November 24, 2011

Chris Huhne Says "The State is Obliged to Correct Market Failures"

Regular readers will know that the  17th Conference of the Parties (COP17) to the United Nations Framework Convention on Climate Change  begin in Durban, South Africa in less than a week. At the same time and place the 7th Session of the Conference of the Parties serving as the Meeting of the Parties (CMP7) to the Kyoto Protocol will also take place.  The question now is what if anything all these discussions will achieve apart from a modicum of global warming from all the hot air that will doubtless be emitted by the attendees?

Today Chris Huhne, the UK Energy and Climate Change Secretary, set out the UK Coalition Government's position on energy efficiency and energy security in a speech at The Grantham Institute for Climate Change. Amongst a variety of other things Mr. Huhne said that:

In transport, heating, and industry, in generation and efficiency, we must renegotiate the terms of our relationship with energy. If we succeed, our climate will be safer, and our economy more competitive. Change on this scale cannot be achieved by Government alone. Yes, we have a role to play: we must set a clear policy direction, using the right combination of incentives and regulation to drive down emissions, build investor certainty, and encourage green growth.

Businesses must also respond. Only the private sector can provide investment and innovation at the scale we need. New products and technologies must make their way to market.

Individuals have a responsibility too. We must all think again about the energy we use – and the energy we waste.

Each part of this energy equation must be balanced: otherwise, we cannot hit our carbon targets cost-effectively.

Mr. Huhne then went on to discuss a variety of "market failures":

Climate change is the biggest market failure the world has ever seen. As we have seen in the financial and housing sectors, when markets fail and the public is exposed to risk, the state is not just licensed but obliged to correct them. Future risk must be hedged: it is out of fear for British pension pots and British jobs that we support smarter regulation of casino capitalism. When faced with systemic risk that cannot be contained, only clear objectives supported by a comprehensive framework can provide certainty and security. That is the principle on which our domestic policy rests. It is also the argument we will be making in Durban next week, when we can tackle a fundamental question: where are the international talks heading?

Call me an old pessimist if you will, but the recent meeting of the G20 leaders did nothing that I could see to address the risks inherent in the all too obvious failure of our financial and housing markets. On the basis of that outcome, not to mention the outcomes of previous climate change talks, I will be astonished if at the end of the day the discussions in Durban make any significant contribution to ameliorating what Chris referred to as (and repeated for emphasis by your editor):

The biggest market failure the world has ever seen

As far as I can see "Casino Capitalism" as Mr. Huhne calls it (or "Capitalism as Currently Constituted" as I call it) is still alive and well and living on Wall Street, whilst Governments and regulators around the globe remain powerless to do anything about it. Even if you leave the sometimes contentious question of "climate change" itself out of the equation,  the same argument applies in spades to energy security. Market forces haven't solved that problem yet. It seems unlikely they ever will. Chris Huhne appears to largely agree with me, but he disagrees with me on one point though. Regarding the COP17/Kyoto talks in Durban he had this to say this morning:

A global deal covering all major economies is not a luxury. It is not an optional extra. It is an absolute necessity.

The UK has always been an advocate of a legally binding agreement under the United Nations. Why? No pressing international problem has been solved without one. Not chlorofluorocarbons. Not banks lack of capital. Not the arms race. This commitment to a global deal is woven deep into our political DNA: all the major parties agree. Indeed, it is so important to both coalition partners that it was in the Coalition Agreement. But for many of those gathered around the negotiating tables in Durban, times could not be tougher.

Europe is gripped by a currency crisis of constitutional proportions. The United States is preoccupied with jobs, growth, and a looming Presidential election. And the Middle East and North Africa are consumed by questions of political reform. In these circumstances, we cannot hope for too much. That risks perpetuating the myth that each year will be either the making or the breaking of a global climate treaty. Yes, a global deal may be out of reach today. But we can –and must – provide a clear signal that it is our objective. For time is running short. We are walking down a dangerous path.

Time is indeed running short, but personally I very much doubt that the "clear signal" that Chris says he is hoping for, let alone some actual action, will emerge from Durban. The G20 leaders ignored what the UN had to say in Cannes last month. Pigs certainly didn't fly on that occasion. I'll start believing in such things if and when I see even one tiny piglet struggling uncoordinatedly into the azure skies over Durban, just in time for Christmas. What are the risks that international talks will start heading somewhere useful for a change, do you suppose?

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