or appropriated between $200 and $400 million for the fund for FY 2009. But the Omnibus report clearly shows former President Bush's CTF funding request of $400 million getting the ax:
This does not mean that Congress is backing away from the commitment to help poor countries adopt clean energy for sustainable development -- only that the money is unlikely to go to the World Bank. Instead the appropriations package sets aside $100 million for USAID activities that are remarkably similar to those of the CTF -- with the important provision that they include carbon accounting, that is, including in project feasibility calculations a cost for the resulting greenhouse gas emissions. This move, which Wheeler and others have advocated, would basically eliminate the possibility of financing coal and other high-emission power projects. The bill summary reads:
Energy and Environment
Clean energy - The bill provides $100,000,000 for programs and activities that reduce global warming by promoting the sustainable use of renewable energy technologies and energy efficient end-use technologies, carbon sequestration, and carbon accounting. Given the growing demand for energy in developing countries and concern with climate change, USAID is strongly encouraged to strengthen the capacity of its staff with expertise in these issues.
Wheeler argued in Congressional testimony last summer that the use of scarce resources to fund coal projects in poor countries to tackle climate change makes little sense. Instead he proposed pushing down the costs of near-zero-carbon renewables, such as solar and wind, by strategically investing in projects that will accelerate learning and economies of scale. CGD and others have repeatedly made these arguments, both directly to the World Bank and to the U.S. government and other potential donors to the CTF. It seems that the U.S. Congress has been listening. Too bad the same thing can’t be said for executives at the World Bank.
On March 2, thousands of people are expected to engage in mass civil disobedience at the coal-fired Capitol Power Plant in Washington, DC. The protest, which is expected to include NASA climate scientist Jim Hanson, author Wendell Barry, and environmentalist Bill McKibben is timed to coincide with the final day of PowerShift09, a four-day "National Youth Summit" that aims to bring 10,000 students to Washington to lobby for action on climate change.
The Capitol Power Plant makes a convenient symbolic target. According to the Wikipedia account:
In 2000, the office of the Architect of the Capitol considered eliminating the use of coal at the plant, but was dissuaded by two coal-state senators: Robert C. Byrd (D-W.Va.) and Mitch McConnell (R-Ky.).
In 2006, citizens from Capitol Hill, emboldened by the threat of global warming, met with the Architect of the Capitol to discuss ways to make the power plant more environmentally friendly, for example, by switching fuels. They were told that since the plant is owned by Congress, little would change without a Congressional mandate.
In 2007, Nancy Pelosi seemed to give such a mandate, announcing a new effort to "green" the entire Capitol complex. But a plan to reduce the Capitol Power Plant's emissions has not emerged, and Pelosi has instead pursued a controversial policy of purchasing carbon offsets from the Chicago Climate Exchange.
Oddly, the Capitol Hill Power Plant doesn't actually generate any electrical power, a function that it ceased to perform in 1952. Since then it has provided the Capitol complex only steam and cooled water. Based on the amount of coal burned at the plant, it produces around 60,000 tons of carbon dioxide a year: about as much CO2 you would generate if you drove a Hummer from Washington DC to Los Angeles and back 20,000 times. That makes the Capitol Power Plant the largest single point source for greenhouse gases in within the District of Columbia. But it is still tiny compared to other coal-burning plants in the national capital region.
Of course, the leaders of the Capitol Hill protest understand the relatively small size of the Capitol Power Plant's emissions. Bill McKibben, author of The End of Nature, wrote that the Capitol Power Plant wasn't chosen because it produced a large amount of emissions, but rather "because it's a way to get the conversation started." That conversation is likely to continue. David Wheeler's Another Inconvenient Truth points out that catastrophic climate change can only be averted if the rich world and the developing world both move to rapidly cut emissions. But the developing world, with a huge poverty burden and per capita emissions that are just a fraction of those in the United States and other rich countries, will not act unless the rich world goes first -- and that means action to cut emissions in the United States, where vested interests are working hard to perpetuate business as usual.
The Capitol Power Plant protest, while not the first such action, is likely to be the highest profile civil disobedience on climate yet. Other creative, peaceful acts of civil disobedience will almost certainly follow. As Wheeler wrote last December, "the confrontation between complacent institutions and alarmed citizens is escalating, and threatens to become a collision." When the young people who are now getting ready to head to Washington to take part in PowerShift09 return to their hometowns and campuses next week, CARMA (searchable by zip code) and other public information sources will be ready to help them identify nearby power plants and the firms that own them.
From the headlines you would think Davos was mostly doom and gloom and blaming the bankers (and rough talk from Putin and between PM Erdogan of Turkey and Peres of Israel). Development was less visible this year than ever. As Simon Maxwell observed: No Bono. No Jeff Sachs. No Zoellick. (Although Kofi Annan was there, with wisdom aplenty on Africa's Progress and underfunded agricultural research for Africa.
Though less visible, development did figure prominently behind the scenes -- more so than ever. At private sessions and meals, dozens of initiatives to improve the lives of the poor in poor countries, many set up as corporate-NGO partnerships, were planned and discussed: to provide bednets, clean water, clean energy, de-worming in schools, laptops, ARVs and services for AIDS orphans, micro-saving and health insurance, food and nutrition and more. You could argue that the anti-globalization fervor of the late 1990s (with globalization figuratively on its knees there were no visible demonstrations at Davos this year), has yielded a rich harvest of CSR -- NGO collaborative anti-poverty action, with CEO Davos Man (and Woman) fully engaged in making globalization inclusive and sustainable. (Will this energy and passion be sustained as the global economic crisis unfolds?)
Yet I find myself frustrated. On the one hand there was the macro; on the other the micro. In between there was little discussion (as far as I know) of the "system" failures that frustrate development at what might be called the meso level within developing countries. Examples abound: highly centralized and inflexible school systems (where laptops are used for lighting not learning), unfunded agricultural extension (so new seeds and better fertilizer go unused), imported price distortions (cheap corn and rice subsidized abroad that undermine agricultural investment at home), political inability to tax the local rich (since capital easily flees to tax havens abroad), brown-outs and lack of credit that undermine small enterprise competitiveness in global markets -- the list goes on.
These sectoral and policy problems, particularly those provoked by action or inaction in the world of Davos Man and Woman, are less obviously a target for CSR initiatives, until and unless more of Bill Gates's creative capitalism is unleashed. Maybe next year...
For development aficionados, here are three notes and quotes worth remembering. My last (and late) dispatch will be posted tomorrow, and will outline my main frustration at Davos this year.
On sound economic policy to deal with food security: Ernesto Zedillo, a former president of Mexico and a clear-thinking economist, cut straight to the point at a private breakfast on the food crisis. Prior speakers had so many worries (drought, volatile markets, lack of food aid, poor farming techniques, soil erosion) and so many suggestions for unlikely cooperation on what the world and developing countries need to do (seeds, technology, watershed management, more technology...) that my head was spinning. Then President Zedillo said it straight (as I imperfectly recollect it): all these problems will persist until countries get prices right. How right! Examples include distortions in agricultural markets (such as protection in industrial countries that suppresses prices and discourages production in developing countries); and biofuel mandates that recently contributed to short-run price hikes (See, for example, papers by Kim Elliott and Nora Lustig) that didn't help.
On externalities at the root of the climate change and financial crises, from the CEO of InfoSys. Nandan Nilekani: "Both these crises [financial and climate] were triggered by market failure...our failure to price natural resources into the economy...our overlooking of the 'negative externalities' in financial reporting and risk assessment...and in both these we have tried to privatize profits and socialize losses." (For more, see his Financial TimesDavos blog)
On aid effectiveness via country "ownership," from a philanthropist. Melinda Gates said in an online interview from Davos that malaria is down by 60 percent in some countries "because of the way donors have aligned with the governments." Bravo. Official donor resolve to address longstanding failings has reached the top leadership at the Bill and Melinda Gates Foundation.
World Bank chief economist Justin Lin endorsed charges for CO2 emissions in a keynote address at the 10th anniversary conference of the Global Development Network being held in Kuwait. Speaking in an ornate marble hall at the Arab Fund for Economic and Social Development following an address by Mohammed Al-Sabah, Kuwait’s Minister of Foreign Affairs, Lin said that he recognized that such a call might not be politically correct in the oil-rich state. Nonetheless, Lin, a Chinese national, made it clear that he believes that action is needed to avert very rapid climate change. According to the GDN conference blog.
Lin also called for research into the possibility of insuring poor, oil-consuming countries against price shocks and argued that action was called for to create a price mechanism to prevent a potential climate change “tipping point”.
It remains to be seen whether Lin’s views have implications for the design of the World Bank’s Clean Technology Fund. (See David Wheeler and Joel Meister’s recent post for an update on this ongoing controversy, and related CGD policy research and analysis).