Ambassador's Corner

WEEKLY MESSAGE FROM AMBASSADOR JOHN BRUTON

October 21, 2009

A discussion on Climate Change in Colorado

Last week I visited Denver, Colorado, to speak at an event organized by the University of Colorado's European Union Centre of Excellence. Part of a network of such centres throughout the country, it does academic research on EU matters, teaches students about the EU, and organises outreach to the general public. The Colorado centre is in Boulder and its activities cover a number of states in the Mountain West of the United States.
 
During my visit, I had talks on cooperation between the European Union and Colorado with the State's Governor, Bill Ritter; with the Mayor of Denver, John Hickenlooper; with the former Governor of Colorado, Bill Owens; and with the former Mayor of Denver and former Secretary of Energy and Transportation, Federico Peña.

Bill Ritter is the 41st Governor of Colorado. He has led the State in promoting renewable energy and in modernizing its transportation system. At the age of 14 Bill Ritter went to work full-time in the building industry, which helped him finance his own college education, which eventually led him to a Juris Doctor (JD) qualification. He served as a District Attorney. From 1987, Bill and his wife worked as lay missionaries of the Catholic Church operating a food distribution and education centre in Zambia for 3 years. He told me how this shaped his attitude to the needs of other countries. He has 4 children.

John Hickenlooper is a native of Pennsylvania and he became Mayor of Denver in 2003. He is a geologist, who became a businessman operating the world's biggest Brew Pub (a pub which brews its own beer on-site), and who subsequently entered politics. He was responsible for bringing the Democratic National Convention to Denver, a very well-run event that showed off the city at its best. He has also taken on politically difficult issues such as homelessness. He has created a Commission to end homelessness in Denver, a program adopted by other cities since. He is an exceptionally engaging and relaxed man, who enjoys his work.

Bill Owens preceded Bill Ritter as Governor of Colorado. He was a member of the Colorado House of Representatives from 1982 to 1988, and of the State Senate from 1988 to 1994. In 1999, he became Colorado's first Republican Governor in 24 years. He told me about working with the State Legislature, both when it was controlled by his own party and when it was not, and about the different skills needed in a Governor in these diverse situations. After politics, he has devoted himself to business.

Federico Peña was Secretary of Transportation from 1993 to 1997 and Secretary of Energy from 1997 to 1998. As Mayor of Denver he led the effort to build Denver's airport, one of the most efficient and attractive airports anywhere in the United States. He served on the transition team of the Obama Administration.

Our discussions focussed on climate change and on the prospects for the UN Conference on the subject, which meets from 7 to 18 December in Copenhagen.

I stressed that a solid global agreement at this meeting was vital to give businesses encouragement to invest now in greenhouse gas-reducing technologies, whose financial return was substantial, but long-term. I said that long-term investments with high upfront costs were much more likely to be made if there was an agreed and stable global framework of limits and commitments that bound all countries, albeit in differing ways depending on their circumstances. Without such a framework, investors would adopt a "wait and see" approach.

I said that, if the United States did not come to Copenhagen with believable commitment which it had the legislative capacity to implement, it would be very difficult indeed to persuade other potentially very large greenhouse gas-emitting countries to accept limits on their emissions. That was a matter of practical politics, I said.

I agreed that the easiest thing for anyone to do in a global negotiation among 190 countries, where unanimity is required, was to sit back and demand that somebody else make the first move. But if everybody did that, nothing would ever happen.

The European Union has made the first move, with a commitment to reduce its emission to 20% below 1990 levels, and 30% if an international deal is reached, a commitment which it is keeping. This contrasts with the US position whereby, even if the legislation now before Congress is passed and fully implemented, US emissions will still at best only be 7% below their 1990 levels by 2020.

We then discussed the difficulties in getting climate change legislation passed in the United States.

Among the points made were:

• It was not just healthcare, but also the Economic Recovery Act, that has absorbed a lot of congressional time and has thus delayed the climate change legislation.
• To gain public and political support, one needed to convince people that climate change is a reality. For that, one needed visible examples.
• The Governor mentioned the case of 1 million trees dying in the Mountain West because warmer winters had allowed the hatching of certain insects who proved lethal to the trees.
• Another example was increasing water shortages and the visible diminution of mountain glaciers, which are a vital future water source. Colorado has only 12 inches of rainfall a year, so other sources of water supplies are essential.
• One also needed to stress that strong climate change legislation would enhance national security by reducing dependence on oil and gas imports for unstable regions.

Subsequent to this very interesting discussion in Colorado, I learned of possible improvements in the prospects for passage of Climate Change legislation in the US Senate. Republican Senator Lindsey Graham agreed in a co-authored article with Senator John Kerry that they should work together to tackle global warming. Even more interestingly, Republican Senator Lisa Murkowski, whose State of Alaska is particularly vulnerable to the melting of polar ice, indicated she might vote for cap and trade legislation if it also included tangible incentives for nuclear power and for stepping up domestic oil drilling.

Making it worthwhile to invest in Low Carbon Technologies

Chatham House in London has recently published an interesting study on some of the practical things we need to do to mobilize investment to deal with climate change. Entitled Who Owns our Low Carbon Future? Intellectual Property and Energy Technologies, it argues that the cost of green technologies can come down rapidly if economies of scale are achieved through rapid and widespread use. But argument about ownership of the technology will slow that down. The process of registering a patent can take up to three years. Far too few patents are shared between companies in the developed world and companies in the developing world (where the biggest gains can be made).

Chatham House makes a series of practical recommendations for more rapid diffusion of new technologies on a basis that would be profitable for both the inventor in the developed country and for the company who puts the technology into action somewhere else.

This report shows how important an agreement in Copenhagen could be. Without a global framework, the action to diffuse new green technologies will be much slower because there will be greater uncertainty about whether the technologies will be profitable or not.

Where will the money come from? Europe's finances up to 2060

The United States Government Accounting Office has done long-term projections of the long-term Fiscal Outlook of the United States.

Its projection, called the Alternative Simulation, predicts that, if expiring tax reductions were not allowed to expire, Medicare refunds were not reduced as planned and if certain other tax and expenditure trends continued, US national debt could reach as high as 150% of GDP by 2030.

The European Commission has now published, in a document entitled Sustainability Report 2009 [http://ec.europa.eu/economy_finance/publications/publication15998_en.pdf], its projections for the 27 Member States of the European Union. These show a similarly worrying picture for most, but not for all, of the 27 Member States of the European Union.

The Commission report makes tax, expenditure and debt projections for each EU state, and then looks at the impact of the ageing of the population in each of them. Ageing will mean extra pension spending, extra health expenditure and extra long-term nursing care for the very old or infirm.

The Commission report then measures what it calls the sustainability gap for each country, in other words the amount by which revenue would have to be increased or spending reduced, to ensure that debt levels were sustainable – in other words, to ensure that a country is not simply borrowing to pay interest. Global interest rates are quite low now, but if everybody started to borrow a lot more, they could rise very rapidly.

Three European Union States emerge very well from this exercise. Denmark, Hungary and Bulgaria have little or no sustainability gap to bridge. These countries have already undertaken pension and other ageing-related reforms.

But the study suggests that situation facing other countries is much more difficult. On the basis of unchanged policy, the overall debt-to-GDP ratio of the 27 EU Member States as a whole would, on average, reach 155% of GDP by 2030 and a huge 477% of GDP by 2060.

Ireland, Greece, Spain, the United Kingdom and the Czech Republic face particularly severe difficulties in the long-term, if policies are not changed very substantially, and quickly.

The report also shows that delaying taking action on these problems would make things even worse. On average, over the 27 countries, a delay of 5 years would add 0.8% of GDP to the gap to be bridged, but a 5-year delay would add 1.5% of GDP (that is one-and-a-half times everything earned in the country in a year) to the gap to be bridged in the UK and in Ireland.

It is worth noting that prices are actually falling in some countries, which means that the real purchasing power of anyone with a fixed income and secure job is actually increasing. But those who lose their jobs, or whose businesses go under, can suffer a catastrophic fall in their purchasing power.

I believe that, as far as possible, a long-term restructuring of public finances should be done on an internationally coordinated basis. In the modern world, talent, money and goods are highly mobile and any attempt to increase the tax burden in one country is liable to lead to a flight of people and money to other countries which do not apply the same tax increases.

Lengthening people's working lives will be exceptionally important too. The idea that people retired from work in their early sixties was financially sustainable when life expectancy was 70, but it is not when life expectancy is 80 or 90.

Finally, it is important to keep things in proportion. The challenges we face are not as bad as those faced by our grandparents in the 1930s. In Europe and the US, our average incomes today are about five times what theirs were. It should therefore be easier for us to economize without cutting out essentials, than it was for them.

To get the public to accept the necessity of change, we will need an honest, simple and graphic explanation of the problem, a timeframe for its solution and a hopeful statement of what we can look forward to when the work is completed. This report of the European Commission provides the raw materials for the explanation the people will need. Translating that into something that all can read and understand is the challenge for political leaders.

I spoke about this topic at a farewell lunch given for me by The European Institute in Washington this week. The speech can be accessed at: http://www.eurunion.org/eu/index.php?option=com_content&task=view&id=3515&Itemid=152 .

Post-Washington blog

For those who may be interested, I am creating a blog on which I may post some future messages reflecting my post-Washington experiences. The address is www.johnbruton.com. My term here comes to an end on 31 October.

Please send me your comments about this or any of my weekly messages or other EU matters. I look forward to hearing from you!