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CGI 2011 – Plenary on Climate Change (AGW)

President Clinton introduces the panelists, noting that there is a UN discussion of Libya scheduled for 10:00 a.m. and that they will have to leave quickly.  First up is Mexican President Felipe Calderón Hinojosa, about whom President Clinton is enthusiastic.

Calderon is less vibrant, but presents an impressive array of detail on Mexico’s unilateral reduction in carbon usage, noting that 26% of the energy used in the country now is from renewable sources.  Part of this has been accomplished by the simple things: a concerted consumer campaign toward replacing old refrigerators and light bulbs with modern ones.

President Calderon notes that much of the problem in developing countries has originated with cutting down the extant trees.  The Cancun meetings resulted in a new international agreement.  Today, we have a new challenge: continuing the Kyoto Protocol.  “Most important agreement and most important instrument”—saying this in front of President Clinton—needs leadership and mobilization of public opinion.

President Clinton notes that the countries that have been putting major effort into climate change have outperformed the United States in jobs, growth, and reducing income inequality.

President Jacob Zuma, President of the Republic of South Africa, notes that “we all agree that climate change is a danger” and that “we need to work together to address the challenges.”  The people on the ground—the voters—see this as a direct matter of life and death; it is the leadership that is needed in Durban.

Jens Stoltenberg, the Prime Minister of the Kingdom of Norway, says that he would not have believed you if you had told him ten years ago that emissions trading in Europe would be possible. Need to have legal agreements, not just a Durban-style reiteration of Kyoto and Copenhagen. (Those of us who were talking about trading energy and weather derivatives twenty years ago probably should be less amazed at this statement than I am.)

President Clinton asks how to work toward energy use reduction in developing countries. The Prime Minister of Grenada, Tilman Thomas, addresses this, mostly by noting a “moral responsibility” to the people of his country. President Clinton notes, repeating what he said last night, that of all of the Caribbean countries, only Trinidad produces any of the carbon-based energies—all other countries have to import oil and natural gas at great cost.  If there were financing available, could expand alternative sources: solar, hydro, and sugar-ethanol, for instance.

The Prime Minister of Slovenia, Danilo Türk, notes that there is Global Governance taking place without global government. Carbon tax would be good because it makes costs predictable. “Very fundamental long-term development challenge,” need to find the “appropriate public funds for transformative technologies now,” following the German solar precedent.

(President Clinton noted that the sun shines in Germany “as much as it does in London.”  I take this to mean that it is not a bright, cheerful country.)

Bangladeshi Prime Minister Hasina echoes the sentiment expressed by several others:  there needs to be a legal requirement. She notes that 20% of the land of her country will be eliminated as the current trend runs.  President Clinton adds The Maldives and even Afghanistan to the list of places that will have to do more and more with less and less (land and resources).

Prime Minister of Mali Cissé Mariam Kaïdama Sidibé notes that one of the biggest problems facing her country is “brain drain” to the United States and Europe.

European Commission President José Manuel D. Barroso notes that many countries have taken individual steps, but that much more is needed to reach the 2 degrees C target—currently on target for only about 60% of that.  “Transparency is key.” Have two very important alliances: science, which is on our side, and public opinion, which should be.

President Calderon has been leading in reforestation; planted about half (500MM) of the trees U.N. Secretary General requested—and collaterally made Mexico City a better place to live.  Tells a story about Tanzania, in which a village grew trees for carbon credits: and gave back more than half of that to get more people in the village a better life.  (I suspect this is an example of what David Graeber is talking about when he notes that communal obligation has always preceded—and generally superseded—economic theory.)

President Clinton also notes that the U.S. Senate is now only 50% “global warming deniers.”  He apologizes for that, but notes that it is progress from the 95-0 vote against the Kyoto Treaty.

I believe that is also the only time the phrase “global warming” was used in the entire discussion.  It was almost as if people were afraid to note that the changes are of our own doing, not just the Earth getting mad.

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Take a break …planning for efficiency

Yves Smith at Naked Capitalism points us to exploring how the pursuit of “efficiency”, for example in supply chains, without assessing what other risks are involved and planning ahead can result in major problems:

It isn’t all that hard to understand that stressing efficiency at all cost comes at the expense of safety. Engineers will tell you that efforts that are pro-safety involve various forms of buffers and redundancy and are thus costly. During the early days of the crisis, commentators often discussed the implications of Richard Bookstaber’s book A Demon of Our Own Design, in which he argued that systems that lacked breaks between various processes were tightly coupled, which meant that a failure at one point in the process would propagate through the entire system, as if one transformer failing would bring down an entire electrical grid.

Anyone who has been on the periphery of manufacturing can see that all its fads can easily have pushed too many companies into failure-prone systems. Just in time inventory was a reversal of the historical propensity of manufactures to carry a lot of inventory to make life easier for managers. That practice in isolation might not be a bad thing. But over the years, many manufacturers have also concentrated on limiting the number of vendors to give them more bargaining leverage with them and squeeze them on costs. That increases dependence on suppliers while also increasing the riskiness of their operations. It has finally become fashionable to work with vendors or offshored factories in countries with low labor costs like China, Bangladesh, and Vietnam. Long transit times also increases business risk.

Now of course, like traders, top manager have every reason not to be terribly worried about long term risks. The prototype of the profitable but risky trading strategies that Nicholas Nassim Taleb likes to deride is that they work just fine on a day to day basis but blow up catastrophically periodically. And those blowups are predictable. But as long as they aren’t likely to happen every year or every other year, decision-makers have huge incentives that increase risk as long as the blow-up risk is not all that imminent (I am waiting for a quant to devise an optimal blow up metric as a covert trading strategy tool). So we should also regard the fact that business managers have acted exactly like reckless traders to be an expected outcome.

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