tag:blogger.com,1999:blog-37295324444085734542024-03-20T01:28:08.021-07:00European Political Economy Project (EuPEP)SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.comBlogger36125tag:blogger.com,1999:blog-3729532444408573454.post-68675704212805055252021-11-25T06:13:00.002-08:002021-11-25T06:13:13.795-08:00The international role of the Euro with Klaus Regling<iframe style="background-image:url(https://i.ytimg.com/vi/fi5oRPYiFpY/hqdefault.jpg)" width="480" height="270" src="https://youtube.com/embed/fi5oRPYiFpY" frameborder="0"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-32440184770308704712021-11-24T09:53:00.008-08:002021-11-24T10:00:29.319-08:00The International Role of the Euro<h2 style="text-align: left;">The Third Max Watson Memorial Lecture </h2><h4 style="text-align: left;">Klaus Regling<br /><span style="font-weight: normal;">Managing Director of the European Stability Mechanism</span></h4><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/a/AVvXsEgqGlL7yvViWWRivdTWO5jEnFO3tFZTd2XsqHjrZ9EdRWfr339vsRdGL6TVbuanJ33r7fGAnCItzeHHa1Q_1hs1-ATahkpU2Ni_4pEeGsT-NGzdnWBLbI9y77g9sjnCWWdUcmG_Txjyq9IceMM2_7Y0hHSudS5PXqYc3Rrg45Hb_o8v0YeEeYik-l_m=s940" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="623" data-original-width="940" height="212" src="https://blogger.googleusercontent.com/img/a/AVvXsEgqGlL7yvViWWRivdTWO5jEnFO3tFZTd2XsqHjrZ9EdRWfr339vsRdGL6TVbuanJ33r7fGAnCItzeHHa1Q_1hs1-ATahkpU2Ni_4pEeGsT-NGzdnWBLbI9y77g9sjnCWWdUcmG_Txjyq9IceMM2_7Y0hHSudS5PXqYc3Rrg45Hb_o8v0YeEeYik-l_m=s320" width="320" /></a></div><div><br /></div>As the founding Managing Director of the European Stability Mechanism (ESM), Klaus Regling is uniquely conscious of the role of the euro in steering the fortunes of the euro area. His work on the currency union predates the ESM and the European Financial Stability Facility (EFSF), to earlier collaboration with his friend Max Watson at the International Monetary Fund and the European Commission. Hence it was fitting that he dedicated the third Max Watson memorial lecture to his vision for the future of the euro, which he and Max cared so much about.<br /><br />Regling made a persuasive case that unalloyed global dependence on the dollar left the world unduly vulnerable to US monetary policy and domestic developments, as seen in the Latin American crisis, Asian crisis, and global financial crisis. A wider international role for the euro would strengthen global financial stability, as well as supporting growth and integration within Europe.<br /><br />Regling explained that he envisages not a dual dollar/euro system, but a multi-polar system—since China also has begun to prioritize greater global influence of the renminbi. Multi-polarity in itself would have benefits for global financial stability, by offering possibilities for diversification and hedging. But in such a world, Europe would offer additional advantages of trust and credibility, which should help its currency stay a strong second global currency. Besides Europe’s economic size, it offers a credible legal system, with stable rule of law and investor protection. It has an independent central bank, and operates advanced, open financial markets.<br /><br />Europe’s comprehensive response to its crisis restored and further strengthened the influence of the euro. The response included large EFSF/ESM financial support to safeguard stability in euro area countries which could not use the exchange rate instrument, as well as banking, fiscal, and structural reforms, and closer policy coordination. Happily, it is clear that Europe’s stability is now more assured. For instance, banks have slowly worked their way through the Non-Performing-Loans legacy of the 2010-11 crisis, and have been a stabilizing factor rather than a vulnerability during covid.<span><a name='more'></a></span>By now, the euro and the dollar share trade invoicing and payments more or less equally, but the dollar remains dominant in foreign exchange trading, official reserves, safe assets, debt and equity markets. Europe’s continued heavy dependence on long-term bank financing and fragmented national capital markets are drags on growth and on expansion of the international use of the euro. European safe assets—even after bond issue to finance Next Generation EU funds (NGEU)—will remain below 40 percent of area GDP, compared with 90 percent in the US.<div><br /></div><div><span></span><span></span>Key requirements for the use of the euro to expand further are stable and liquid financial markets, and a strong domestic economy. The introduction of NGEU recovery funds, with intra-regional transfers coupled with structural reforms, are a significant leap forward. With a potential EU 850 billion NGEU debt issue by 2026, the EU will become one of the largest issuers in the euro area. Taken together with other sovereign and AA+ debt, this could imply safe assets of around EU2 trillion in Europe—offering diversification to dilute the unhealthy sovereign-/banking-sector dependence. There is already evidence of massive excess demand for EU debt issue.<br /><br />Nonetheless, the euro area needs still more economic risk-sharing, through both market and government channels.<div><br /></div><div>On the market side, banking union and a single market for financial services (capital markets union) would allow capital to be used more efficiently, thereby bolstering Europe’s competitiveness and growth potential. For both banking and capital markets union, however, the next steps will require difficult political decisions:<br /><ul style="text-align: left;"><li>Banking union will require a European deposit insurance scheme, cross-border integration, and diversification of bank balance sheets. An important next step already underway is the ratification of the ESM backstop for the Single Resolution Fund, by January 2022.</li></ul><ul style="text-align: left;"><li>Capital markets union will require at least partial harmonization of the 19 national capital markets’ rules and laws. Notably, they need partial harmonization of their national insolvency laws, a common corporate tax base, and further supervisory convergence.</li></ul>On the government side, the euro area needs to do more risk-sharing via public channels:<div><ul><li>The EU budget already provides a certain amount of risk-sharing, as do the loans from the European Investment Bank and financial assistance from the ESM—and now the NGEU. But these cover the EU as a whole, not just the euro area with its potentially greater stabilization needs in the absence of exchange rate adjustment. Moreover, the NGEU is time-limited.<br /><br /></li><li>Hence, national budget buffers could usefully be supplemented by a central fiscal capacity (CFC). The CFC would complement national fiscal space, without being an annual budget or requiring transfers. Instead, a revolving fund could be created, for activation only when necessary. The ESM could create and manage such a fund.</li></ul>Other supporting reforms in the offing are also likely to strengthen the international role of the euro. Financial plumbing reforms will be vital and the ECB is working on a number of these. The greening of finance is sure to play in the euro’s favour, since the EU is the global centre of green finance—more than half of all green bonds have been issued in Europe and denominated in euro. Development of a digital euro will also help make the euro more accessible to international investors.</div><div><br /></div><div>Regling concluded by reminding a receptive audience that a stronger euro underpinned by banking union, capital markets union, and more public risk-sharing would be advantageous not only for Europe but for the international financial system as a whole. <br /><br />Adrienne Cheasty (Academic Visitor, St Antony's College, Oxford)<br /> </div></div></div>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-87085369248998575982021-06-28T07:20:00.001-07:002021-06-30T07:20:49.470-07:00Beyond COP26 - Towards more effective international climate architecture<iframe frameborder="0" height="270" src="https://youtube.com/embed/RTyKRQXRmDI" style="background-image: url(https://i.ytimg.com/vi/RTyKRQXRmDI/hqdefault.jpg);" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-78402144359230044752021-06-25T12:57:00.003-07:002021-06-25T12:57:56.247-07:00Beyond COP 26: Towards more effective international climate architecture<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6P89WnJ02CwMJHmA7xlKPtxl-OxjAVVuU2HHfpr4SD8pqGuU5qRK7grbkvmczfXOGWBTk1J6bg0HWaav-I_KtWiw7Lm6ns4KpYJhQ_9McSA2sLEf2HVpnrBjzv7cLA7ctts2Y0w5W-iY/s496/climatechangegoals.jpeg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="350" data-original-width="496" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh6P89WnJ02CwMJHmA7xlKPtxl-OxjAVVuU2HHfpr4SD8pqGuU5qRK7grbkvmczfXOGWBTk1J6bg0HWaav-I_KtWiw7Lm6ns4KpYJhQ_9McSA2sLEf2HVpnrBjzv7cLA7ctts2Y0w5W-iY/s320/climatechangegoals.jpeg" width="320" /></a></div>The UN-led Conference of the Parties (COP) process of global climate negotiations has built on the delicately-crafted 2015 Paris Accord and achieved a high level of legitimacy across the international community. However, progress towards climate goals remains inadequate. <br /><br />This blog reports on a seminar in the Political Economy of European Climate Action series, hosted by the European Studies Centre of St. Antony’s College Oxford, on June 14, 2021, which discussed whether the COP process can be made more effective to deliver climate goals. The speakers were Selwin Hart (ASG for Climate Change, UN) and Benito Müller (Professor, Environmental Change Institute, University of Oxford); the discussant was Adrienne Cheasty of EuPEP; and the session was chaired by Hartmut Mayer, Director of the European Studies Centre at St Antony’s College, Oxford. <br /><br /><a href="https://youtu.be/RTyKRQXRmDI" target="_blank">Click here for the podcast of this session</a><br /> <br />Selwin Hart started by outlining the stakes, quoting the UN Secretary General as saying that 2021 would be a make-or-break year for climate action, with COP26 in Glasgow in November. We now have less than a decade to achieve effective emissions reduction before it becomes too late to cap global warming below 2°C. <span><a name='more'></a></span>He emphasized that global challenges require global solutions: the strength of the Paris Agreement is its universalist approach—all countries have a role to play and contribution to make. Small island developing states and the less developed countries were the first to sound the alarm about the consequences of climate change and are most at risk, while engaging the larger states (and major polluters) is obviously vital. A universalist approach reflecting the interests of all countries will remain key going forward. <br /><br />Hart allowed that the Paris Agreement was imperfect, but stressed that it represents the best framework for progress. It is high time to shift the focus from finalizing treaties, towards achieving effective implementation. <br /><ul style="text-align: left;"><li>In this connection, the COP process serves its intended purpose. COPs must remain annual, to keep the momentum for implementation and for increasing ambition. </li></ul><ul style="text-align: left;"><li>The continuing engagement of heads of state and ministers is crucial: decisions cannot be made by technocrats but require political action. </li></ul><ul style="text-align: left;"><li>The current work to improve the transparency of the process should help implementation. A planned and desirable improvement is to bring more economic data to bear in making the case for climate action and climate finance. </li></ul><ul style="text-align: left;"><li>Finance will be a key determinant of countries’ capacity to implement their pledges and to build resilience to climate change; assistance to poorer countries is a core agenda item for COP26—including for adaptation, which has been neglected for too long.<br /></li></ul>Benito Müller agreed with Hart on the importance of a universal approach. Justice in all its forms (including procedural justice) is essential for the legitimacy of the framework—and smaller countries must be heard. He also agreed on shifting the focus squarely to implementation. <br /><br />He considered, however, that there is room for improvement in the COP process. COPs have become too large and unfocused, with large delegations and an explosion of non-state participants and side-events. COP23 in Bonn had more than 20,000 participants spread over two campuses, with only a minority contributing to the negotiations. <br /><br />Müller’s March 2021 report (Quo Vadis COP?, ecbi) recommends slimming down future COPs, ideally back to their post-Kyoto levels of 5000 participants. This could be achieved by breaking the COP into two separate events. The slimmer COP would be devoted to technical matters related to implementation, with political elements (the high-level segment) and non-state climate activism shifted to a new Climate Action Week. Such a division of labor would have the benefit of allowing COPs to make Bonn their permanent headquarters. Geneva could permanently host the Climate Action Weeks, with larger conference capacity and proximity to Bonn. This reform would significantly reduce costs, focus agendas, and eliminate the perception of the COP as ‘a jamboree’. He agreed with Hart that there were some times when high-level engagement in the negotiations, and the public opinion pressure of non-state participants, would be prerequisites for a successful outcome. Hence, for the most vital COPs, e.g., the 2023 Global Stocktake, the COP could shift to Geneva and recombine with the Climate Action Week. <br /><br />Adrienne Cheasty commented that, unless the current framework could be strengthened, there was a real risk of failing to get effective implementation and increase ambition enough to close the gap between goals and pledges. She agreed with Müller that COPs have become too unwieldy, and would support splitting the negotiations from the side-events—but, like Hart, cautioned that maintaining high-level policymakers’ engagement in the substance of negotiations would be key for getting decisions. Also, it would be important for a split not to lose the energy and innovation associated with the non-state Marrakech process. She thought it might be necessary to pull back from universalism—e.g., coordination on carbon pricing might only be feasible for a small group of the biggest emitters. <br /><br />She proposed two avenues for strengthening implementation. <br /><ul style="text-align: left;"><li>The first was to develop a formal system of scrutiny for NDCs, with the aim of bringing peer pressure to bear on countries. She compared the current vague and intentionally-unofficial processing of NDCs with the more structured IMF consultation process for countries’ macroeconomic plans. IMF Article IV consultations have a uniform format and time frame; they start with technocratic evaluation of plans and end with feedback from the international community. Introducing this more explicit accountability for NDCs, on a level playing-field and with peer feedback, would add a mild stick to the climate architecture. </li></ul><ul style="text-align: left;"><li>The second was to streamline finance, by rebalancing from project financing towards programme financing—which could be delivered faster and more flexibly. As regards mobilizing financing, she saw the IMF’s new SDR issue as a rare opportunity to break the logjam: the UK as COP president should mobilize rich countries to donate their unneeded SDRs for developing-country resilience-building.<br /></li></ul><p>Kicking off the discussion, the Chair commented that the world appeared to have made more progress in increasing global awareness of the problem than in actually reducing emissions. We should be more creative. The discussion considered whether the UN’s planned strengthening of transparency could act as an effective ‘stick’, with commentators divided on whether more formal IMF-type oversight would help or discourage implementation. Q&As covered: the carbon impact of COPs; the role of the private sector; the carbon border adjustment mechanism; climate litigation activism; the urgency of climate action; bringing China fully on board; a Common Time Frame for measuring results; and other international models worth studying, e.g. CERN. There was broad agreement that the priorities for Glasgow are to make coal a thing of the past and to mobilize financing. </p><p>David Madden (Distinguished Friend of St Antony's) </p>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-86986221147896489552021-06-09T07:19:00.000-07:002021-06-30T07:19:42.187-07:00Saving the planet: The ethical and economic case for regenerative agricu...<iframe frameborder="0" height="270" src="https://youtube.com/embed/LJMq0mwJQo4" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-79860693631650493382021-06-08T08:58:00.003-07:002021-06-08T08:58:35.226-07:00Saving the planet: The ethical and economic case for regenerative agriculture<p class="x_MsoNormal"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkpqmWijCt2bXTqS5TLb9OkcNJbnjXsBh913F2HsQqB6EaanqVV8WZAoMJgamn26bzBA7CvHXlawqlohRWKZ5eBfuSZ7WlbAGiHnnuUxSdmEwp4SnFNNHflWnxh_lKaiWudi7zdLNo7us/s1280/savetheplanet.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="720" data-original-width="1280" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgkpqmWijCt2bXTqS5TLb9OkcNJbnjXsBh913F2HsQqB6EaanqVV8WZAoMJgamn26bzBA7CvHXlawqlohRWKZ5eBfuSZ7WlbAGiHnnuUxSdmEwp4SnFNNHflWnxh_lKaiWudi7zdLNo7us/s320/savetheplanet.jpg" width="320" /></a></div>This
EuPEP webinar took place on 2 June. The speaker was Philip Lymbery,
Global CEO of Compassion in World Farming; the discussant was Professor
Tim Lang of City University, London; and the Chair was David Madden.<p></p><p class="x_MsoNormal">Philip
Lymbery said that about 10,000 years ago human beings changed from
being hunter-gatherers into settlers relying on agriculture. Then, a
generation ago, mankind tore up its contract with the soil, and with
natural farming, and turned to factory agriculture. The results were,
with a world population of 7.8 billion, 80 billion farm animals were
raised per year: 2/3 on factory farms. The livestock sector produced
14.5 % of GHG, more than all the exhaust fumes from the world’s planes,
trains and cars. Agriculture occupied half the world’s habitable land.
83% was dedicated to animal production, providing humanity with just 37%
of its protein and 18% of its calories. The food system produced enough
for 17.5 billion people, but nearly 2/3 of EU cereals were used as
animal feed. We were exceeding planetary boundaries. The two sides of
factory farming were cages for animals, and arable land used to produce
their feed in monocultures. This was based on chemicals(fertilisers and
pesticides) with great damage to the natural world and biodiversity. The
system also distorted economics: farm subsidies cost $700 billion per
year worldwide, 50 billion euros per year in the EU (40% of EU budget),
and £3+billion per year in the UK. The main beneficiaries were the
global meat industry and the companies producing fertilisers,
pesticides, pharmaceuticals and grain. The EU was leading the way in
pushing back.<span></span></p><a name='more'></a> The Commission’s Green Deal in 2019 described climate
change and environmental degradation as an existential threat to Europe
and the world. The EU Farm to Fork and Biodiversity Strategies set
challenging targets for 2030. The way forward was the 3 Rs:
regeneration, rewilding and rethinking protein: restore animals to the
land, regenerate soil fertility, reduce pollution and conserve water.
Rethinking protein focussed on plant-based alternatives, cultured meat,
fermentation, precision fermentation. These would progressively
undermine the (distorted) economics of factory farming, and ensure that
the industrial model had nowhere to go.<p></p><p class="x_MsoNormal">Tim
Lang addressed the EU-UK political economy of food. The parting of the
way had begun, but not as much as London liked to think: and the EU
still provided 1/3 of UK food. Neither the UK nor EU were current food
policy successes: over-production, ultra-processed diets, diet ill
health, low wage food economies. UK was fragmenting food policy: with
Scotland, Wales and NI ploughing their own furrows; while the EU was
integrating food policy across the food system (Green Deal, Farm to Fork
– a big shift to consumers and the environment). The UK had uncertain
agri-food vision ahead, whereas the EU was slowly developing. Both the
UK and the EU shared problems which required collaboration (health,
environment, trade, food quality, inter-sectoral policy processes):bad
relations were a danger. There were 9 new objectives of a future CAP:
fair income to farmers, increase competitiveness, rebalance power in the
food chain, climate change action, environmental care, preserve
landscapes and biodiversity, support generational renewal, vibrant rural
area, protect food and health policy. Meanwhile all member states were
slow to shift consumption, with a mixture of progress and retreat on
sustainable diets. The Hot Springs Conference in 1943, which created the
FAO, was an example of ambition in the past. 2021 was a key year for
framing food (or not): July G7 in UK, September UN food Systems Summit,
October COP 15 Conventional on Biodiversity, November COP 26 UN
Framework Convention n Climate. </p><p class="x_MsoNormal">Questions
covered the CAP (and possible UK policies outside the EU); subsidies;
the growing influence of green parties; food-systems, and whether these
were consumer-led; plant- based food as monocultures; animal welfare;
and the action by the NFU against Blue Peter. <br /></p><p class="x_MsoNormal">Sir David Madden (Distinguished Friend of St Antony's) <br /></p>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-6047333577971434172021-05-31T12:37:00.001-07:002021-06-12T12:46:53.175-07:00European Green Bonds and mechanisms for long-term policy commitment<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRtQen_mhZN9ZnuFAatMpm3zPYstY9Z0LT5qUBaSXjSxZ2T_eqGblwg37dS6ICdHH1NWD78A1zzYluRmWBpn4DGQDxbhL8kdSNg70qb7YfJEDflhmc80Olh-IEVwDK8kwMHfk4NYYfLic/s1024/greenbonds.jpeg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="683" data-original-width="1024" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiRtQen_mhZN9ZnuFAatMpm3zPYstY9Z0LT5qUBaSXjSxZ2T_eqGblwg37dS6ICdHH1NWD78A1zzYluRmWBpn4DGQDxbhL8kdSNg70qb7YfJEDflhmc80Olh-IEVwDK8kwMHfk4NYYfLic/s320/greenbonds.jpeg" width="320" /></a></div>Green sovereign bonds—government borrowing tied to expenditure
commitments to climate action—are becoming more common. Notably, the
European Union has decided to issue green bonds to finance its
coronavirus response program. But how effective will official-sector
green bonds be in delivering on climate goals, and could we do better? <br /><br />This
blog reports on a seminar in the Political Economy of European Climate
Action series, hosted by the European Studies Centre of St. Antony’s
College Oxford, on May 24, 2021, which examined green sovereign bonds.
Daniel Hardy (EuPEP, St. Antony’s College, Oxford) dissected their
likely efficacy, and proposed an alternative approach; Fatos Koc (OECD),
and Martin Ellison (Nuffield College, Oxford) reacted; and Charles
Enoch (EuPEP) chaired the session. <a href="https://youtu.be/8T7rYRlxi3Y" target="_blank">Click here for the podcast of this session</a><a href="https://youtu.be/8T7rYRlxi3Y" target="_blank">. </a><br /><br />Hardy
started by documenting the recent proliferation of government green
bonds (issues by Germany, UK, Italy, Hungary, Poland, France, Belgium,
etc., etc.) but reminded the audience how small this financing still is:
government green bonds make up much less than half a percent of world
debt; the planned €250 billion issue of Next Generation EU bonds would
more than double their stock. <br /><br />He then examined governments’
motivations for choosing green bonds (instead of plain untied borrowing)
and—spoiler alert—found that official green bonds have significant
shortcomings in delivering on these objectives. <span><a name='more'></a></span><p></p><ul style="text-align: left;"><li>Governments
say their primary motivation is to promote their green investment.
However—as governments and investors well know—it is meaningless to link
specific funds to specific activities in a government budget, since
money is fungible and all funding usually flows into and out of a
unified treasury account. It is the decision to spend on green
investment that pursues the green goal, not how that spending gets
financed. In practice, governments decide their projects within the
budget preparation process, and their debt managers then look for items
that can be tagged as green and attached to green bonds. The rationale
for green EU bonds is slightly stronger than for a national government:
green bonds can support green investment if: (i) they are allocated to
activities that wouldn’t happen otherwise—e.g., the share of
NextGeneration EU funding that will be given as grants; or (ii) if they
generate funding more cheaply than via plain-vanilla bonds (create a
‘greenium’)—it’s possible the European Commission will be able to borrow
more cheaply than the average EU country, though not at a lower rate
than, say, Germany or the Netherlands. </li></ul><ul style="text-align: left;"><li>Other
government goals are to cut the cost of funding and widen their
investor base. However, so far investors seem willing to accept only a
very slightly lower return on green bonds, and this idealism is unlikely
to continue to apply to much larger bond issues. Moreover, green bonds
are inherently more expensive than plain vanilla bonds, because they
incorporate an additional cost—of verifying that the promised green
activity gets carried out. A study of German green bonds (Climate Bond
Initiative, Sovereign, Green, Social and Sustainable Bond Survey 2021)
found the gross benefit to be only about 2 basis points, and more than
offset by the added cost of issue. Some small sovereigns might benefit
from reaching new investors (e.g., activist groups or pension funds
seeking an ESG-portfolio), but bringing in some new types of investors
can have downsides: for instance, they may reduce the liquidity in the
system or be costly to manage. </li></ul><ul style="text-align: left;"><li>A
further goal is to respond to buoyant investor demand for green assets.
But as discussed above, green bonds provide only an appearance of
supporting green investment. Moreover, they do not offer any kind of
hedge against climate change or reduce any environmental risk. </li></ul><ul style="text-align: left;"><li>Relatedly,
issuing green bonds would allow governments to gauge the extent of
popular willingness to pay for environmental policy. As pricing
information has shown (see above), willingness to pay extra for the
environmental policy embedded in current green bonds is near zero
(‘greenium’ is very small). </li></ul><ul style="text-align: left;"><li>Some
governments may wish to help set a standard for green bond design.
However, standard-setting is complicated rather than helped by having
numerous governments try to set the pace; a better approach would be for
a few large issuers to set international standards (say, the EIB and
IFC). Moreover, green bond issue has outpaced the development of
standards—there is little agreement on how to ensure investments are
truly green rather than green-washed. Even the EU will begin to issue
green bonds before its own taxonomy is finalized. </li></ul><ul style="text-align: left;"><li>Governments
may also hope to promote their national green finance sectors, but this
would be a near-zero-sum game (essentially all striving to keep up with
the competition), which in the case of EU countries goes against the
single-market objective. </li></ul><ul style="text-align: left;"><li>And
finally governments may wish to show moral leadership… but the ‘cheap
talk’ associated with what is merely the appearance of supporting green
investment is unlikely to be widely persuasive, and may look cynical.<br /></li></ul>Having
dismantled the case for green bonds, Hardy suggested an alternative
financing instrument that would be more effective in delivering on the
green goals governments say they want to pursue. He proposes an
outcomes-based borrowing instrument: green sovereign warrants. Payments
on these warrants would be tied to the country’s achievement of its
environmental targets (e.g., to its emissions reduction over a specified
period): the worse the government falls short of its target, the
greater the payment obligation would be on the warrant. <br /><br />From
an economic design perspective, these warrants would be superior to
current green bonds. They would genuinely tie governments’ hands to
their environmental commitments, reducing incentives to greenwash and
strengthening incentives for long-term sustainable investment. Moreover,
by being tied to outcomes (emissions reduction or other sustainability
goals), they would leave governments with maximum flexibility in
pursuing climate goals, avoiding the distortionary earmarking implied by
current green bonds. Other attractive advantages include: (i) much
easier administration--notably elimination of the need to verify the
delivery of green-bond-tied commitments; (ii) a feedback signal via the
price of the warrants on whether the government’s climate policy is
credible; (iii) the creation of a natural hedge against risk (those hurt
by global warming could go long on the warrants, and losers in the
low-carbon transition would go short); and (iv) strengthening society’s
engagement in the government’s climate action, with investors becoming
cohesive advocates against any reneging on government commitments (and
possibly the broader public as well, if some warrants were distributed
for social purposes). <br /><br />Koc, reporting on OECD consultations with
government debt managers, confirmed that they share some of Hardy’s
reservations about sovereign green bonds: their top concerns are the
bonds’ uncertain liquidity and effectiveness in delivering their goals.
Green bond issuers say that their two main objectives are to diversify
their investor base and to enable governments to show moral leadership
on climate change. Besides creating an immediate positive market story,
they hope the bonds will help develop the broader market for sustainable
financial instruments. Given the buoyant interest in ESG investment,
and the greater need for borrowing in the wake of the pandemic, green
bonds have been expanding rapidly from their low base: 40 percent of the
total stock was issued in 2020. <br /><br />That said—and in line with
Hardy’s presentation—debt managers are finding major challenges with the
issuances. The administrative requirements are substantial, requiring
coordination across ministries (not usual for traditional debt
management), new monitoring and review activities, special marketing,
and sometimes legislative changes, since earmarking is expressly
forbidden in many countries. A lack of eligible government investment to
finance may cap their growth (currently only 4 percent of total OECD
government spending is green-eligible), as may the lack of standards.
They are seen by some as fragmenting the market, and possibly
cannibalizing liquidity in other segments. <br /><br />Hence, unanswered
questions cloud the future of sovereign green bonds. Supply and demand
dynamics are unclear: currently demand exceeds supply, but if supply
expands much, the small existing ‘greenium’ could disappear. Nobody
knows yet how successful they will be—or indeed how to measure their
success (e.g., given the scope for greenwashing). Progress with
standardization will help, but ultimately the future of sovereign green
bonds will depend on whether somebody comes up with a more efficient
idea for helping governments’ climate action. Hardy’s proposal is one
intriguing possibility. <br /><br />Ellison found Hardy’s idea clever:
making the debt service contingent on success would create a good
incentive for governments to do the right thing. Alas, however,
state-contingent debt has generally not been successful, despite a long
history. For instance, Argentine GDP-tied warrants issued in 2005 traded
at heavy discounts. Recent IMF work (Roch and Roldan 2021) explains the
poor take-up of welfare-improving state-contingent debt by the
likelihood that lenders overweight the probability of bad
contingencies—i.e., charge a large premium for ambiguity. This work was
based on GDP-tied examples; it is likely however, that ambiguities
associated with governments’ intent and capacity to bring down emissions
are even greater than those associated with their ability to deliver on
GDP promises. Hence, Hardy will need to ask whether the premium on the
warrants would be too high, despite their positive contribution to
welfare.<br /><br />The offline discussion centred on whether the warrants
could be designed successfully. All agreed that product design would be
key, with some commentators noting that ESG investors are more
passionately committed than GDP-linked investors. In particular, some
considered that small retail investors could be a stable source of
funding at lower premia. Also, objective anchors do exist for pricing
the warrants—such as governments’ ESG ratings and prices in carbon
futures markets. These anchors might provide superior mechanisms for
strengthening governments ’commitment to decarbonization. Panelists and
audience had mixed enthusiasm for the work currently being done by
institutions to support green bonds. On the one hand, the work of the
OECD, EC, IMF, World Bank, etc. to develop taxonomies and to green the
financial system is very welcome; on the other, central banks’
involvement in purchasing green bonds risks doing harm by muddying their
inflation-control objective. <br /><br />Adrienne Cheasty (Academic Visitor, St Antony's College, Oxford)Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-63359316884427829532021-05-31T07:18:00.001-07:002021-06-30T07:18:38.375-07:00European Green Bonds and mechanisms for long-term policy commitment<iframe frameborder="0" height="270" src="https://youtube.com/embed/8T7rYRlxi3Y" style="background-image: url(https://i.ytimg.com/vi/8T7rYRlxi3Y/hqdefault.jpg);" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-5269419094585976162021-05-25T07:17:00.001-07:002021-06-30T07:17:48.804-07:00Local energy communities and the EU’s clean energy package: An enduring ...<iframe frameborder="0" height="270" src="https://youtube.com/embed/Ak6gXVDK4VY" style="background-image: url(https://i.ytimg.com/vi/Ak6gXVDK4VY/hqdefault.jpg);" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-4729628998119096062021-05-24T07:09:00.001-07:002021-06-15T07:12:47.485-07:00Local energy communities and the EU’s clean energy package: An enduring innovation?<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjH8VAZ0RaLfJ8GNRDmYwZP8IWDGhG7M_X0uqXqQRa0Lmm3e7F3-yOHNF2zsON7mVjDLK8Q-nzFi1mEVgKxT1UJusOjZ_e_R2qb5ImddjsDdhmJtz13Zjt2LeACEASf2NQr-HfaAGhtSXs/s1024/cleanenergy.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="696" data-original-width="1024" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjH8VAZ0RaLfJ8GNRDmYwZP8IWDGhG7M_X0uqXqQRa0Lmm3e7F3-yOHNF2zsON7mVjDLK8Q-nzFi1mEVgKxT1UJusOjZ_e_R2qb5ImddjsDdhmJtz13Zjt2LeACEASf2NQr-HfaAGhtSXs/s320/cleanenergy.jpg" width="320" /></a></div>This EuPEP webinar took place on 17 May 2021. The speakers were Jake Barnes (The Newcomers Project, Environmental Change Institute, Oxford) and Jenny Palm (International Institute of Industrial Environmental Economics, Lund University). The discussant was Kristian Petrick (Prosumers for the Energy Union (PROSEU)). Kalypso Nicolaidis (St Antony’s College, Oxford; School of Transnational Governance, European University Institute) chaird the discussion. <br /><br />The EU's Clean Energy Package (CEP), finalised in 2019, gave new momentum to the “energy communities” movement as part of an overall strategy for moving to a sustainable, carbon-neutral energy system. Energy communities are organizations, not owned by traditional utilities, that provide energy with the primary purpose of generating environmental, economic or social community benefits for members or the local area. As explained by Barnes and Palm, the EU’s Renewable Energy Directive and the Directive on common rules for the Internal Electricity Market enshrine the rights of individuals and communities to generate, store, and sell energy, and enjoin member states to remove undue barriers to the establishment and success of energy communities. The directives define principles applicable to Renewable Energy Communities, which are local organizations dedicated to the promotion of renewable energy in any form, and to Citizen Energy Communities, which are non-commercial organizations that can engage across the electricity market. Thus, energy communities are given scope to contribute to the energy transition and also envisaged as vehicles for citizen engagement and empowerment. <span><a name='more'></a></span>While some energy communities are long-standing, the trend towards de-carbonization, decentralization and digitalization have given them new prominence and, perhaps, new opportunities. However, national experience and attitudes matter. In the UK, favorable feed-in tariffs introduced in 2010 led to the mushrooming of collective electricity generation projects, building on a tradition of bottom-up activism. Groups of citizens were willing to come together in relatively autonomous organizations outside the structures of government or conventional businesses/companies and successfully established (renewable) energy communities. Yet the sector is now in transition, occasioned by the phase-out of favourable feed-in tariffs and increasing regulatory burden, which both push towards greater size and professionalization, even as technology now supports more dispersed systems. Sweden’s path was and is rather different: there, local governments own electricity distribution systems and, in urban areas, centralized heat providers. Moreover, the electricity supply is already almost carbon neutral. Hence, grassroots engagement is not much directed at electricity generation and heating energy so much as at de-carbonizing other parts of the economy. <br /><br />This diversity is likely to continue into the future. There is considerable uncertainty over how energy systems may evolve. New business models will be needed, and they will probably involve various forms of partnerships among incumbents, new entrants, and communities. More professionalized and commercially-orientated approaches may lead to rapid and large-scale implementation, but a more community-based approach may in the end be more economically and politically resilient. In this context, the transposition of the EU directives into different national legislation needs to be consistent with the embedded principles and strategy, but close harmonization is not essential. Additional experiments are needed, recognizing that what will work in one context may not in another, in part because of differences in conceptions about the role of citizens as more or less active consumers and even producers. <br /><br />Petrick’s discussion based on experience with “prosumer” (producer-consumer) initiatives was highly complementary. Prosumers, perhaps organized into energy communities, can be envisaged as being at the centre of the future European Energy Union. Petrick argued that, to recognize their importance and increase their reach, policy makers should define ambitious targets for prosumer technologies, and specifically for rooftop solar photovoltaics. Viability will require long-term and balanced contracts between prosumers and counterparts, for example, in terms of fair surplus power tariffs, simplified energy sharing, or power purchase agreements. Viability will also require that administrative and contractual complications be proportionate. <br /><br />A common theme at the seminar was that distributed energy leads to distributed responsibilities. On the one hand, governments and regulators at all levels, from the EU to municipal authorities, have an interest in engaging more with energy communities as part of the effort to achieve sustainability and carbon-neutrality. Local consultation is valuable not only as a way of improving policy frameworks and designing an efficient, robust energy system, but also in broadening acceptance of the considerable adjustment that will be needed as part of the energy transition. <br /><br />On the other, citizens will have to accept duties as well as rights. Widespread energy “literacy” will be needed if people are to be more then passive consumers. One component of a next-generation electricity system will be real-time management of demand and storage capacity, rather than relying primarily on adjustment in supply, as is now the case. This involvement will require the consent of the affected consumers-citizens, and the active participation of at least a few. In this way and other, Nicolaidis concluded, the debate over the role and functioning of local energy communities brings together two central challenges facing Europe and the world: how transition to a sustainable economy, and at the same time how to maintain a cohesive, inclusive society. <p></p><p>Daniel C. Hardy (Academic Visitor, St Antony's College, Oxford)<br /></p>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-75372615557616509942021-05-17T07:00:00.001-07:002021-06-15T07:04:45.924-07:00A transparency code for Central Banks: Implications for Europe<p class="MsoNormal" style="margin-bottom: .0001pt; margin-bottom: 0cm;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRvbXeTZuU_L-TjZFbk6faaexTFVAmp7Bs6kr-TcN5N4qaLsL52uypgsBnep0D4NssMUWIDkmLriTG928VqYdcao60w89qihZR7rsr26DUasXu4cSkhMXU74QKhYAncr58rnB9y6aqwBk/s1000/Fiscal-transparency.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="600" data-original-width="1000" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhRvbXeTZuU_L-TjZFbk6faaexTFVAmp7Bs6kr-TcN5N4qaLsL52uypgsBnep0D4NssMUWIDkmLriTG928VqYdcao60w89qihZR7rsr26DUasXu4cSkhMXU74QKhYAncr58rnB9y6aqwBk/s320/Fiscal-transparency.jpg" width="320" /></a></div>This
EuPEP webinar took place on 10 May. The speaker was <span lang="EN-US">Ghiath
Shabsigh (International Monetary Fund)</span>; the discussants were <span lang="EN-US">Daniel C. Hardy (European Studies Centre,
St Antony’s College) and <span style="mso-tab-count: 2;"> </span>Johannes
Lindner (European Central Bank). </span><span lang="EN-US">Charles
Enoch (European Studies Centre, St Antony’s College chaired the discussion.)</span><span lang="EN-US"></span><p></p><p class="MsoNormal"><span lang="EN-US">The expanding role of central banks in a
broad array of policy areas has increased the importance of their communication
and dialogue with diverse stakeholders. Shabshigh (IMF) started by pointing out
that the extension in central bank activities and remit has been going on for
some time, but accelerated after the global finance crisis and now the Covid-19
pandemic. Many central banks have greatly increased their balance sheet size
through asset purchase programs, and took on new responsibilities in such areas
as macroprudential policy. This extension has provoked calls for central banks
to be more transparent, without which their cherished autonomy may be put in
question.<span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span lang="EN-US">To help central banks meet these calls, the
IMF has recently released the Central Bank Transparency Code, or CBT (<a href="https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/07/29/The-Central-Bank-Transparency-Code-49619">https://www.imf.org/en/Publications/Policy-Papers/Issues/2020/07/29/The-Central-Bank-Transparency-Code-49619</a>
). The code is meant to serve as a wide-ranging guide, with modules for
possible policy areas (monetary policy; foreign exchange intervention,
financial stability, etc.), which will not all be relevant to any one central
bank. Each module includes a definition of a principle and core elements, and
an exposition of possible additional features. These modules are then organized
in five pillars (governance, policies, operations, outcomes, official
relations). The emphasis is on timely and quality public disclosure in a manner
suited to different audiences and on the practice of transparency, rather than
legal requirements.</span></p>
<p class="MsoNormal"><span lang="EN-US">Shabsigh stressed that the code is
flexible, being suited to countries at all stages of development and with a
range of policy regimes, including monetary unions such as the euro area. It is
voluntary and without ratings, and designed to facilitate an informed discussion
of a central bank’s transparency choices with its stakeholders. Furthermore,
the code makes full allowance for the need to maintain confidentiality on
ground of market sensitivity, financial stability, or the privacy of personal
data.</span></p>
<p class="MsoNormal"><span lang="EN-US">The code has been well received by central
banks. A diverse group, representing a cross-section of Fund membership, are
testing it. Once that round of feedback is received, the code may be further
refined.</span></p>
<p class="MsoNormal"><span lang="EN-US">Hardy (St. Antony’s) stressed that
transparency is related to policy effectiveness, working through expectations.
For example, “forward guidance” is meant to reduce uncertainty about the
central bank’s policy intensions and the outlook for the economy, and therefore
help steer expectations in a way that makes it easier to hit policy targets. In
contrast, ex post transparency is essential for accountability, for example, by
revealing the emergency liquidity assistance provided to distressed banks (once
it is safe to do so) and any conditions attached to that assistance. However,
both ex ante and ex post there can be incentives to be non-transparent, and
those incentives may not be fully legitimate. Sometimes the central bank or the
government will wish to keep hidden information that would be embarrassing or
worse should it leak out. The code allows for “constructive ambiguity,” but the
reality is that authorities will always be tempted to mask unpleasant facts.
This temptation can be countered by establishing a culture of transparency,
which involves not only the central bank but also counterparties such as
parliament, the media, and the general public in an informed dialogue. In
Europe and especially the euro area, that dialogue extends to European-level
institutions such as the European Stability Authorities and the European
Parliament. <span style="mso-spacerun: yes;"> </span></span></p>
<p class="MsoNormal"><span lang="EN-US">Lindner (ECB) noted that the CBT can be a
useful tool for central banks to guide their transparency practices as they
pursue their objectives within an operationally and institutionally more
complex environment. The ECB and more broadly the Eurosystem have constructively
engaged, providing early suggestions and feedback on the CBT. The ECB sees
transparency and accountability as essential for independence and
effectiveness, and as mutually reinforcing. Lindner explained that achieving transparency
and accountability in the Eurosystem is complicated by its idiosyncratic,
semi-centralized structure, where the national central banks (and other
financial authorities) retain certain competencies. Furthermore, besides the
evolution of the policy landscape, the Eurosystem has itself evolved rapidly,
notably with the establishment of the Single Supervisory Mechanism. </span></p>
<p class="MsoNormal"><span lang="EN-US">The ECB’s communication channels and
practices have evolved to keep up. The ECB is primarily accountable to the
European Parliament, and the intensity and quality of communication with the
Parliament has increased over the years. For example, the ECB President replies
to an increasing number of questions from parliamentarians, and follow-up to suggestions
contained in parliamentary resolutions is documented in the ECB annual report. The
dialogue with the Parliament has been stepped up even further during the
Covid-19 crisis. Nonetheless, and as recognized in the code, some discretion is
warranted. For example, accounts of the discussions on monetary policy by the
Governing Council are published on an anonymous basis, so that Council members
can speak more freely.</span></p>
<p class="MsoNormal"><span lang="EN-US">Some participants in the general discussion
that followed pointed out that central banks tend to view transparency more
favorably than do ministries of finance, and ministries in some countries can
set the transparency rules. Transparency may be especially problematic where a
central bank engages in quasi-fiscal activities (e.g., favoring finance of a particular
sector) and in the definition of central bank profits, which are then paid out
as dividends to government. Nonetheless the code was seen as a valuable tool in
the evolving political economy context in which central banks operate. </span></p>
<p class="MsoNormal"><span lang="EN-US">Daniel C. Hardy (Visiting Academic, St Antony's College, Oxford)</span></p>
Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-73845964879392528582021-05-13T04:47:00.002-07:002021-05-13T04:47:21.408-07:00A transparency code for central banks: Implications for Europe<iframe frameborder="0" height="270" src="https://youtube.com/embed/w_fdrJNgKMw" style="background-image: url(https://i.ytimg.com/vi/w_fdrJNgKMw/hqdefault.jpg);" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-92163078734107940512021-05-10T06:52:00.001-07:002021-06-15T06:58:25.639-07:00Financing for Covid-19 and climate action? The best use of the IMF SDR allocation<p></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIc7Y0nMow8Kxz23vlGg-wronKuYF-6jvqF-0slZW_iDWTURzwf7lqzMunKJ3dS5JCUP2JLpePWf9qCY_Xa5AB5r1v696utmpiIBfCTnHttUOD_jVp9KPiBXabNE5Kbk-IVwVuTOIAXj4/s600/virus.jpg" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="370" data-original-width="600" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiIc7Y0nMow8Kxz23vlGg-wronKuYF-6jvqF-0slZW_iDWTURzwf7lqzMunKJ3dS5JCUP2JLpePWf9qCY_Xa5AB5r1v696utmpiIBfCTnHttUOD_jVp9KPiBXabNE5Kbk-IVwVuTOIAXj4/s320/virus.jpg" width="320" /></a></div>A new issue of SDRs by the IMF will contribute US$650 billion to the global economy, to fight the pandemic and strengthen recovery. It will be shared across the world proportionately to countries’ economic size—but some critics believe there could be a better distribution. Proposals are emerging that the UK, the EU, and other rich countries should reallocate at least some of the new issue to rebuild ODA budgets, support vaccines and public health in developing countries, and/or boost financing for climate action. As the chair of the G7 and the host of COP26, the UK will be at the centre of this debate in the coming months.<br /><br />This blog reports on a seminar in the Political Economy of European Climate Action series, hosted by the European Studies Centre of St. Antony’s College Oxford, on May 3, 2021, which examined the political and technical issues surrounding the SDR allocation and discussed options. Mark Plant (Center for Global Development) gave an overview of the SDR allocation and the issues it raises for G7 policymakers; Mark Henstridge (CEO, Oxford Policy Management) and Stevan Lee (Chief Economist, Oxford Policy Management) then gave a UK perspective on aid priorities; and Adrienne Cheasty (EuPEP, Oxford) chaired. <span><a name='more'></a></span><a href="https://youtu.be/7_ZtfI7hfjI">Click here for the podcast of this session</a><br /><br />Mark Plant explained how SDRs work: they are central bank reserve assets (meaning assets that are globally acceptable for international payments, and liquid); specifically, they entitle countries to access any of the IMF’s reserve currencies on demand. Hence, creating more SDRs would help the world compensate for loss of foreign earnings during the pandemic, supplementing countries’ capacity to pay for imports, debt service, etc. <br /><br />SDRs must be allocated to countries in proportion to their voting power in the IMF, which is historically related to their economic size. If the issue is approved (expected in August 2021), the UK and the EU together will receive 30 percent of the total (£20 billion and €142 billion respectively). But of course, rich countries like the UK and the EU are not payments-constrained; hence there are growing calls on the G20 to reallocate/recycle the SDRs, so as to channel them to poorer countries that need them. <br /><br />To respond to these calls, two challenges would have to be surmounted. A first is that SDRs have technical properties that significantly limit how they can be used (and some of these differ across countries, depending on national legislation). For instance, one important technical constraint is that only a few institutions worldwide are eligible to hold SDRs. Hence, it would be easiest to redistribute them if they were kept within the IMF. They could be on-lent to countries via the IMF’s low-income country trust fund (the PRGT). But it is up for debate whether all SDRs should be channeled to low-income countries; notably, middle-income countries are suffering some of the worse pandemic crises and expected climate-change costs. <br /><br />A second challenge is that—no surprise—myriad proposals for competing uses of the funds have begun to jockey for airtime. These include a top-up to COVAX or a separate vaccine fund; climate financing for developing countries; and financing to help achieve the Sustainable Development Goals (SDGs). <br /><br />Stevan Lee began to tease out possible aid priorities for Britain in redistributing the SDRs, by describing the difficult issues facing a sample of developing countries in the pandemic. <br /><br />o The estimated loss of GDP 2019-21 is more than 5 percent in all but one of them, and more than 9 percent in India and Bangladesh. Advanced countries have confronted comparable losses but have had the means to fight back with a substantial counter-cyclical fiscal response. Developing countries have varied widely in their capacity to undertake fiscal stimulus, with little relation between the severity of the covid shock and the size of their fiscal support to the economy. Some big countries like South Africa and India have had the financial scope to provide stimulus, but most poor countries have had little scope to expand, with some even having to tighten pro-cyclically. Moreover, all countries except India have had to slash investment to pay for urgent current spending. Such cutbacks are likely to worsen the scarring from the pandemic and retard economic recovery. <br /><br />o An OPM model demonstrates that the size of stimulus will make a major difference to the length and depth of countries’ recessions. As an example, foreign aid (ODA) to pay for stimulus, given in exchange for country reforms, could end Uganda’s GDP decline before end-2021; whereas Uganda is likely to remain in recession through 2024 if left without assistance. But in the case of Uganda, foreign aid will be difficult to marshall without extraordinary measures, since it has already drawn down all the IMF/IDA funds it is currently eligible for. Many other small countries face comparable constraints: without a continuation of the exceptional levels of aid offered in 2020, they will have little capacity to sustain any fiscal stimulus. The larger countries like India, Nigeria, and South Africa will be able to borrow for longer, but doing so will worsen their already unsustainable public finances; for instance, India’s fiscal deficit reached 12½ percent of GDP in 2020. <br /><br />Mark Henstridge then took the baton to show how deploying the SDR issue could best help these countries. <br /><p></p><ul style="text-align: left;"><li>A first point, not to be disparaged, is that even the 3.2 percent of the planned SDR allocation that will go to low-income countries in the absence of a reallocation will be of real value to them, given the small size of their economies and the scarcity of alternative sources of aid. In 2020, the major sources of aid were the IMF’s low-income facility (PRGT) and the World Bank group’s international development assistance (IDA). </li></ul><ul style="text-align: left;"><li>IDA, in particular, is large enough to make substantial contributions to poor countries’ GDP; it is a pool of around US$80 billion that had been intended to last through 2022 but which is being prematurely exhausted. A redistribution of $80 billion worth of SDRs to pay for a full early replenishment of IDA would cost rich countries only one-third of their new SDR allocation, but be game-changingly large if redistributed to IDA-eligible countries. An early replenishment could, for instance, make available around 16 percent of GDP to Burkina Faso and more than 12 percent of GDP to Sierra Leone (assuming their 2019 shares in IDA are maintained). </li></ul><ul style="text-align: left;"><li>Redistributing the SDRs to IDA would overcome the technical difficulties that make a viable SDR-reallocation strategy so difficult. The World Bank is one of the few institutions eligible to hold SDRs. IDA is an established vehicle for efficient and fast distribution of funds—and also has a good reputation for doing so transparently. Most importantly, the countries eligible for IDA are exactly those whose finances are most inadequate to support post-covid economic recovery. </li></ul><ul style="text-align: left;"><li>Use of SDRs to replenish IDA would also have benefits for the UK that most other SDR-strategies would not. Since IDA will have to be replenished by World Bank shareholders (i.e., all country members) very soon anyway, an early replenishment financed by SDRs would preclude the need for shareholders to find cash for the replenishment—meaning they would be left with extra cash-in-hand to apply to their own bilateral aid budgets (or other domestic spending). In Britain, this would amount to an estimated £3-6 billion (depending on the IDA contribution) of unencumbered resources. The freed-up cash could be used to further Britain’s own agenda—for instance by reconstituting its eroded ODA budget, or by contributing more to COVAX, or to pay for the fight against climate change.<br /></li></ul><p>The offline discussion focused on the merits of using the SDRs for replenishing IDA. Doing so would create a risk of zero supplementary support for poor countries—despite the appearance of additionality—depending on how donor countries used the freed-up resources. Commentators also emphasized the urgency of raising funds to meet the global promise of $100 billion for poor countries’ fight against climate change, which is likely to be an onerous challenge for the UK as the host of COP26. Devoting an SDR redistribution to, say, a climate action fund administered by the IMF and World Bank would not only address the climate financing shortfall, but would ease and speed the delivery of financing (which is an unresolved problem in the current institutional set-up of climate funds). <br /><br />Adrienne Cheasty (Academic Visitor, St Antony's College, Oxford) </p>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-56834217761315835752021-05-06T10:02:00.001-07:002021-05-06T10:02:56.888-07:00Financing for Covid-19 and climate action? The best use of the IMF SDR a...<iframe frameborder="0" height="270" src="https://youtube.com/embed/7_ZtfI7hfjI" style="background-image: url(https://i.ytimg.com/vi/7_ZtfI7hfjI/hqdefault.jpg);" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-12646858156497588172021-05-04T08:44:00.002-07:002021-05-04T08:44:48.270-07:00The way forward for carbon pricing<iframe frameborder="0" height="270" src="https://youtube.com/embed/gqAzYapNTqE" style="background-image: url(https://i.ytimg.com/vi/gqAzYapNTqE/hqdefault.jpg);" width="480"></iframe>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-41065022596400254962021-05-03T12:31:00.002-07:002021-06-12T12:44:50.681-07:00The way forward for carbon pricing<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj6-QA_PoE-XCYfvUvCFzTirTEjeDDs2PMBYt9Ca7LgNgndtdFCqh0emsEn9HWD3KJE3gqL3fSlOF4bPZOYN17NJ82VTwjPwQzEhQGDABiX4GKdIoP_a8tNGRpoiGtSizbEdNmRTeFC_M/s948/Carbon-Pricing.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="632" data-original-width="948" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjj6-QA_PoE-XCYfvUvCFzTirTEjeDDs2PMBYt9Ca7LgNgndtdFCqh0emsEn9HWD3KJE3gqL3fSlOF4bPZOYN17NJ82VTwjPwQzEhQGDABiX4GKdIoP_a8tNGRpoiGtSizbEdNmRTeFC_M/s320/Carbon-Pricing.jpg" width="320" /></a></div><p>The European Union and other countries are moving forward with higher
carbon pricing to fight climate change—but many design issues and
operational challenges must be overcome to reach a carbon price that is
both effectively high and politically feasible. <br /><br />This blog
reports on a seminar in the Political Economy of European Climate Action
series, hosted by the European Studies Centre of St. Antony’s College
Oxford, on April 26, 2021, which discussed the current options under
consideration. <br /><br />The panel included Ian Parry, IMF Senior
Climate Specialist; Michael Mehling, Deputy Director of MIT Centre for
Energy and Environmental Research and Professor of Practice, Strathclyde
University Law School; Franziska Funke (discussant), Environmental
Change Institute, Oxford, and Technical University Berlin; and was
chaired by Daniel Hardy, EuPEP, Oxford. <a href="https://youtu.be/gqAzYapNTqE" target="_blank">Click here for the podcast of this session</a><a href="https://youtu.be/gqAzYapNTqE" target="_blank">. </a><br /><br />Ian
Parry began by reminding the audience why higher carbon pricing is so
crucial. The last window for meeting the central goal of the Paris
Agreement – to keep global warming below 2 degrees Celsius—is about to
close. The only way to achieve this now is to cut global emissions 30-60
percent below 2030’s projected level. But countries’ pledges for
emissions cuts by 2030 add up to only half of the needed reduction (and
no mechanism exists to enforce even these pledges). <span></span></p><a name='more'></a>The
most direct, comprehensive, and easy-to-apply weapon to stop emissions
would be to raise the price of carbon to levels that deter society from
using it (in power, industry, transport, buildings, and other sectors).
Carbon taxes are a better economic instrument for raising prices than
are trading systems (give more certainty, generate fiscal revenue, are
easy to administer) but trading systems can be designed to generate
similar effects and may be more socially acceptable—as in much of
Europe. <br /><br />Momentum is growing for carbon pricing, with more than
60 schemes in place around the world, and major initiatives in China,
Germany, and Canada in 2021. While this means that prices must rise,
most of the burden will be on coal (with expected price increases of 146
percent on average, on a $50 tax—though with wide differences across
countries). The average impact on petrol (gasoline) prices will be much
less—an 11 percent rise. Countries’ pledges imply a widely varying array
of price increases; for instance, China would need only a $25 price
hike to deliver on its pledge. <br /><br />Besides its role in capping
global warming, higher carbon pricing would bring domestic benefits: the
domestic environmental gains (e.g., to health from lower pollution)
would more than offset the economic costs in all countries (with Russia,
China and India gaining the most), and governments would benefit from
extra revenue of ½ to 3 percent GDP on a $50 tax. <br /><br />Parry
summarized the large body of literature on how to raise carbon prices
least disruptively: (i) pre-announce a gradual path of price increases…
(ii) that covers as broad a range of sectors as possible… and (iii) use
the revenue from charging higher carbon prices productively, so society
sees value-for-money. Governments will also need supporting policies—to
protect against loss of industrial competitiveness, funnel public
investment to support low-carbon activity (e.g., public charging station
for electric cars), and ensure the transition is perceived as just, by
compensating the poorest and worst-affected. An increase in average
sectoral prices could be avoided, if preferred, by bringing in a
fee-bate system (with a sliding scale of higher prices on above-average
carbon users to lower prices on low-carbon users). <br /><br />A main
problem with national carbon pricing efforts is that countries moving
quickly to raise carbon prices would lose international competitiveness
relative to laggard countries. A cooperative international strategy
could avoid this. The IMF is recommending that G20 countries (i.e.,
large emitters) agree on an international carbon price floor. Such an
agreement would prevent countries from free-riding, and could be
designed to accommodate different price floors across countries with
different starting conditions (notably, lower for developing countries).
<br /><br />Michael Mehling picked up from this global picture to discuss
in more detail where Europe stands at the moment. Since there is little
momentum towards a cooperative international agreement, the EU has
announced that it will go ahead unilaterally with its own carbon pricing
strategy, protecting its trade competitiveness by a Carbon Border
Adjustment Mechanism (CBAM). A legislative proposal for the CBAM is
expected by July 2021, and it is intended to be operational by 2023. <br /><br />A
border carbon adjustment would level the playing field for trade by
offsetting price differentials on imports and possibly also exports,
mainly through a tax on imported products and potentially an exemption
or rebate on European exports. Releveling the playing field would not
only help preserve the competitiveness of EU producers but would ensure
EU emissions reduction efforts are not negated by European consumers’
switching to high-carbon imports from countries with lower carbon
prices. It would thus address a substantial loophole in the UNFCCC’s
international emissions accounting framework, which counts only
territorial emissions—meaning that countries can meet their
emissions-containment commitments while continuing to import ‘dirty’
goods: for instance, China exports 25-30 percent of its emissions, and
Switzerland and Sweden import products responsible for more emissions
than they generate nationally. <br /><br />The 2023 deadline is ambitious.
Mehling explained the complex design elements that will need to be
pinned down—posing difficult challenges, both technical and political.
Decisions to be made include: the coverage of the CBAM (imports,
exports, or both? geographic scope? sectoral scope? type of emissions?);
how to determine the embedded emissions (using actual data or default
proxies such as average producer emissions?); and how to calculate the
adjustment (e.g., taking into account carbon taxes already paid by
trading partners?) Related decisions have to be taken regarding the use
of revenue from the CBAM (which is projected to amount to between 5 and
14 billion euros), and the institutions/processes needed to implement
the CBAM. <br /><br />Mehling described how the EU might tackle this
intricate matrix of choices. There are trade-offs between the
technically/environmentally best solutions and the simplest, most
politically amenable solutions. The ‘Most Probable’ Scenario is that the
CBAM will apply to imports of basic materials and electricity only
(excluding developing-country imports), be calculated on average EU or
global carbon intensities of production, and give its revenue to the EU
budget. A ‘Play It Safe’ Scenario would apply the CBAM only to basic
imports, count only direct emissions, and use more forgiving prices. A
more ambitious ‘Go-Getter’ Scenario would apply the CBAM to more complex
imports and to exports, count also indirect emissions, and use actual
emissions intensities. <br /><br />An important consideration is whether
the CBAM will be consistent with World Trade Organization (WTO)
commitments. A CBAM which subsidizes exports and distinguishes between
countries because of their policies is more likely to run afoul of the
WTO’s non-discrimination principle. The EU will also have to prepare
itself for internal disputes, depending on what sectors are covered, and
for international backlash. For instance, the US is reportedly
considering its own border adjustment if the EU goes ahead. <br /><br />Franziska
Funke agreed that both the CBAM and the international carbon-price
floor would be effective instruments for pursuing emissions reduction.
However, she saw a damaging risk that emissions containment would be
delayed, given the likelihood of protracted struggle to make either of
the two politically feasible. She emphasized the need to work also on a
Plan B for raising carbon prices. <br /><br />Two challenges in particular
should be tackled without further delay. The first is to extend the EU
Emissions Trading Scheme (ETS) to sectors excluded until now. Notably,
food production accounts for 26 percent of global emissions—which means
that progress must be made in decarbonizing agriculture, despite the
inherent difficulties (a strong farming lobby, small and diverse
producers, fear of losing competitiveness, etc.) Moreover,
livestock—which accounts for 45 percent of agricultural emissions—has
additional problems: it is not clear how to stop cattle producing
methane! These problems signal the need to tackle agricultural emissions
not only from the production side, but also by reducing demand: Funke
advocates imposing consumption taxes on meat (for the same rationale as
fuel taxes). <br /><br />The second challenge that should not be postponed
is to strengthen citizens’ support for higher carbon prices. There is
evidence (for instance in the gilets jaunes protests) of widespread
aversion to carbon taxes, probably due to lack of understanding of the
benefits and high visibility of the costs, but also because of fairness
concerns and skepticism of the role being played by the state. It is
possible that expanded use of the ETS to raise carbon prices would run
into less resistance, because its immediate impact is on the wholesale
level and thus less visible. <br /><br />Under either a tax or ETS
framework, revenue recycling is likely to be key to citizens’
acceptance. Revenue could be recycled either through green spending, or
through direct payment back to citizens. Green spending has the benefit
of directly furthering national environmental goals, but tends to
satisfy mainly those already supportive of climate action, those with
trust in government, and the well-to-do. Redistribution of revenues,
through fee-and-dividend schemes, or targeted transfers to low-income
and other affected groups, is more likely to respond to citizens’
preference for cushioning the impact—the need for which will become more
pressing as carbon prices rise. <br /><br />The offline discussion
considered the likely carbon pricing strategies of the US and the UK.
Biden’s climate plan does not include carbon pricing, but it is
conceivable that the US could use the threat of a border adjustment as a
talking point with China. In the UK, the temptation to enhance trade
competition with lower carbon prices than the EU will for now be
dampened not only by the promise of CBAM but also by the UK’s commitment
to leadership in the COP process and the G7 over the coming year.
Commentators were skeptical that technical issues in the CBAM can be
resolved satisfactorily (e.g., what would prevent China making a single
province ‘clean’ and sourcing all its exports from there?). Given the
multi-faceted difficulties to be resolved, the attractions of a simpler
cooperative international carbon-price floor might eventually begin to
look less utopian—though it would face its own challenges of design and
enforcement. There was also wide agreement on the urgency of greening
agriculture and making higher carbon prices tolerable to the public.<span lang="EN-US" style="color: black; mso-themecolor: text1;"> <br /></span><p></p>
<span lang="EN-US" style="color: black; mso-themecolor: text1;">Adrienne
Cheasty (Academic Visitor, St Antony's College, Oxford)</span>Eupep adminhttp://www.blogger.com/profile/13733473334763659505noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-91821470659756274072021-04-20T08:58:00.010-07:002021-04-29T11:55:50.938-07:00Harnessing the power of public activism for European Climate Action<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJmok8uoLoWFyA7IuS5SgfQwQVa75__GZ_UKNuieFwPVaxzAw2EdsjyZ46Nib7-vKN5PUgV28e8NFn-a3Gla773ma1faDotGZbvzHtCVU4UdXFqsounkhRrsxx6qW2YJeJSviIhOPDskk/s2048/Image+3.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1031" data-original-width="2048" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJmok8uoLoWFyA7IuS5SgfQwQVa75__GZ_UKNuieFwPVaxzAw2EdsjyZ46Nib7-vKN5PUgV28e8NFn-a3Gla773ma1faDotGZbvzHtCVU4UdXFqsounkhRrsxx6qW2YJeJSviIhOPDskk/s320/Image+3.jpg" width="320" /></a></div><p>Public activism within countries been a strength of European climate action so far. But non-state actors are each driven by their own priorities—and the challenge will be how to harness their energies while focusing these coherently in support of national and global climate strategies. <br /><br />This blog reports on the closing session of a virtual conference, European Climate Action: Political Economy Challenges, hosted by the European Studies Centre of St. Antony’s College Oxford, on January 21, 2021, which considered how to engage non-state actors most effectively in climate action. <br /><br />The panel included Philip Lymbery, Global CEO of Compassion in World Farming; Nick Mabey, CEO, E3G and Alex Clark, Smith School of Enterprise and the Environment, Oxford; it was chaired by Sir David Madden, St. Antony’s College. The conference was then closed by Charles Enoch, ESC Fellow and Head of EuPEP. <a href="https://youtu.be/0pCETGE0qqc" target="_blank">Click here for the podcast of session 4 and closing remarks</a>. <br /><span></span></p><a name='more'></a> <br /><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7vPhwLJ4Ltro36gV-JADvwuzQF8QareIYg1ICnt9bQ201Wytu8UIIb_E1UlFHBk2_R586leJ_2wD1KoTtS3sKZ_asPkixCZ-rVaYYtyz5XGQY-6f99C5woukTedEhqpylJAjyaUnhmZ4/s2003/Blog+5.jpg" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="502" data-original-width="2003" height="127" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi7vPhwLJ4Ltro36gV-JADvwuzQF8QareIYg1ICnt9bQ201Wytu8UIIb_E1UlFHBk2_R586leJ_2wD1KoTtS3sKZ_asPkixCZ-rVaYYtyz5XGQY-6f99C5woukTedEhqpylJAjyaUnhmZ4/w513-h127/Blog+5.jpg" width="513" /></a></div><div style="text-align: center;">Philip Lymbery Nick Mabey Alex Clark David Madden</div><p></p><p style="text-align: left;">Background: how to shape energetic interest-group advocacy into effective support for climate strategy <br /></p><p>Although global climate negotiations are a government-led process, some of the most compelling advocates for climate action are non-state actors—a wide spectrum of stakeholders stretching from single-issue interest groups, to business, to political parties, and subnational governments. There is widespread agreement that continued support for climate action by civil society groups and by concerned political parties will be a prerequisite for meeting 2050 goals. But inevitably there is a cacophony of voices with different agendas and passions that are not necessarily consistent. <br /><br />The vocal advocacy of non-state groups inspired the establishment of the ‘climate action Champion’ function at the Marrakesh COP, to serve as an institutionalized link between the official climate negotiations and non-state players. COPs now have two facets: the official climate negotiations, and the engagement of the ‘big tent’ of stakeholders by the Champions. Other efforts to coordinate public activists include regional events such as London Climate Action Week, and Oxford’s network, Galvanizing the Groundswell of Climate Actions. <br /><br />Philip Lymbery demonstrated the relevance of single-issue advocacy by presenting a powerful case for regenerative farming. He started with the point that food, as an issue, never makes it to COP discussions (which tend to focus on energy)—and this must change: nearly 15 percent of greenhouse gas emissions are produced by the livestock sector (more than all direct exhaust fumes). Moreover, the conversion rate from livestock feed to food is extraordinarily inefficient: the feed crops for factory farms could feed 4 billion people. At full efficiency, the global food system could feed 17.5 billion people, instead of in today’s world where 820 million go hungry, and food feeds livestock instead of humans. <br /><br />Hence, factory farming should be stopped, since it wastes food rather than being a net producer. A shift to nature-friendly regenerative farming would store carbon from the atmosphere: it is estimated that regenerating half of farmland would sequester 10-20 percent of total emissions. It is a misperception that nature-friendly farms have to be small; some good large examples suggest scope for effective scaling-up. <br /><br />The outlook is bad: meat consumption is at an historic high, and estimated to grow further by 78 percent by 2050—worsening greenhouse gas emissions significantly. There is a misconception that consumers’ switching from red meat to chicken and fish is solving the problem, but in fact this switch will just swap one set of problems for another. <br /><br />The conclusion must be that it is vital to cut meat consumption: this should be put on the COP26 agenda. Doing so would be especially timely, since modern methods of replacing meat consumption are under development that now make it far more feasible to cut consumption. For instance, stem-cell meat is produced with 80-95 percent less GHG emissions; likewise, the use of microbes to produce proteins via fermentation is 100 times more effective per unit of protein; moreover, some proteins are already being made from ‘thin air’. <br /><br />Lymbery concluded by reminding the audience that the demand for factory farming exists only because of the currently favorable economic setting, which does not price in the associated externalities and risks. This advantage will erode anyway, since the modern types of food described above will be 10 times cheaper by 2035. The EU should also facilitate the shift to this healthier food system by amending its agricultural policy and phasing out subsidies. <br /><br />Nick Mabey explained the urgency of the case for involving the public, to achieve successful climate action. The transformation needed is too broad and deep (food, electric cars, type of heating, etc. etc.) to be feasible without a social and cultural shift. Unless the public actively assents to this—‘gives permission’—the behavioural changes will not occur. <br /><br />Ironically, the pandemic is making the outlook more positive for such an unprecedented shift. It has demonstrated that the public can make difficult changes very fast in case of emergency. <br /><br />Mabey called for a national agreement to combat climate change. To maximize cohesion, a number of elements would be important: <br /></p><ul style="text-align: left;"><li>It should include a strategy to help losers—not only losers from climate policies (e.g., increases in carbon prices) but also those hurt by climate change (such as fishermen whose catch disappears as waters warm up). He recognized that any discussion of compensation will be controversial, but emphasized that society has to make that decision. </li></ul><ul style="text-align: left;"><li>Policy design needs to take account also of the ancillary benefits from changes. For instance, shifting to electric cars would not only cut emissions but would make streets quieter and more livable; more sustainable land-use would imply healthier diets. A comprehensive accounting would allow the value of green reforms to be calculated more accurately than in current simple climate models, and would significantly strengthen the case for social buy-in.<br /></li></ul>Drawing on his experience with organizing the successful London Action Week, Mabey suggested several elements of a ‘Whole of Society’ approach to climate change, which he plans to bring to COP26. <br /><ul style="text-align: left;"><li>Professional conversations will be needed and can be powerful. For instance, architects must confront the ethics of designing home dependent on fossil fuels (and they did so in London), and engineers must consider the costs of the combustion engine. Professional charters could articulate the role groups should be playing in climate change—how infrastructure should be built to be resilient, how educators teach the coming generation, etc. More broadly, all professional and social groups should be asked what climate change will mean to them (e.g., fashion, the arts); activism should not be outsourced. </li></ul><ul style="text-align: left;"><li>The challenge of scale referred to also in the conference session on financing is another argument for a Whole of Society approach. Climate action requires many small-scale projects; this shift from big to small scale (e.g., from one nuclear power plant decision to many solar panel decisions) requires revisiting who makes decisions and how. It could be that place-based decisions, with greater direct citizen involvement, will be more legitimate, and therefore effective, than the UK’s current centralized approach.<br /></li></ul>Alex Clark agreed that wide involvement of civil society and subnational governments will be key to success, and discussed the coordination challenge. <br /><ul style="text-align: left;"><li>For coordination of NGOs, a main challenge—difficult and not well-handled to date—is to balance the need on the one hand to streamline messages so that a clear, understandable policy emerges, and on the other, to avoid losing subtleties and suppressing minority voices. </li></ul><ul style="text-align: left;"><li>The coordination challenge for corporations and financial institutions – which is now getting traction through a range of initiatives including Climate Action 100+ -- is the need for sustained coherent lobbying for regulation able to influence the direction of investment strategies. Standardization efforts such as the EU green taxonomy are now helping to identify truly green assets, but a more rigorous approach will be needed to prevent greenwashing. </li></ul><ul style="text-align: left;"><li>Subnational governments will clearly play a vital role, but a challenge that has already emerged in several contexts is to avoid imposing national policies on subnational entities that lack the resources or expertise to carry them out (NDCs have not, by and large, paid adequate attention to this).<br /></li></ul>Clark offered some thoughts on how to improve coordination. <br /><ul style="text-align: left;"><li>It could be argued that the UNFCCC’s observer structure itself contributes to coordination challenges (by separating governmental and non-governmental agencies). A sectoral approach to grouping might be more constructive; it would cut across boundaries. </li></ul><ul style="text-align: left;"><li>He described the priorities of the Oxford-led network, Galvanizing the Groundswell of Climate Actions, for the coming COP. These include (i) supporting the Climate Action Champions, by reflecting on what worked with the Marrakesh process and what needs reform; (ii) engaging with African non-state actors to lay the groundwork for a possible COP27 in Africa and fill a clear gap in engagement of these actors with counterparts at prominent think tanks and research organisations, as well as UN processes, on climate; and (iii) track new developments in data collection—which may be key for influencing decisions and for persuasive communications. </li></ul><ul style="text-align: left;"><li>He concluded by making the case for focusing more on another group, state-owned enterprises, which will also be critical for climate action, and have been less studied. These have almost never been involved in the COP process, but can be massive emitters (power plant operators, oil and coal companies, aviation, military), and with objectives other than profit-maximization—meaning that influencing their behaviour will require different incentives. Given the size and functions of some large state enterprises, their shareholders (mainly governments but also others) could play vital roles in the transformation—for instance by leading the adoption of new technology.<br /></li></ul><p>The discussion focused on how to effect change in the face of important entrenched interests. For land use, for instance, one powerful approach would be to reform the Common Agricultural Policy, and redirect the saved subsidies towards modern public goods. Taxing ‘bads’ such as meat from factory farms could allow vegetables to be subsidized. An alternative approach would be to start by influencing demand, since this would bypass entrenched supply-side interests and subsidies would be easier to eliminate if demand fell. The need to influence demand is another argument for a society-wide conversation—in this case a broad debate on how society wants to use land. It is also an argument for investing in good data—measurement that articulates the value of land and its uses would be key for an effective discussion. Panelists considered it unrealistic to bypass large entrenched interests; reformers would have to work with them since the smaller players would not have a strong enough voice at the table. <br /><br />The closing reflections of the panel, and the final remarks of Charles Enoch, head of EuPep, were on the importance of COP26. Despite the cost of a year’s delay (‘we have already lost three-quarters of nature’), all agreed that a 2021 COP will be very different than if it had taken place last November, and mainly, much more positive. It will not face the burden of trying to craft a global strategy without the US, and it could be helpful that the UK and Italy will be hosts of the G7 as well as the COP. For the UK in particular, it is a huge opportunity to move on from Brexit, by demonstrating its global relevance and climate know-how. <br /><br />The more positive setting in 2021 paves the way for the COP to move on from eliciting commitments to assessing the quality and credibility of elements of the global strategy. A main challenge for the Glasgow COP will be to signal that its outcomes are credible: that the Paris Framework is going to deliver the global objectives. If not, the public will withhold its support and give up the battle against climate change. This COP cannot afford to lose the trust of the public; doing so would in turn undermine the trust of markets and eventually the trust of signatory governments.</p><p>Adrienne Cheasty (Academic Visitor with EuPEP, St Antony's College, Oxford)<br /></p>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-43174067719626972972021-04-20T08:53:00.004-07:002021-04-29T06:55:13.975-07:00Investment in climate action—Governments and the private sector must work together<div><p class="MsoNormal" style="margin-bottom: 0cm;"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-themecolor: text1;"></span></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFxXQO9CfYuWnY7Osbc75Iy-LEOOQXhrYVCTAFy7I-4K3FNZBnMuGhR6uCSP8h3OBRvgtBOs8IntJN8ROqycmVqBrMgX2eQDNZ_Ex02Fus1CzABer3Ik3QXKPkBmhoXU4hfteC1Lia-RA/s2048/Image+3.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1031" data-original-width="2048" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgFxXQO9CfYuWnY7Osbc75Iy-LEOOQXhrYVCTAFy7I-4K3FNZBnMuGhR6uCSP8h3OBRvgtBOs8IntJN8ROqycmVqBrMgX2eQDNZ_Ex02Fus1CzABer3Ik3QXKPkBmhoXU4hfteC1Lia-RA/s320/Image+3.jpg" width="320" /></a></div><p>It has been clear for some time that the cost of investment needed in climate action is too great for the official sector alone to bear—and indeed it should not try to, given the profit opportunities for the private sector to invest in new areas. However, the financing landscape is complex, and rapidly evolving; likewise, the rules and boundaries of climate financing are just emerging and continue to shift. <br /><br />This blog reports on the third session of a virtual conference, European Climate Action: Political Economy Challenges, hosted by the European Studies Centre of St. Antony’s College Oxford, on January 21, 2021, which considered the needs of the various financing players and their appropriate roles. <br /><br />The panel included Josué Tanaka, Visiting Professor, Grantham Research Institute on Climate Change; Olaf Sleijpen, Executive Director of Dutch National Bank responsible for Climate Change; Isabelle Mateos y Lago, Managing Director, Blackrock; it was chaired by Professor Kalypso Nicolaidis, St. Antony’s College. <a href="https://youtu.be/iqm4iKpbju4">Click here for the podcast of session 3</a>. <span></span></p><a name='more'></a><p> </p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8CqNTq55Nshxgq2SscbpzUjB7qsc3mRnPDX0pVZAMgw8lweMpPP6y6y2Nj3zfRKz7TH5BmMF9JiQLMnE_ZXPJqIFN_msN5Kcl27to9HNE4DtSqjIFMG7eP1DY_MLpRNcRyRPXrtxXWJs/s1013/Blog+4.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="256" data-original-width="1013" height="133" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEh8CqNTq55Nshxgq2SscbpzUjB7qsc3mRnPDX0pVZAMgw8lweMpPP6y6y2Nj3zfRKz7TH5BmMF9JiQLMnE_ZXPJqIFN_msN5Kcl27to9HNE4DtSqjIFMG7eP1DY_MLpRNcRyRPXrtxXWJs/w529-h133/Blog+4.jpg" width="529" /></a></div></div><div style="text-align: center;"><span style="font-size: x-small;">Josué Tanaka Olaf Sleijpen Isabelle Mateos y Lago Kalypso Nicolaidis</span></div><div><p>Background: new profit opportunities for the financial sector, but with new risks to financial stability <br /><br />After a tentative start, the financial sector, both public and private, has begun to mobilize financing for climate projects fast and creatively. The sector is currently in ferment. To ensure that adventurous green financing efforts (and the risks associated with climate change itself) do not imperil financial stability, central banks and prudential regulators are increasingly engaging in assessing risks attached to climate change and mitigation measures, supported by the establishment of new standards/guidelines.</p><p></p><ul style="text-align: left;"><li>For the official sector, the complex landscape of climate financing raises the question of where European financial agencies like the EBRD and EIB should be concentrating their efforts. At the global level, climate financing for developing countries remains messy and inadequate.</li></ul><ul style="text-align: left;"><li>For the private financial sector, there are both upside and downside challenges. </li></ul><ul style="text-align: left;"><li>As regards new profit opportunities, private firms are responding to public demand for ESG investment (investments with good environmental, social, and/or governance characteristics) by issuing ‘green bonds’. The challenge, however, is to make sure these finance genuine, additional green reforms, rather than merely ‘green-washing’ pre-existing investment plans. Climate Action 100+, a large organization of investors (now with 545 members with over $52 trillion under management), has committed to requiring ‘green behaviour’ for the corporations they invest in. </li></ul><ul style="text-align: left;"><li>On the downside, the private financial sector may be more risky than currently assessed, since banks, hedge funds, insurance companies, etc. are only now beginning to calculate the impact of climate change on their existing portfolios (e.g., will oil-sector investments lose value as renewable energy replaces oil?). Mark Carney, when governor of the Bank of England, led an international taskforce which developed reporting guidelines for private financial institutions to disclose their climate risks (TCFD guidelines)—with extensions also for large corporations. These guidelines remain voluntary, and their effectiveness is disputed. Other competing guidelines re muddying the waters, though with less influence.</li></ul><ul style="text-align: left;"><li>Although it would have been unheard of in the past, there is much discussion on whether central banks should also help finance climate change. The international Network on Greening the Financial System has grown from 8 central banks to 83 members now, including the US Federal Reserve. Importantly, the ECB has announced that it will include certain ESG bonds in its asset-purchase schemes in 2021. This announcement has shifted the debate somewhat, from whether central banks should get involved, to where to draw the line—what they should and should not do as regards climate financing.<br /></li></ul><p class="MsoNormal" style="margin-bottom: 0cm;">Josue Tanaka opened the session by giving an overview of the magnitude of the investment challenge, and the complexity of the climate investment landscape, with its broad array of players. Despite its current spurt, green financing remains deeply inadequate. Investment in key sectors will have to be scaled up sixfold or more between now and 2050. (For instance, one estimate of the cost of transitioning global energy systems to low carbon is US$ 3.8 trillion, while Bloomberg estimated total green investment in 2014-18 to have amounted only to around $300 billion—though with significant acceleration since then.) <br /><br />Both the official and private sector are responding, and institutions are proliferating. <br /></p><ul style="text-align: left;"><li>In the official sector, for instance, the EBRD’s climate finance has risen by 65 percent since 2015. Other multilateral financial institutions, regional and national development finance agencies, and the concessional climate funds (such as the Global Environment Facility and the Green Climate Fund) are all providing financing, but each with their own rules. Cities and other subnational governments have joined national governments and the EU as important players. </li></ul><ul style="text-align: left;"><li>The European Green Deal is playing a special and vital role in the official sector, by combining both policies and financing. Tanaka believes Europe has done well to integrate green financing with the Recovery Plan—not least because it is difficult to look at climate investment alone (and indeed there is no single definition of climate financing). </li></ul><ul style="text-align: left;"><li>Private-sector players include commercial banks, investment banks and private equity. The green bond market has been growing, though it is still too small (an estimated US$ 250 billion in 2019). Products are becoming more diversified—for instance, the EBRD has developed a resilience bond.<br /></li></ul><p class="MsoNormal" style="margin-bottom: 0cm;">Despite the relatively promising institutional developments, shortcomings in the design and delivery of financing will need to be resolved before climate financing can achieve its global goals. These include: <br /></p><ul style="text-align: left;"><li>‘Aggregation issues’. Delivering adequate finance to the right users is an unresolved challenge: climate projects are often very small, and many separate projects are needed to reach a critical mass of impact. Ironically, this is less of a problem in lower-income countries, where governments play a bigger role in investment; in these countries, however, financing has to be sufficiently concessional to become affordable to governments. </li></ul><ul style="text-align: left;"><li>The need to shift from exclusive focus on financing mitigation to mobilizing also financing for adaptation projects (with demands becoming more urgent as the impacts of global warming hit closer to home). </li></ul><ul style="text-align: left;"><li>Better design of government investment to catalyse private investment (as recommended by Iakova in session 2). </li></ul><ul style="text-align: left;"><li>Clarity about policies (as emphasized by all speakers). Notably, a strong commitment to a predictable path of carbon price increases would be a phenomenal instrument for eliciting climate finance, since investors would have a far clearer picture of expected returns and losses.<br /></li></ul><p class="MsoNormal" style="margin-bottom: 0cm;">Olaf Sleijpen acknowledged a tectonic shift since five years ago, when it would have been inconceivable to involve central banks in climate action. This is because the business case for involving central banks has become so much clearer. Namely: climate change poses significant threats to financial systems and economies, and central banks (along with supervisors and governments) are responsible for preserving financial stability. Moreover, given the huge investments to be mobilized, the official sector has an important role to play in ensuring enabling conditions are in place. <br /><br />‘Ensuring enabling conditions’ mainly means ensuring that the private sector can make adequate returns and can manage its risks properly. As regards returns, a key problem is that carbon prices are usually still not high enough to make investment in ‘green’ sectors more profitable than investments in fossil fuels. As regards risks, a key problem is that new technologies are intrinsically uncertain and often have long gestation periods. The uncertainty is worsened by lack of clarity on what government regulation will look like in future. There are also other lacks of clarity: for instance, a serious uncertainty about what is truly ‘green’, and the inability of investors to compare across projects, since reporting about climate risks and assessment of returns is not uniform. These uncertainties impose additional costs that makes climate investment more expensive. <br /><br />Applying this framework, Sleijpen pointed to key policy messages, first for governments in general, and then for central banks more specifically: <br /></p><ul style="text-align: left;"><li>A first priority must be to increase returns to private investment—and policies that increase the carbon price are key here (meaning that the Green Deal’s commitment to higher carbon prices is welcome). </li></ul><ul style="text-align: left;"><li>A second priority is for governments to offer clear plans. Doing so will reduce risk for the private sector, which needs to understand and respond appropriately both to the present and future regulatory framework, and to the government’s catalytic investments.<br /></li></ul><p class="MsoNormal" style="margin-bottom: 0cm;">Central banks can, and usually should, play several roles based on their responsibilities and capacity: <br /></p><ul style="text-align: left;"><li>They should help governments make informed decisions – for instance, research can show the economic impact of delaying climate action. Central banks are usually exceptionally well-equipped to do this type of scenario analysis, but can help also by engaging non-traditional partners with new expertise. (For instance, in the Netherlands, the central bank works with the National Environment Agency to strengthen the legitimacy of their joint analysis.) </li></ul><ul style="text-align: left;"><li>As supervisors, central banks can push financial institutions into taking account of climate risks in their portfolio choices. For this to be effective, improvements are needed urgently in the quality and consistency of corporate reporting. </li></ul><ul style="text-align: left;"><li>Central banks can play a catalytic role by demonstrating that they are taking climate risks on board in their own portfolios—for instance, by requiring climate risks be disclosed as part of asset-purchase eligibility. For this to have systemic impact, central banks will need to work with credit-rating agencies, to ensure that they take climate risks into account in their investor evaluations. <br /></li></ul><ul style="text-align: left;"><li>All financial institutions, including central banks, have a social responsibility to the rest of the economy, to reduce their own carbon footprints! </li></ul><ul style="text-align: left;"><li>Finally, to the extent that climate change will impact the economy and in particular price stability, central banks should take account of this in their monetary policy decisions. How to do so is of course a difficult question, currently under assessment as part of the ECB’s ongoing Policy Strategy Review.<br /></li></ul><p class="MsoNormal" style="margin-bottom: 0cm;">Isabelle Mateos y Lago described the current position and expectations of private investors. She reminded the audience of the role of the private financial sector, which does not itself create emissions, but is tasked with accurately pricing returns and risks to investments. Uncertainties about climate change have made this drastically more difficult. For instance, should investors expect big carbon price changes or not? Will climate action avert rising sea-levels or should investors begin to factor in the cost of flooding? This is why the emphasis on clarity and predictability of government policies is vital. <br /><br />Fortunately, the last 18 months or so have seen a game-changing ability of the financial sector to allocate risk. Commitments such as the Green Deal clarify the outlines of policy action (though the need for specified plans remains paramount). There has also been progress in the private sector, with an explosion of data from corporates and other capital-users in response to calls to disclose the risks they face and how they are managing them. <br /><br />In turn, this has enabled a significant acceleration (about 80 percent) in flows of capital for green purposes in 2020—despite the pandemic. Institutional investors expect to double their allocation of capital to sustainable strategies over the next five years. Relatedly, the case for ESG investing has become much stronger: sustainable investments markedly outperformed others throughout 2020—suggesting that the financial sector is on the right path. And further, the nature of the ESG market is evolving rapidly. Until recently, classes of investment were undefined or inappropriately defined; now, many more products are being developed (by Blackrock and others) to meet the needs of corporates. <br /><br />Looking forward, a key role for the official sector, as a regulator, should be to pressure firms to disclose their risk exposure, with as much standardization as possible. That said, given the dynamism and flux in the sector, it will be important to avoid adopting taxonomies or labels (for categories of eligible investments and risks) that will be out of date in a year and need to be changed. <br /><br />Mateos y Lago agreed with Sleijpen that central banks can play an important role, while staying within their mandate. In particular, she considered that, as huge asset-owners themselves, central banks and sovereign wealth funds should send clear signals to society by greening their own balance sheets (she mentioned the Dutch central bank as a trailblazer in this area). And as large borrowers, if sovereigns were to issue green bonds they would importantly help to develop the still embryonic green bond market. Since the Recovery Fund will quadruple the size of the European sovereign bond market, it could play a big role in developing green bonds. <br /><br />The offline discussion noted that, despite the current virtuous cycle of cooperation and growth across all financial-sector actors, the needed scaling-up will require fixing many problems—of imbalances in where the money is going and of better risk identification. There was consideration of whether greenwashing can be addressed effectively by fixed classifications for climate-eligible investment. While all supported movement toward standardization, some participants felt that too-rigid a classification risked being overkill, given the need for innovation and uncertainties about the ‘right’ investments. <br /><br />The discussion also considered whether central banks could become unduly politicized by engaging in climate action. Panelists reemphasized the value of non-value-judgmental exercises such as scenario analysis for informing policies; it was also noted that many central banks have secondary objectives that could justify their buying green bonds.</p></div>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com1tag:blogger.com,1999:blog-3729532444408573454.post-6240634354044545032021-04-20T08:09:00.005-07:002021-04-29T06:42:27.827-07:00Paying for the European Green Deal—Fiscal and social challenges<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFgjoCow9vqWosAlUTyqIah98WE8KMILyVuikhoyMTDHVOkOOdbrrmu-at10El3dcKUrHcyN-sT1aSOhCQ6bmRMDBiFxRba3VeSfMgmcCfZB4zyChF8BhOnWQC5x1p8qGf4TfvytowsAY/s2048/Image+3.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1031" data-original-width="2048" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiFgjoCow9vqWosAlUTyqIah98WE8KMILyVuikhoyMTDHVOkOOdbrrmu-at10El3dcKUrHcyN-sT1aSOhCQ6bmRMDBiFxRba3VeSfMgmcCfZB4zyChF8BhOnWQC5x1p8qGf4TfvytowsAY/s320/Image+3.jpg" width="320" /></a></div><p>Climate action is expensive, and European budgets will be even more constrained in the coming decade by the fallout from covid-19. A key question for governments will be how to pay for climate-related reforms. <br /><br />This blog reports on the second session of a virtual conference, European Climate Action: Political Economy Challenges, hosted by the European Studies Centre of St Antony’s College Oxford, on January 21, 2021, which tackled this difficult question. <br /><br />The panel included Jean Pisani-Ferry, Senior Fellow at Bruegel and PIIE, Professor EUI; Dora Iakova, IMF, Assistant Director leading IMF work on European Climate Policies; and Linus Mattauch, Martin School, Oxford; it was chaired by Professor Tim Vlandas, St Antony’s College. <a href="https://youtu.be/SLid4ds3bAM" target="_blank"> Click here for the podcast of session 2.<span></span></a></p><a name='more'></a> <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEis12Zb-5r8kG59pKoPelQBoLPraBKUpCTLp5yhgQhcdOZIljlm2pDe1VsIvDjIRr1Ra1oqq2dI_T9HjigiBAVNkgDQ3aGMVB8O2LQ2cGC01eZ1rfq2PtgRMVGYXHRIoJP4I0E3M-Dtsak/s1998/Blog+3.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="499" data-original-width="1998" height="123" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEis12Zb-5r8kG59pKoPelQBoLPraBKUpCTLp5yhgQhcdOZIljlm2pDe1VsIvDjIRr1Ra1oqq2dI_T9HjigiBAVNkgDQ3aGMVB8O2LQ2cGC01eZ1rfq2PtgRMVGYXHRIoJP4I0E3M-Dtsak/w492-h123/Blog+3.jpg" width="492" /></a></div><div style="text-align: center;">Jean Pisani-Ferry Dora Iakova Linus Mattauch Tim Vlandas<br /></div><p></p><p>Background: challenges both for the EU and for national governments <br /><br />For European governments, operationalizing the European Green Deal will require finding ways to pay for it—somehow accommodating new spending for climate action within budgets already stretched by the impact of COVID-19. There are partial solutions (grants from the Recovery Fund) and additional planned solutions (new taxes on plastic waste and sharing of Emissions Trading System (ETS) auction receipts). But mainly, governments are likely to be offered easy-term loan financing—meaning that their deficits will worsen until they take offsetting action. <br /><br />This creates new dilemmas for fiscal policy both at European and national levels. <br /></p><ul style="text-align: left;"><li>At the EU level, Europe will have to decide whether other spending will be sacrificed for climate spending, or whether its fiscal rules can be relaxed (perhaps a more conceivable prospect in a post-covid world?). The Green Deal envisages a review of the European economic governance framework. The review will need to answer the question of how far fiscal rules should be modified to accommodate climate investment. This will require striking a delicate balance between investing in resilience and protecting debt sustainability. </li></ul><ul style="text-align: left;"><li>At national levels, governments will have to chart a fiscal strategy that allows them to respect the EU fiscal framework while delivering on their NDCs—making difficult choices between cutting other spending and raising taxes.<br /></li></ul>There is wide agreement that higher carbon taxes should be a key component of paying for climate action, since they create efficient incentives for transformation away from polluting activities. A revision of energy taxation is a key element of the European Green Deal and is also under review in Britain. However, the political feasibility of carbon taxes is still to be tested: hydrocarbon price increases can be politically toxic, as demonstrated by the gilets jaunes’ backlash. A main challenge to social scientists is to design carbon price hikes in a way that makes them tolerable to the public. This may require greater reliance on non-tax approaches to increasing carbon prices, notably by strengthening emissions trading schemes (which attempt to impose an economic cost of carbon). <br /><br />Jean Pisani-Ferry opened the discussion of ‘How Will Governments Pay?’ by looking at the likely EU bill. His broadbrush estimate of the annual cost of decarbonization for the EU (with expenditure on infrastructure, renewables, research, etc.) was “perhaps a 2 percent of GDP increase in total private and public investment each year”. While substantial, this would imply a government share of between ½ to 1 percent of GDP p.a. (meaning a cost that need not terminally distort the EU fiscal framework). <br /><br />Moreover, not all of this extra spending will increase fiscal deficits, since some will be funded by grants, from the 30 percent of the Next Generation EU Fund assigned to climate transition. This is an estimated 127 billion euro (0.9 percent EU GDP), which, spread over five years, will fund an average 0.2% GDP extra spending a year. Pisani-Ferry cautioned that it will be important to make access to these funds subject to conditionality: for instance, the EU should require countries to align their national policies with its overall strategy for cutting fossil fuel subsidies. <br /><br />For the EU, the main question is whether the SGP fiscal framework can continue to be applied or will have to be reformed. It has been suspended during the pandemic, leaving open the question of what rules to go back to. Studies suggest that the SGP has been associated with considerable dampening of investment, especially in high-debt countries. The SGP does contain a clause allowing deviations from the medium-term objective to finance growth-supporting investment, but only two countries have ever applied for this exemption because requirements are too onerous (the country must be in recession but with its fiscal deficit still on track and must have co-financing) and the exemption too small (less than 0.1 percent of GDP). <br /><br />Pisani-Ferry made it clear that discussion of the SGP is at an early stage, but offered two anchors for furthering the debate. In his view: <br /><ul style="text-align: left;"><li>SGP rules should be amended to accommodate climate-related investment. Indeed, the rules need to be amended in any case, since the protracted low interest rates and high covid debt mean that the benchmarks no longer make sense. Any reform should include a broader definition of sustainability and a sustainable corrector for growth. It would be preferable to do the reform before the General Escape Clause is deactivated (currently programmed for end-2021). The amendment should not just exempt climate-related investment from deficit-accounting, since it would be too hard to define the exclusion (the investment needed is non-traditional, and some undesirable investment would be difficult to ringfence). A preferable approach would be to have a qualification process for investments, subject to a list of defined priorities. </li></ul><ul style="text-align: left;"><li>This type of reform alone would not solve the problem that highly-indebted countries will be reluctant to invest. There is no easy answer to this, but Europe’s financing for covid expenditure may be seen as an experiment that could be extended to climate spending: national investments are for the first time being financed by the EU via the Recovery Fund, and not treated as part of Maastricht debt. Pisani-Ferry was careful not to suggest that centralized financing would be a panacea—in the end, countries will end up having to cover the cost through their contributions to the EU budget—but it does illustrate how a larger climate budget could co-exist with continued discipline to maintain sustainability in national fiscal frameworks.<br /></li></ul>Dora Iakova then turned to the national-level challenge for EU governments. She described an IMF exercise which explored whether/how national governments can pay for climate-related reforms while maintaining sustainability, by attempting to construct an affordable fiscal package consistent with preserving growth. But first she emphatically reminded the audience that the question (‘whether?’) is mis-posed: governments have little choice but to spend money to stem global warming, since failure to cap climate change would surely entail worse fiscal costs. That said, there is a real sustainability problem to be grappled with, since governments will not be able to foot a large bill indefinitely. To craft a feasible path between this rock-and-a-hard-place, any sustainable fiscal strategy will have to be as efficient as possible and focus on establishing enabling conditions for the private sector to fund the transformation. <br /><ul style="text-align: left;"><li>A key message from the IMF exercise is that there is no sustainable fiscal strategy that does not require raising carbon prices. Attempting to change private-sector behaviour through regulation or subsidies is much more expensive and less likely to work. Pre-announcing a gradual path of phased carbon price increases would give investors and consumers the strongest incentives to switch to ‘green’ behaviour, with minimum disruption to economic activity. Moreover, the IMF estimated that a gradual hiking of EU carbon prices to 100 euros per tonne would raise revenue by around 1 percent of GDP—significantly easing fiscal pressures.<br /></li></ul>For the EU, carbon prices could be raised by extending the Emissions Trading System (ETS) to additional sectors, rather than by explicit carbon taxation—although some countries such as Denmark, Ireland, and Germany have begun to complement the ETS with additional national carbon taxes. Fuel subsidies will need to be phased out, and measures like fee-bates (sliding prices for fuels or cars, depending on their emissions) would help strengthen the price signal to the transport sector—these are already being used in the UK. <br /><ul style="text-align: left;"><li>A second message is that government investment should concentrate on smoothing the path for the private sector—for instance, by upgrading electricity grids, providing public charging stations, funding research, giving low-cost loans to retrofit homes, etc. The more the frontloading of enabling investment, the better. Funds available through the Recovery Fund make this possible and are large enough to make a big difference: for instance, Spain can draw on 2 percent of GDP in grants. Obviously, it will be key to use the funds effectively; the EU envisages oversight to monitor this.<br /></li></ul><ul style="text-align: left;"><li>A final message is the importance of a just transition. Since there will be clear losers, in the sectors affected by higher carbon prices (and by climate change itself), a strategy to help them adjust and compensate for losses will be a prerequisite for a politically-feasible transformation.<br /></li></ul>Linus Mattauch tackled the quandary that, although economists are adamant that climate goals cannot be reached without much higher carbon prices, politicians, citizens, and industry all have grave concerns about their impact. Hence, the main challenge for carbon pricing is how to get public support for the policy, because otherwise it will fail. There have already been several recent ‘spectacular’ political failures: Australia’s 2012 carbon tax had to be repealed in 2014; there have been two failed referenda in Washington State (2016 and 2018); and Germany’s Fridays for the Future movement is failing to generate support for higher prices. <br /><br />Mattauch drew several lessons from his research on what worked to persuade citizens to accept higher prices, in countries which succeeded in raising prices: <br /><ul style="text-align: left;"><li>Focus on how the revenue will be used to alleviate the impact of the price change: all successful reformers used the revenue strategically to mitigate the domestic distributional effects.<br /></li></ul><ul style="text-align: left;"><li>How the price is raised affects how the revenue can be used. Evidence suggests that revenue from carbon tax is returned to households and firms (a ‘fee + dividend’ approach), whereas ETS revenue has tended to stay with government and be used for green spending. Citizens’ preferences for tax versus ETS differ across countries. A survey showed that the French public distrust the fee + dividend approach (a tax followed by a cheque-in-the-mail), whereas Germans prefer this direct transfer to the more diffuse benefit from ETS earnings used for green government spending.<br /></li></ul><ul style="text-align: left;"><li>A focus on how the revenue is used is also vital for maintaining positive communications about the reform. A main problem is that the public does not understand why the behavioural response to carbon tax is so important. Hence, if the revenue can be explicitly earmarked for a popular reform, it will win more public support. In general, to earn public support, the costs should be diffuse and the benefits as salient and concentrated as possible. This argues for upstream uniform price increases and earmarked spending. And still more generally, any reform will be more successful if it avoids calling the carbon price increase a tax!<br /></li></ul><ul style="text-align: left;"><li>Finally, researchers find a positive relationship between pre-existing political trust in countries, and their capacity to raise carbon prices. This augurs well for Europe’s capacity to lead global efforts in carbon-pricing, given the relatively high level of political trust.<br /></li></ul><p>The offline discussion focused on why economists have kept losing the battle for carbon-pricing. So far, proposals for redistribution have tended to come too late and look too temporary; coupled with citizens’ limited trust in government, this has made the compensation side of the strategy inadequate. Hence the vital need to put the Just Transition at the centre of any future reform effort. Of course, the distributional issues are difficult and costly: for success, compensation probably needs to reach a combination of the vulnerable and the less-vulnerable-but-politically-powerful; broad coalition-building will be a prerequisite for success. Moreover, the international dimension of the need for compensation is only now beginning to be tackled (and will be very difficult). That said, the panel was in agreement that, in fact, the impact of the price changes will be relatively tolerable (e.g., a 25 percent increase in electricity spread over ten years), so the compensation should be affordable—the challenge will be how to design it so the right amount reaches the right people, and so that people feel the compensation is fair and adequate.</p><p>Adrienne Cheasty (Academic Visitor with EuPEP, St Antony's College, Oxford) <br /></p>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-61381999596722848982021-04-20T07:57:00.012-07:002021-04-28T11:01:10.591-07:00Europe and COP26—Contribution and expectations<div><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5adE-NS_OfqdIVyj-sqymSHxBp747j1YxxxxIQ28_p3pm2QMgKfjC7JjmImGX1zxQKuly3IY1YTUHxHbmEzqkhqrPlB6zHzMZMerMO2XMWCXYs6B7eVEPYBXd4HtJjVeHDOyI_BheM2Q/s2048/Image+3.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1031" data-original-width="2048" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEi5adE-NS_OfqdIVyj-sqymSHxBp747j1YxxxxIQ28_p3pm2QMgKfjC7JjmImGX1zxQKuly3IY1YTUHxHbmEzqkhqrPlB6zHzMZMerMO2XMWCXYs6B7eVEPYBXd4HtJjVeHDOyI_BheM2Q/s320/Image+3.jpg" width="320" /></a></div><p>By its early commitment to the European Green Deal, the EU has taken on a lead role in the coming round of climate negotiations, COP26 in Glasgow in November 2021. Next questions are: what it will take, beyond the Green Deal, to make the COP a true success, and then, what it will take for Europe to implement the Green Deal successfully.<br /><br />This blog reports on the first session of a virtual conference, European Climate Action: Political Economy Challenges, hosted by the European Studies Centre of St. Antony’s College Oxford, on January 21, 2021, which considered these questions. <br /><br />The panel included Mauro Petriccione, Director General for Climate, European Commission; Emmanuel Guérin, Executive Director, European Climate Foundation; and Heidi Hautala, Vice-President, European Parliament; it was chaired by Professor Thomas Hale, Blavatnik School of Government. <a href="https://youtu.be/0YcjlI8psqQ" target="_blank">Click here for the podcast of this session (which begins at 10.38 after opening remarks)</a>. <span></span></p><a name='more'></a><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEkTAbd4KmC1rbPpEq3TpFDxP6vDb4Eegae1fQdcv58LX02Jb9Z94a3BUnmFGkn9KcnEPBNgZbpGo1g6_CltLNAbCb31g__SMLrWJQfCIUIAXvkNhXOuX2t8Pvgtxbwvx9r2BKMiuHttY/s2023/Blog+2.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="502" data-original-width="2023" height="130" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjEkTAbd4KmC1rbPpEq3TpFDxP6vDb4Eegae1fQdcv58LX02Jb9Z94a3BUnmFGkn9KcnEPBNgZbpGo1g6_CltLNAbCb31g__SMLrWJQfCIUIAXvkNhXOuX2t8Pvgtxbwvx9r2BKMiuHttY/w531-h130/Blog+2.jpg" width="531" /></a></div></div><div style="text-align: center;">Mauro Petriccione Heidi Hautala Emmanuel Guérin Thomas Hale</div><br /><div><p></p><p>Background: the importance of COP26 and the role of the European Green Deal <br /><br />The 2015 Paris Agreement achieved consensus on targets for reducing greenhouse gas emissions to curb climate change, but did not succeed in getting countries to commit to adequate action to achieve these targets. To close the gap, the COP process provides for periodic stock-taking of countries’ commitments, with gradual increases in the ambition of each country’s plan (its Nationally Determined Contribution (NDC)). The hope is that these updates will draw strength from innovations in climate science, and from earning political legitimacy and feasibility over time. COP26, originally scheduled for 2020, is the first important stock-taking climate summit. <br /><br />The European Green Deal is (broadly) the EU’s strengthened contribution to meeting climate targets: it commits the EU to no net emissions by 2050 and sketches a roadmap to restructuring the regional economy consistently with achieving net-zero emissions. While one region alone cannot solve the global problem, and while implementation will be challenging, its announcement set an important bar for other countries to match. <br /><br />Despite the postponement of COP26, a Climate Ambition summit in December 2020 succeeded in eliciting new pledges, estimating that countries representing 65 percent of global emissions would commit to some version of net zero by early 2021. Moreover, the US announced its return to the Paris Agreement on January 20, 2021, giving a new global impetus to climate action. Hence the mood for the conference was buoyant. Disappointingly however, in February 2021 a UN report tallied up the impact of these new pledges, and has concluded that they still fall far short of the measures needed to avert drastic temperature rise. Hence, COP26 faces the monumental challenge of getting the world back on track to avert climate catastrophe. <br /><br />Mauro Petriccione opened the session, noting that the commitments by other key countries following the Green Deal mean that Europe has already achieved some of its goals for COP26. He and the other speakers welcomed the return of the US to the Paris Agreement. He laid down some markers for a successful COP: <br /></p><ul style="text-align: left;"><li>The overarching task of the COP process from now on must be to put the world back on track to meet the climate targets—i.e., to reduce the gap between goals and measures. To do this, it will be important to begin to focus on the specific contents of countries’ NDCs. The economic and social transformation needed to meet the targets is gigantic. It is clear that all countries will need a plan, since all will need to frontload investment and execute it along a predictable trajectory. Europe will need a planning and management exercise of unprecedented size and complexity—and has embarked on this, with the goal of doing it credibly and creating a template the rest of the world could replicate. </li></ul><ul style="text-align: left;"><li>The Glasgow COP will also need to focus more on adaptation measures—compared with the almost exclusive emphasis on mitigation of climate change in past negotiations and in NDCs. The need to strengthen adaptation measures is true for all countries, but particularly for poorer vulnerable ones, who will be most affected by global warming. </li></ul><ul style="text-align: left;"><li>The discussion of climate finance will also be a key topic for Glasgow—not so much how to find more money but how to deliver it more effectively, including to the most vulnerable countries. </li></ul><ul style="text-align: left;"><li>Finally, The COP should focus more in depth on key sectors. Notably, if the UK were to put forward a credible initiative to stop using coal power, that truly would make Glasgow a success! </li></ul>Emanuel Guerin also laid down markers for a successful COP, focusing on the design of the negotiations: <br /><ul style="text-align: left;"><li>Setting a clear long-term goal for net zero emissions (by 2050 for the OECD and preferably for all countries) is a vital anchor for shaping the expectations of stakeholders (e.g., that low-carbon products will be cheaper than high-carbon), so that they modify their behaviour to be consistent with a low-carbon future. </li></ul><ul style="text-align: left;"><li>The long-term target will need to be backed up with short-term commitments. COP26 will be a test of the ratchet mechanism, requiring countries to increase the ambition of their strategies, since commitments at the time of the Paris Agreement and since then have fallen so far short of meeting the target. Guerin recognized that the gap cannot be closed by the Glasgow COP; however, the proof of success of COP26 will be an augmentation of commitments to measures to be taken by 2030 that is large enough to materially enhance prospects for meeting the 2050 goal—not only by Europe but also by other key countries. </li></ul><ul style="text-align: left;"><li>These commitments must include specific sector-by-sector strategies. (Guerin called this ‘putting non-state actors at the centre’, and said the UK COP team is emphasizing getting businesses to commit.) He mentioned a few no-brainers: phase out coal; support clean energy; deal with gas (especially in the US); widen the strategy beyond energy to include land-use and transportation (e.g., end the internal combustion engine). </li></ul><ul style="text-align: left;"><li>Addressing financing needs will also be a prerequisite for defining COP26 as a success—not only for Britain and Europe, but also for global equity: for poorer and vulnerable countries which may suffer the most from climate change but have the least capacity to protect themselves. </li></ul>Vice-President Heidi Hautala focused on how best to ensure effective political support for this massive global undertaking. She reminded the audience of President van der Leyen’s call for systemic modernization, emphasizing the danger that the planet will run out of time. Drawing on her experience in European negotiations, she stressed the need to: <br /><ul style="text-align: left;"><li>Avoid silos—the European Parliament has been supportive of the Green Deal (thereby helping Europe to speak with one voice). </li></ul><ul style="text-align: left;"><li>Be transparent in decision-making—to avoid creating perceptions of favored/unfavored sectors. </li></ul><ul style="text-align: left;"><li>For the same reason, stress science. Institutionalizing science in the policy process will go a long way toward legitimizing difficult decisions. </li></ul><ul style="text-align: left;"><li>Keep the focus on key sectors, even if contentious. Like other speakers, she flagged the urgency of reforming fossil fuel use, where progress has been slow and uneven—e.g., China’s continuing to build more coal power despite its commitments to net zero by 2060. It was also clear from the IPCCC’s report on land-use that contradictions in policy, in food production, consumption patterns, etc. will have to be dealt with—which in turn will mean reforming the Common Agricultural Policy. </li></ul><ul style="text-align: left;"><li>Extend the strategy to trade policy. She reminded the audience that the EU has begun to confront the difficult question of adapting trade policy—since carbon emissions embedded in trade are not covered in NDCs, although they account for 20 percent of the EU’s emissions. </li></ul><ul style="text-align: left;"><li>Finally, get the grass roots on board, since without popular support, the transformation will falter. Engagement in climate action could have great power in giving meaning to people’s lives. </li></ul>The offline discussion in this session focused on whether Europe could or should seek to develop punitive measures, for instance via trade. While the panel believed some measures would be feasible, the general conclusion was that it would be problematic to punish countries merely for moving more slowly than Europe. That said, Europe should question its trade patterns, examine what kinds of investment it wishes to encourage, and seek how to refocus its demand. <br /><br />The panel also confirmed that developing country issues will be very much on the table for COP26. Past experience has taught that getting agreement is usually impossible without addressing developing-world concerns. Besides the financing issue mentioned above, the related issue of debt relief is likely to be salient, particularly given concerns about how mid-sized countries and small islands will be able to pay for mitigation and resilience-building. <br /><br />Adrienne Cheasty (Academic Visitor with EuPEP, St Antony's College, Oxford)</div>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-69122034345643265162021-04-16T11:47:00.010-07:002021-04-28T10:31:00.980-07:00The fight against climate change is a political economy challenge for Europe and for COP26<div><p class="MsoNormal"><!--[if gte mso 9]><xml>
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</o:shapelayout></xml><![endif]-->Two climate-action milestones are about to shape our future, and social scientists need to be engaged. </p><ul style="text-align: left;"><li>COP26, the next global climate summit, will take place in Glasgow in November 2021. It will stocktake the adequacy of world efforts to contain global warming, and seek commitments from countries to strengthen the ambition of their strategies to cap warming at ‘well below 2 degrees Celsius’. </li></ul><ul style="text-align: left;"><li>The European Green Deal, the most comprehensive international commitment so far toward combatting climate change, will be a key input to the COP…but not enough by itself to meet the targets necessary for the COP to be a success. Moreover, implementing the Green Deal will require a massive socio-economic transformation of Europe over the coming decade.</li></ul><p>A virtual conference, European Climate Action: Political Economy Challenges, discussed the implications of these milestones, asking what will it take—beyond Europe’s Green Deal—to make the COP a true success, and then, what will it take for Europe to implement the Green Deal successfully. The findings are summarized in a sequence of blogs, starting with this overview. The conference programme and a combined report can be accessed on the <a href="https://www.sant.ox.ac.uk/research-centres/european-studies-centre/european-political-economy-project/conference-european">EuPEP website</a>, with links to podcasts by session.<span></span></p><a name='more'></a><p></p>The conference was hosted by the European Studies Centre of St. Antony’s College Oxford, on January 21, 2021, in collaboration with the Europaeum. Speakers included policymakers, academics, members of the investment community, public activists, and other practitioners, with attendees from the UK, EU countries, and the USA. The ESC’s European Political Economy Project (EuPEP), especially Adrienne Cheasty (convenor), Julie Adams (administrator) and Charles Enoch (project leader), would like to thank all speakers and chairs for a lively and thought-provoking day, particularly Mauro Petriccione, the European Commission’s Director General of Climate, whose early commitment to the conference made it possible to go ahead, and Hartmut Meyer, Director of the European Studies Centre and Executive Chair of the Europaeum. <br /><br />A key anchor for the conference was that climate action cannot be left to scientists alone. Global climate negotiations and socio-economic transformation are both difficult political-economy challenges: the engagement of social scientists is likely to be make-or-break for the success of climate action. Four pressing political-economy questions were covered: <br /><ul style="text-align: left;"><li>What will it take to make COP26, i.e., this coming round of climate negotiations, a success? </li></ul><ul style="text-align: left;"><li>How will European governments pay the unavoidable bill for climate action? </li></ul><ul style="text-align: left;"><li>How best to mobilize private investment, since government action alone will not be enough? </li></ul><ul style="text-align: left;"><li>How best to mobilize and harness public activism to support the climate-related transformation effectively?<br /></li></ul>Across all sessions, some themes kept recurring, which should be taken as the top-line messages from the conference. <br /><b><br />What it will take for the world to meet climate goals?</b><br /><ul style="text-align: left;"><li><b>A whole-of-society approach. </b>The socio-economic transformation needed to meet climate targets is gigantic and unprecedented. While governments must take responsibility for delivering on the goals, they will not be able to do so without successfully engaging private investors and civil society.<br /></li></ul><ul style="text-align: left;"><li><b>Expectations management is key.</b> Shaping the expectations of all stakeholders is a prerequisite for success. Here, national-level plans will be vital. Besides laying out government actions, clear and trustworthy plans are needed to give the private sector a predictable picture of how the economy will develop. A clear picture will allow it to choose the right investments, and do so without delay, in the confidence that enabling regulations and complementary government actions will support/justify its investments. For credibility, policies must be transparent and vested firmly in science.<br /></li></ul><ul style="text-align: left;"><li><b>Carbon prices have to rise.</b> There is no foreseeable success without raising carbon prices significantly. Unless carbon becomes significantly more expensive, the public will not shift away from consuming fossil fuels and investors will not see adequate profit in green alternatives. To manage this in the face of likely political and social opposition, carbon prices should be gradually adjusted upwards over time, and losers should be compensated.<br /></li></ul><ul style="text-align: left;"><li><b>Public and private financing should complement each other.</b> On the financing side, the relatively small resources of the official sector should target investments that catalyse/enable the private sector, and address developing country needs. Central banks can play an important role without transgressing their mandate. While oversight and standardization are necessary for managing the ferment of private investment, care should be taken to allow regulations and taxonomies evolve flexibly to support rather than hinder the dynamism of the sector.<br /></li></ul><b>What it will take for COP26 to be successful?</b><br /><ul style="text-align: left;"><li><b>Get country commitments back on track ...</b> The Glasgow summit will be successful only to the extent that it succeeds in eliciting enough additional reform commitments to get the climate action process back on track to meet medium-term net-zero targets.<br /></li></ul><ul style="text-align: left;"><li> <b>… with more specific policies ...</b> This will require a leap from general discussion of over-arching goals (though consensus on these remains an important anchor) to more granular policies for progress in specific sectors like coal, and broadening the scope of commitments beyond energy to sectors such as land-use.<br /></li></ul><ul style="text-align: left;"><li><b> … including to meet developing-country needs.</b> To craft a successful global consensus at the COP, Europe and other advanced countries will have to address developing country needs, notably for finance.<br /></li></ul><b>Some interesting ideas </b><br /><br />Besides the consensus themes, the conference also offered several intriguing emerging ideas. While some of these will be controversial, they are likely to take up increasing space in future rounds of climate discussions. A summary list here gives a sense of the next frontier for policymakers and social scientists—see the session blogs for more specific context. <br /><br />Climate negotiations and strategy <br /><ul style="text-align: left;"><li>The need to extend net-zero targets to trade (Europe and COP26 blog) </li></ul><ul style="text-align: left;"><li>A more aggressive effort to halt coal use (Europe and COP26, and Public Activism blogs) </li></ul><ul style="text-align: left;"><li>Start envisaging the demise of the internal combustion engine (Europe and COP26, and Public Activism blogs) </li></ul><ul style="text-align: left;"><li>Broaden focus to land-use and food policy, which will require reform of the Common Agricultural Policy (Europe and COP26, and Public Activism blogs)<br /></li></ul>How governments can pay for climate action <br /><ul style="text-align: left;"><li>Reform SGP rules to accommodate qualifying climate investment (Paying for the Green Deal blog) </li></ul><ul style="text-align: left;"><li>Finance climate investment through the EU budget, meaning keep it outside the Maastricht criteria (Paying for the Green Deal blog). </li></ul><ul style="text-align: left;"><li>Use fee-and-dividend schemes and fee-bates to make carbon taxation more tolerable (Paying for the Green Deal blog). </li></ul><ul style="text-align: left;"><li>Broaden Emissions Trading Systems as an alternative to explicit carbon taxation (Paying for the Green Deal blog).<br /></li></ul>Financing climate action <br /><ul style="text-align: left;"><li>Use the Recovery Fund to help develop green bonds (Investment in Climate Action blog). </li></ul><ul style="text-align: left;"><li>Central banks’ policy decisions should take account of climate change where relevant (Investment in Climate Action blog) </li></ul><ul style="text-align: left;"><li>Green taxonomies and standards must be kept dynamic enough to evolve with rapidly changing green products and concepts of green investment (Investment in Climate Action blog).<br /></li></ul>Harnessing public activism <br /><ul style="text-align: left;"><li>A National Agreement to combat climate change (Public Activism blog). </li></ul><ul style="text-align: left;"><li>Professional charters defining appropriate climate strategies for relevant occupations (Public Activism blog). </li></ul><ul style="text-align: left;"><li>Revisit the UNFCCC observer groupings to break down silos (Public Activism blog). </li></ul><ul style="text-align: left;"><li>Bring in state-owned enterprises as important stakeholders in climate action (Public Activism blog). <br /></li></ul><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDAJJGZcNzdpd7mhdjSGS8Ay7IPafLPl8xokq0X7K-B6lAlKmj8cNVCNJ6Xkl-ZiZzvBE-vm9UWjs-dX_AJj4ktuXrau8kwrc4tXXYcUiYK9nYzCO7Z_x1bubklTopoLWQLNUPgnMk8Ik/s1473/Blog+1.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" data-original-height="482" data-original-width="1473" height="131" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjDAJJGZcNzdpd7mhdjSGS8Ay7IPafLPl8xokq0X7K-B6lAlKmj8cNVCNJ6Xkl-ZiZzvBE-vm9UWjs-dX_AJj4ktuXrau8kwrc4tXXYcUiYK9nYzCO7Z_x1bubklTopoLWQLNUPgnMk8Ik/w400-h131/Blog+1.jpg" width="400" /></a></div></div><div style="text-align: center;">Hartmut Meyer Adrienne Cheasty Charles Enoch<br /></div><div><p> </p><p>Adrienne Cheasty (Academic Visitor with EuPEP, St Antony's College, Oxford)<br /><br /></p></div>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-44234413308085167702020-11-30T05:38:00.002-08:002021-02-11T05:20:18.872-08:00Regional disparities in Europe: The economic impact of Covid-19 <div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwsW-3MxiHPQ7eA3nHpzN-nhL1tbEMhnfmOX8-Rz15hZN7WyqcFwnJLUS_N1c2YXbz1G2NEeNbfM8RRZVr6AVAWyXXnrPO6yLTg_K2Lq77iNtrc8Q82RBJGhgzX2ExJl3i9Krw5MgW-FM/s2048/europe+pandemic.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="1362" data-original-width="2048" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgwsW-3MxiHPQ7eA3nHpzN-nhL1tbEMhnfmOX8-Rz15hZN7WyqcFwnJLUS_N1c2YXbz1G2NEeNbfM8RRZVr6AVAWyXXnrPO6yLTg_K2Lq77iNtrc8Q82RBJGhgzX2ExJl3i9Krw5MgW-FM/s320/europe+pandemic.jpg" width="320" /></a></div>This webinar, held on November 23, 2020 was convened by the <a href="https://www.sant.ox.ac.uk/research-centres/european-studies-centre/european-political-economy-project">European Political Economy Project</a> <br /><br /><a href="https://www.esm.europa.eu/profile/gergely-hudecz">Gergely Hudecz</a> (on the staff of the European Stability Mechanism) presented the results of research, undertaken with Edmund Moshammer and <a href="https://www.bruegel.org/author/thomas-wieser">Thomas Wieser</a>, on the evolution of disparities across European sub-national regions, over the medium term and in response to the COVID-19 crisis. (Detailed results are available in Hudecz, G., Moshammer, E. and Wieser, T. (2020), “<a href="https://www.esm.europa.eu/publications/regional-disparities-europe-should-we-be-concerned">Regional disparities in Europe: should we be concerned?</a>” ESM Discussion Paper 13.) They look at income and employment in individual regions, investigating what factors have contributed to relatively good performance and where there has been convergence or divergence. On this basis they offer suggestions on what policies might be effective in helping weaker regions catch up and share in the benefits of integration. <br /><br />Regarding developments since the turn of the century, they find a complex picture: there has been a tendency for relatively poor countries to grow relatively quickly, and in particular the “new” EU member states have converged towards the mean. However, performance differences within countries have been pronounced, not least in the “old” member states. The differences do not fall into a simple urban/rural or north/south divide. Rather, the ex-urban areas surrounding vibrant metropolitan centres seem to have been most successful in attracting well-paying jobs in expanding, knowledge-based sectors. The research suggests that education levels and also the quality of local administration contribute to regional success, as does labour force flexibility, but no one factor is sufficient in itself: investment in education, for example, may facilitate emigration if attractive local jobs are not available. A weak region risks entering a vicious circle of poor growth, emigration, and lack of resources for public goods such as human capital, infrastructure, and efficient administration. <span><a name='more'></a></span>The economic effects of the pandemic are likewise highly heterogeneous across regions. Areas reliant on tourism and services generally (such as many cities) have been hit hardest, at least initially. A subset of these regions had been doing especially well before, but the full ramifications of the shock are still working themselves out (for example, because it is unclear how drastically global value chains will be restructured). There may be persistent effects (“hysteresis”) where human and physical capacity is lost. Moreover, regional and even national governments will be challenged to shelter regions in the near term while also helping their adjustment and catch-up following the shock. <br /><br />Regional divergence can contribute to political polarization at the national level. It may also undermine support for European integration, which may come to be seen as a mechanism for sucking economic vitality into a few agglomerations. Therefore, finding means to support lagging regions is not just a matter of economic welfare: it has a strong political economy motivation as well. <br /><br />Hudecz suggested a combined approach of improving labour supply through education while attracting investment to generate labour demand and enhance productivity. To this end, strong administrative capacity and better infrastructure—especially IT infrastructure, which enables distance work in a post-pandemic world—will be crucial. The European institutions can help in all these areas. A continent-wide industrial policy could help spread the success of leading regions more broadly, and ensure that global value chains are complemented by “European value chains” connecting all regions. <br /><br />Cinzia Alcidi (Centre for European Policy Studies), as discussant, asserted that EU regional and social cohesion funds have indeed been effective in helping regions catch up, especially by addressing structural handicaps. However, the bulk of resources available for redistribution come from national governments. The scope for cross-country mutual insurance is less than might be supposed because, as it turns out, economic cycles are fairly well synchronized across the EU and even more so across the EMU; they differ in amplitude more than in timing. <br /><br />Christian Odendahl (Centre for European Reform), the second discussant, focused on other political economy issues. European integration has been “sold” as promoting convergence and mutual benefit. The project will be unpopular if it is viewed as mainly serving the interests of those who are already well-off. Discord may increase if COVID-19 is seen as having very asymmetric effects initially and in the course of the recovery. But regional policies can mitigate the tendency towards divergence, provided they are sufficiently holistic. Holistic policies would address in a coherent way such problems as Europe’s severe deficit in digitalization, congestion in thriving conglomerates, and decline in old industrial centres. <br /><br />There was extensive discussion on which policies may be most effective. For example, investment in education facilities that convey relevant skills and in health services has proven to be highly worthwhile. It was stressed that social infrastructure (such as child care) and amenities can help make a region attractive. If emigrants can thereby be induced to return, a region can achieve a virtuous circle of rising employment, wages, and funding for public goods. Also, the “European green deal” and related infrastructure projected could complement policies aiming at regional convergence, for example, by concentrating alternative energy projects in lagging regions (which incidentally often have ample solar resources). <br /><br />Professor Nicolaidis, chairing the seminar, stressed how the research sheds light on a number of political trends and issues across Europe, and demonstrates the value of looking at distributional effects across regions and not just across nation states or individuals. The adverse economic and political consequences of rising inter-regional inequality, which have been exacerbated by the COVID-19 pandemic, demand targeted public policy and resources. There was consensus at the seminar on the magnitude of the challenges, but also optimism that Europe has the tools to address them. <br /><br />Daniel Hardy (Academic Visitor, St Antony’s College, Oxford)<br />SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-14340077854009914342020-11-09T05:43:00.012-08:002021-02-08T05:48:58.172-08:00ECB debt certificates: The available euro safe asset<p class="MsoNormal" style="background: white; line-height: normal; mso-margin-bottom-alt: auto; mso-margin-top-alt: auto;"></p><div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgL_uz3t77kVOGybLUioErzcreJS4k17kmxMdbOz7Nn_VqapV3yrtt051VWxfAl0IEz2D02WsGXeJW5gBWUsR1GNCrD9bMt7guEzGqCPD4u0lloUeZgHdDjBtVGuZMAEkKtll0yhBm4W4E/s618/safe-bonds.png" imageanchor="1" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="507" data-original-width="618" height="235" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgL_uz3t77kVOGybLUioErzcreJS4k17kmxMdbOz7Nn_VqapV3yrtt051VWxfAl0IEz2D02WsGXeJW5gBWUsR1GNCrD9bMt7guEzGqCPD4u0lloUeZgHdDjBtVGuZMAEkKtll0yhBm4W4E/w320-h235/safe-bonds.png" width="320" /></a></div> <span lang="EN-US" style="color: #222222; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">This webinar is convened by the </span><span lang="EN-US"><a href="https://www.sant.ox.ac.uk/research-centres/european-studies-centre/european-political-economy-project"><span style="color: #00b0f0; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">European Political Economy
Project</span></a></span><span lang="EN-US" style="color: #00b0f0; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";"></span><p></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">On 2
November 2020, EuPEP hosted a European Studies Seminar series webinar on Daniel
Hardy’s proposal for the ECB to issue debt certificates (The underlying paper
is available at </span><span lang="EN-US"><a href="https://www.economics.ox.ac.uk/materials/working_papers/5342/ecb-debt-certificates-v9.pdf"><span style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman"; text-decoration: none; text-underline: none;">https://www.economics.ox.ac.uk/materials/working_papers/5342/ecb-debt-certificates-v9.pdf</span></a></span><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">). The event, chaired by Tim
Vlandas, brought together the two main agencies that could be involved in such
an innovation, with Demosthenes Ioannou from the ECB and Gabriel Giudice from
the European Commission acting as discussants.</span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">The
development of an EU-level safe asset is a key building block for the capital
markets union, which in turn is a priority for strengthening EU architecture
and preventing a repeat of Europe’s debt crisis. Hardy’s proposal for ECB debt
certificates would create a safe asset with many attractive characteristics,
while avoiding many of the objections that have impeded the creation of such an
asset in the past. Specifically, Hardy recommends that the ECB regularly issue
a large volume of liquid short-term financial paper, along the lines of US
T-bills, which might be called “euro liquidity management instrument” (or ELIs).
</span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Currently,
the EU has no region-wide financial instrument akin to T-bills, meaning that
banks with excess liquidity have few alternatives to piling up large deposits
at the ECB, and euro investors and liquidity managers are short of
best-quality, usable collateral. The creation of ELIs would give banks more
flexibility and would expand the capital market beyond banks by giving
investors a new euro-denominated security. Its short maturity (Hardy proposes
six months), and capacity for the ECB to issue it in large volume (Hardy
envisages an eventual stock of 1.3 trillion euro), would make it safe, liquid,
and desirable. Its existence would create a new source of high-quality
collateral and help stabilize risk premia across the EU financial system. All
of these attributes would enable the euro to expand its role in global
financial markets. <span></span></span></p><a name='more'></a><p></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Hardy
anticipated some possible objections. Issuing ELIs would not be linked to
monetary contraction or budget funding, since ELIs would merely replace a small
part of existing excess reserves on the ECB balance sheet with negotiable
instruments. Rather, the availability of ELIs would reduce the risk of the sort
of money market fragmentation that was seen around 2012 during the euro crisis,
and thus help ensure the smooth transmission of monetary policy. The possible
objection that issuing any new instrument would entrench the expansion of the
Eurosystem balance sheet, is unreasonable in general; in the specific case of
ELIs, their availability would in fact give the ECB more flexibility in
managing quantitative easing, since ELI operations would not be constrained by
the capital key. Unlike under some other proposals, markets for sovereign
bonds, which are essential for government financing and debt management, would
be unaffected or even enhanced. Finally—and also unlike other safe-asset
proposals—an ELI-issuing policy would be easy to implement, since the proposal
is designed to rely on existing laws, regulations, and institutional
arrangements. </span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Both
discussants saw merit in the proposal; they recognized the need to address the
problems that would be resolved by ELIs, and agreed that most of the potential
objections were second-order. They raised, however, some issues that ELIs would
not address. Keeping ELIs uniform, with a single maturity, would allow the
volume of issue to be larger, but at the cost of not creating a yield curve. Thus,
they could be at best a partial solution to safe-asset development. Giudice
concluded that ‘ELIs may not be <i>the</i> safe asset, but it could help if
they were to exist’. </span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Another
question is whether or not the ECB would be the right agency to issue such an
instrument. It might not want to take on such a role (in the US the Treasury
rather than the Federal Reserve issues T-bills). Ioannou underlined that it was
one thing to issue instruments to manage liquidity and another to do so in
order to create a securities market segment. The ECB issuing ELIs might well intensify
criticism over the putative intermingling of fiscal and monetary policy, as some
have already alleged in the case of the ECB buying government bonds under its
non-standard monetary policy measures. There is also already a broader debate
about how far the ECB should take into account other objectives, such as
support for the transition to a more sustainable economy. </span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Both
discussants pointed out that the landscape for European capital markets has just
now been significantly altered by the introduction of the Next Generation EU
and Recovery and Resilience Facility. This breakthrough for the EU budget, with
the introduction of a borrowing capacity of 672 billion euro, means that the
Commission will greatly expand its issuance of bonds. As Giudice reported, the
first issue was massively oversubscribed, confirming the thirst for
euro-denominated paper and signaling the potential for the Commission to become
one of the largest issuers in Europe. The new instruments are protected from
creating debt mutualization—a main objection to many safe-asset proposals—by
inclusion of a provision that each member state is liable only up to its own
contribution to the EU budget. Although the borrowing is supposed to be
temporary, Giudice expects large amounts to be outstanding for the coming
decade, and to create new dynamics towards capital markets union. Hence,
further work on the case for developing ELIs would need to take account of this
new form of competing asset. </span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Hardy
reminded the panel that it is the job of the ECB rather than the Commission to
further the functioning of euro funding markets, particularly since the Commission’s
purview includes non-euro area countries. Also, in his view, short-term
instruments play a special role in financial markets; the Commission’s
longer-term bonds would not fulfill this role.</span></p>
<p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">In the
general discussion, questioners raised other options for issuing safe assets,
for instance, by the European Stability Mechanism—although it is not clear that
its mandate would allow it to do so beyond its existing practices. There was
also discussion of whether ELIs could help alleviate the doom loop problem, by
allowing banks to diversify out of own-government debt—but the panel thought
the impact in this area would be minor. <span style="mso-spacerun: yes;"> </span>Speakers
and participants agreed that the ELI proposal would not help in resolving
fiscal and distributional tensions within the EU, but there was broad consensus
that it could be important in furthering the capital markets union and widening
demand for the euro. </span></p><p class="MsoNormal"><span lang="EN-US" style="color: black; mso-bidi-font-family: Calibri; mso-bidi-theme-font: minor-latin; mso-fareast-font-family: "Times New Roman";">Adrienne Cheasty (Academic Visitor with EuPEP at St Antony's College, Oxford) </span><span lang="EN-US"></span></p>
SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-58063666100094619892020-10-29T12:21:00.025-07:002020-11-04T11:58:47.985-08:00The EU stumbles in its approach to industrial agriculture<div class="separator" style="clear: both; text-align: center;"><a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTMUsRIoN5A_ZEucLUO22qPvh7mRigaMZnYD_CAODa5O1pdDjNLCAAxMyPaQLoL8mcut2rk_HEmOQqYKOKsreEWhkB7w082RI9Dc3cOTbE1VeA-BEbnE83X0Vs4JcEMk9U1LMZxROI5EY/s1280/wind+farm+cows.jpg" style="clear: right; float: right; margin-bottom: 1em; margin-left: 1em;"><img border="0" data-original-height="861" data-original-width="1280" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiTMUsRIoN5A_ZEucLUO22qPvh7mRigaMZnYD_CAODa5O1pdDjNLCAAxMyPaQLoL8mcut2rk_HEmOQqYKOKsreEWhkB7w082RI9Dc3cOTbE1VeA-BEbnE83X0Vs4JcEMk9U1LMZxROI5EY/s320/wind+farm+cows.jpg" width="320" /></a></div><p>The European Green Deal and the Farm to Fork strategy indicated the ambition of the European Commission to overhaul EU farming policy and make it more sustainable. The Green Deal proposed that 40% of the Common Agricultural Policy (CAP) should “contribute to climate action.” (my blog of 5 May). <br /><br />The European Council conclusions of 13 July stated that industrial agriculture “increases the risk of future pandemics and need to be tackled” (my blog of 22 July). <br /><br />Then, in the week beginning 19 October, the European Parliament undid much of the good achieved by the Commission and the Council. The Parliament rejected the proposal to ban the term “veggie burger”; BUT approved a ban on applying dairy terms (e.g. creamy, yogurt-style and cheese substitute) to plant-based products; AND voted against limiting agricultural subsidies to intensive factory farms e.g. by not providing support to concentrated animal feeding operations. <br /><br />This demonstrated a total lack of ambition to use EU farm subsidies to achieve significant improvements for animals and the environment; and above all wasted (indeed spurned) a valuable opportunity to achieve comprehensive and radical reform of the CAP in the wake of the Green Deal. The Council were reduced to issuing a statement that the Green Deal and the Farm to Fork strategy were simply “recommendations”: thus failing to support the Commission at a crucial time. <span></span></p><a name='more'></a><br />These results were achieved through hard lobbying of MEPs by the powerful industrial interests behind factory farming; and by more than a hint of sharp practice – the timing of key votes was brought forward at the last minute. <br /><br />Compassion in World Farming (CIWF) together with other animal welfare groups also worked with MEPs, and achieved some success e.g. preventing the proposed ban on the “veggie burger”. But overall, MEPS voted to keep industrial farming on artificial life support. As the head of the CIWF EU office Olga Kikou said, “It is shameful that EU farm subsidies will continue to funnel billions of euros into factory farms. For over 60 years EU tax payers have been feeding corporate giants, even when animals in factory farms are raised in abominable conditions.”<b> </b><p></p><p><b>Comment </b><br /><br />The European Parliament continues to support an unreformed CAP despite its association with industrial farming, the loss of biodiversity (soil erosion, over-extraction of water resources, air and water pollution) and incompatibility with the Green Deal. It voted for business as usual rather than transformational change. <br /><br />As soon as the present Commission took office, President Von der Leyen and Vice-President Timmermans came forward with the European Green Deal vision as a flagship policy. By contrast, the Parliament has stuck with the status quo. The vote was mainly along party lines, with very few MEPs diverging; and was based on a 3-party agreement (European People’s Party, Socialists and Democrats, and Renew Europe) struck a few days before the vote. They have and retain a majority, despite vocal opposition from civil society. Over the years it has proved very difficult to overhaul the subsidy system or make any significant CAP reforms. <br /><br />This is an important set-back for those attempting to end factory farming and encourage regenerative agriculture: for the sake of the planet, the environment, human health and the animals themselves. But the current cast of MEPs and industrial agriculture are on the wrong side of history. As vegetable protein products and cultivated meat are further developed, and as prices fall – especially for the latter; and as the sheer waste and misuse of (valuable and finite) resources which lie at the heart of factory farming methods become ever more obvious: industrial farming will inevitably end. And we can return to a world where billions of animals do not suffer because of mankind’s infatuation with animal protein; and where environmental degredation is treated as it should be - as a threat to our planet and all its inhabitants. <br /><br />Sir David Madden (Vice Chair of CIWF, and Distinguished Friend of St Antony’s College, Oxford) </p>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0tag:blogger.com,1999:blog-3729532444408573454.post-72729265586463656912020-10-29T11:47:00.000-07:002021-06-30T07:14:52.272-07:00The UK and Multi-Level Financial Regulation: From Post-Crisis Reform to ...<iframe frameborder="0" height="270" src="https://www.youtube.com/embed/phdrBS1QC24" style="background-image: url(https://i.ytimg.com/vi/phdrBS1QC24/hqdefault.jpg);" width="480"></iframe>SEESOXhttp://www.blogger.com/profile/10499776566187590020noreply@blogger.com0