Transcript: The Economic Impact of Climate Change

THE CNA CORPORATION

ENERGY:  A CONVERSATION
ABOUT OUR NATIONAL ADDICTION

“THE ECONOMIC IMPAC T OF CLIMATE CHANGE”


SPEAKER:

JUSTIN MUNDY,
SENIOR ADVISOR ON CLIMATE CHANGE,
THE FOREIGN MINISTRY OF THE UK


INTRODUCED BY:
 
GENERAL CHARLES “CHUCK” WALD (RET),
FORMER DEPUTY COMMANDER USECOM


MONDAY, FEBRUARY 5, 2007
6:00 P.M. TO 8:30 P.M.





Transcript by:
Federal News Service
Washington, D.C.



SCOTT PUGH:  Good evening, everybody.  Please continue getting some food and eating.  My name is Scott Pugh.  I know a lot of you from earlier seminars that we’ve had here.  This is the 11th Defense Department Energy Conversation seminar, and I’d like to start out by thanking the fine folks – Mitzi Wertheim, Sarah Minczeski and everybody else from CNA who worked so hard to put all this together.  So how about a round of applause for the folks from CNA?  (Applause.)
 
This seminar series has been hosted in the past by the Defense Department Office of Force Transformation, and I think going forward the Office of AT&L will be hosting this series, so we’re looking forward to some more interesting get-togethers.

I am not the person responsible for planning the talk on global warming on the coldest night in Washington in the past five years, but I do have the privilege of introducing General Wald, who will be introducing our principal speaker in just a moment.  You have a copy of General Chuck Wald’s bio in your package.  You can read about his distinguished –

MITZI WERTHEIM:  (Off mike.)

MR. PUGH:  Well, yeah, it was in your invitation.  Hopefully you’ve got one at your table.  He’s had a very distinguished Air Force career, obviously, retiring in 2006 as the deputy commander at European Command.  You won’t find anything in his bio about what he’s doing now, and so I’m going to let him tell you about that.  So without further ado, please welcome General Chuck Wald.

(Applause.)
 
GENERAL CHUCK WALD:  Thank you.  I’ll just hold this.  I’m not sure why Mitzi asked me to come here, but I’m glad I’m here and I’m honored to be able to introduce Justin Mundy tonight, and I’ll talk about that in just a minute, but the question was, what was Chuck Wald or any other general officer doing involved in some of the things I’m doing, and I could probably answer that I guess, but – in the European Command, where I came from before.  Just as background, there are 92 countries that the United States European Command is involved with, which is over half of the countries in the world, so it’s a big area that includes Russia to Iceland, down to the southern tip of South Africa.  It includes the Caucasus; it includes Israel, for example.  And so, multifaceted, very diverse, broad area, lot of – huge population, and lots of different problems.

When Secretary Rumsfeld became the secretary of Defense, one of his issues was to review what are called the COCOMs, combatant commanders, and their UCP, Unified Command Plan – their areas of responsibility: what the strategic vision was, why did we need bases where we had them, why did we need troops in places like Western Europe, for example, and what was the new mission for all of our forces, which was a good thing to review.  And it got somewhat caught up with Iraq and other issues, as you can imagine, but it’s gone on.

In the European Command, General Jones is the NATO commander, or was the NATO commander – my boss at that time – also the U.S. military commander.  And he spent most of his time doing NATO and I spent most of my time doing the U.S. stuff, which was a good mix.  And in a review of what – for example, we had, and still do, 115,000 troops in Europe, in mostly Germany, today, many of those obviously deployed to Iraq, but the permanent party is that number.  And that’s probably too many considering what mission we have there. 

But as kind of background, post-World War II we had 1.4 million troops in Europe, and up until 1990 we had 315,000.  So it’s been decreasing.  But in reviewing what our purpose was in European Command, it became apparent that the world had changed.  NATO’s previous reason for being had changed, although it’s still an important alliance.  The former Soviet Union has changed.  It’s not a threat like it was before.  But there are threats in Europe, and we weren’t looking for work.  I mean, our goal would have been not to have any requirement to be in Europe other than the fact we’re partners with Europe, but it turns out there’s a lot of threats.

And going down the list of threats – you know most of them, but one of them became energy security.  That was important to us.  And it wasn’t that we were looking for work or making it up; it was something we were doing already.  In the Caspian Sea, for example, the United States government, with the lead of European Command multi-disciplines – the Department of State, DTRA, the Department of Energy and others – are putting in $300 million into helping Azerbaijan and Kazakhstan develop the security apparatus in the Caspian Sea to do a lot of things.  One is to avoid proliferation of weapons of mass destruction precursor elements.  Two is to combat terrorism, also illegal immigration, drug – proliferation of drugs, but also energy security.  And in the Caspian, there’s a new pipeline that’s pumping over 1 million barrels a day through that pipeline into the Mediterranean that goes on the market every day, and that’s a vulnerability. 

And my question was at that time, is why is – in my case I went to Baku to talk to the people that were building this pipeline, and the Azeri government as well as the Kazak government, and the question came to me is why is the U.S. military, first of all, doing the development of this capability, and why are we helping countries that basically mean something to us but also have investments in this consortium for the pipeline that was led by British Petroleum, or BP?  Why is the United States military doing this and not the UK military, for example – which Mr. Mundy can talk to you in just a bit about – but also, off the West Coast of Africa, where the United States specifically, but the world in general and the U.S., is going to invest $100 billion in energy production over the next 10 years off the West Coast of Africa.  And that area, in what’s called the Gulf of Guinea, will provide 40 percent of our imported oil in the next 15 years in the United States. 

For those that haven’t been to the West Coast of Africa, you’re unlucky because it’s quite a place to be, but it’s also very immature from the standpoint of security.  They have very little maritime capacity, if any, even Coast Guard.  And it became apparent to us again that it’s probably going to be the U.S. military that’s going to be called upon to do the task of securing that if we’re not careful. 

So I got interested in how do we get to a point where the United States military isn’t the lead on this issue, like we seem to always be.  My favorite bumper sticker is, dial 1-800-USNAVY for any problem in the world.  And I think, once again, we have great partners around the world, but if you look at energy security and the vulnerability to disruptions around the world – the Straits of Hormuz, 17 million barrels a day out of 88 million in the world; the Straits of Malacca, 11 million barrels a day pass through there; places like the Bosporus Straits, 3 million barrels – these are all areas that could easily be disrupted and make a big difference to all of us, not just from an economic standpoint, but national security.  So what we tried to do is highlight the issue that is more than just a military issue; that it’s a national security issue and that we needed to develop partners and burden sharing. 

Then when I came back I got involved in some of this, and it spun off into other areas.  One is a study we’re doing at – we’re assisting on, for Ms. Sherri Goodman, who just walked in, and for Betsy, who is from the Center for Naval Analysis – on the effect on national security and climate change.  And you’re really starting to stretch it when you get to that for most military people, I’ll guarantee you.

But we have a good group of people that are thoughtful – 10 retired general officers, mostly four-stars, mostly names you’d recognize, some from the scientific side of the military and some from just the pure, I think, operational side, like I was, and to look at the impact on national security of climate change.  And you have to make a leap here.  If you don’t believe in climate change, you shouldn’t be in the crowd.  And two, if you don’t think it’s going to affect national security, you shouldn’t be on the panel we’re on.

But it’s pretty easy, after looking at the areas that I was involved in our command in Africa particularly, that in the not-too-distant future these things will start affecting stability.  And when you talk about huge unstable areas, then they become military issues, and we need to start thinking about that.

As one of our road trips, I guess you’d call it – field trips – we went to England and visited with the Blair administration, Prime Minister Blair’s staff, as well as the Hadley Center, and had the good fortune to meet Mr. Justin Mundy, who is a special advisor to the foreign minister in England on climate issues and other issues – has a broad background in banking and world issues.  As a matter of fact – he’ll probably talk about it later – he’s involved with some efforts in China and India as we speak, and has done a lot of work in the United States to promote the idea that we need to have this climate change issue treated as a national security issue and a national policy issue, which I commend Justin for that.  It’s impressive. 

Now, for those that haven’t been to Europe very much – and I’ve spent 15 years there, fortunately – the Europeans take the issue I think a lot more seriously than we do in the United States.  I think it’s obviously catching on here.  And it’s very emotional.  I have a lot of friends in government, some at very senior levels, and on one of my first visits to the Hill when I got back from Europe before I got involved in this too much, I met with a senior government official in the Senate – a good man.  We talked about Africa, and unknowing that I was going to be involved in this, he said as I left, “You’re not one of those climate nuts, are you, Chuck?  That’s all a hoax, you know.”  And I thought, well, I hadn’t been involved in it yet, but I can see there’s some emotion here.  And it’s still somewhat controversial in some areas. 

Another group I’m involved with, it’s called the Securing America’s Future Energy group, SAFE, and that has seven CEOs and seven retired general officers as well as a retired secretary of the Navy involved in it – people like Fred Smith from FedEx and Herb Kelleher from Southwest Airlines, et cetera.  And our report came out recently and the angle there is purely energy security, not necessarily climate, although they’re totally attached.

And the reason I tell this story is I think good things are happening on the areas that you’re interested in.  We met with President Bush Monday for almost 45 minutes in a private meeting – Secretary Bodman, Secretary Paulson – and then another meeting with 10 of the leadership of individuals on both the House and Senate side, and they all 100 percent agree that something needs to be done.  The president acknowledged global climate change and global warming are an issue that has to be addressed.  And the good part about it, I think, is that these could be done in parallel and at the same time.

Now, there’s an economic issue that’s hugely important, but that’s going to be addressed, I think, in due time, although I don’t personally think the market addressing that’s going to be fast enough. 

So big issues for all of us.  I’m not interested personally in the fact that – and I’ve spent a lot of time in the Middle East as well – that countries that aren’t necessarily friendly to us, or most of the time aren’t unfriendly but are certainly unstable in a lot of ways, own the majority of the oil that we use in the world today.  Ninety percent of all the oil in the world is owned by national oil companies, and I think the United States owes it to ourselves to do something about, first of all, our dependence on countries that don’t necessarily like what we’re doing, and free up our ability to be a little more flexible in foreign policy, and two, on a more private side, demonstrate leadership in the world on this climate change issue. 

In Europe they are starving for the United States to demonstrate that we understand the problem and are doing something about it.  And one of our fortes as a country has always been not just our strength in the military on the kinetic side, but the strength of our moral character.  And this is one of the things that I think we could make a huge amount of headway on, and I’m not embarrassed to mention it in public to anybody. 

Justin Mundy, as I mentioned earlier, is doing great things for England, but he’s also a leader from the standpoint of trying to develop more of a coalition from a foreign policy standpoint.  We have domestic issues, as you all know probably better than I do, on what is the next step, or what are the next steps on decreasing our oil dependency, although we can never become totally independent, but also addressing this issue on global warming and climate change in parallel.  And one of Mr. Mundy’s initiatives, I think, is to try to push our government and other governments to start taking this on as an international issue and treat it more as a coalition issue and also address burden sharing. 

So I’m encouraged at where we’re coming to.  I think in the next year or two you’ll see legislation in a lot of areas.  I know that we have several senators and congressmen that want to sponsor bills that we’ve produced in the near future.  I think the Congress will come up with a bill probably around the fourth of July which has this kind of catchy phrase called “energy independence day,” which I’m not necessarily sure is what we want to all go for, but it’s going to happen.

So I commend all of you for your interest here.  I know you all have different angles.  But it’s all going to, I think, end up being in the end state, something that America’s going to do good for itself, and I think for the world itself.  So, I would say thank you for what you’re doing.  Tell Mitzi thank you and I’d like to welcome Mr. Mundy.

JUSTIN MUNDY:  General Wald, thank you very much indeed.  That was an extremely kind introduction in one way – your very kind words towards me – a very unkind introduction in others because you said so much of what I thought I was going to say myself and you said it so much better than I could have done.  However, with that background, I am well and truly launched. 

Ladies and gentlemen, it’s an enormous pleasure to be here tonight.  Mitzi had warned me that she could get a great collection of the good and the great in one place, and I’m extremely concerned to see that she has actually succeeded in doing that – not my expectation.  And here you all are.  Furthermore, Mitzi has also let me know that I should probably talk for about 45 minutes, which is a very long time for any of you to listen to me talking in what is very frequently a very mumbly English accent, so you have my deepest, deepest sympathy even before we start.

What may be some light relief for you is that I’m not going to talk for 45 minutes about the economics of the Stern Review, for two reasons: A, it’s extremely difficult, and B, I’m not an economist.  What I would like to do, however, is to sketch, with some of the economics and some of the conclusions of the Stern Review, some of the broad parameters, some of the context in which I think we now find ourselves, and what I want to try and do is draw together a relationship between climate change and security and some of the issues which I think we probably need to be aware of.

The reasons for this and for, I suppose, my concern – and Chuck has said, I’m spending a certain amount of my time both here in the U.S., also in Europe, China and in India, talking about this, and it’s because having spent seven years in the World Bank in the ‘90s doing environment and NGO programs in Russia and Central Asia, I was very struck then at how segregated, it appeared to be, many of the discussions were both in Europe and America – certainly in the ministries in those countries – how segregated the understanding between energy and economics, socioeconomics, epidemiology, and nationality seem to be.  I started thinking about climate change seriously almost about 20 years ago.  And then I was struck as well that given the seriousness of what we were facing apparently 20 years ago, it is remarkable at how little people seem to be really concerned. 

I spent the ‘90s doing energy and biodiversity programs and I realized one of the issues there was that we made a certain amount of fuss about biodiversity, about the loss of biodiversity – which is cataclysmic, from many points of view – and yet nobody really seems to be taking it terribly seriously, much less the decision-makers.  One of the reasons for that is, I felt, was that we had managed, although, to raise biodiversity and the environment as an issue of importance, it was somehow segregated – it was in the ghetto; it was something which needed to be mainstreamed into economics – without the understanding that actually biodiversity and environment is not something which is separate from economics.  The environment is not a function of economics; economics is actually a function of the environment.  If you take that as your basic premise, then an awful lot of the concerns which we will be facing in the next 50 years become very stark indeed. 

One of the things which I think the last perhaps 18 months has brought up very clearly is that, despite some people’s hopes, the modeling on climate change is becoming much more precise.  And as that precision increases, it appears that what we thought we might be facing in 50 or 100 years time is actually something which we’re likely to face in the next 25 years time.  And what we may be facing may be rather more serious even than that. 

Given this acceleration of impact, our response presumably would be to try and understand as much as we possibly can about the drivers of this fragility and the drivers of the insecurity – what we’re facing, this unparalleled problem, at a time when the world’s geopolitical situation is, in itself, a massive transition.  In this extremely erudite and well-versed audience, I hardly need to rehearse on the issue.  But having moved now from the stasis of the Cold War through the period of U.S. hegemony – again, which gave the world enormous benefits – we are now at a threshold.  The door has opened yet again.  What are we actually facing?  Are we reversing to some post-Treaty of Westphalia balance of power, some dance of sovereign states’ interests, which more or less can be aligned with someone like Palmerston or Metternich standing in the center, gently twiddling the strings of the marionettes?  I think it’s unlikely. 

We are certainly entering a phase where Russia, China, India, the U.S. and the E.U. have very clear views on what they consider to be their national interest, their regional interest, and what their sphere of influence should be within those regions.  Is there any one country which actually can feel that it has dominance on this?  I wonder.  We have choices perhaps.  Are we entering a multi-polar world, where we have these four or five regional blocs?  Are we entering a uni-polar world again, where the U.S. will retain its hegemony, and we will all benefit from the global security and the massive economic muscle that the U.S. can bring?  That would be a wonderful place to be if it were sustainable.  I wonder if China – the extraordinary rise of China in the last 10 years, which is now being equaled increasingly by that of India, which will be mirrored very shortly, if merely in terms of economic weight, by that of Russia and its control of hydrocarbons – would agree to such a uni-polar system, especially a uni-polar system in which not necessarily the values are shared by all. 

Are we therefore moving instead into a sort of clash of civilizations, as suggested by Huntington in 1996, whereby actually the nation-states are things which become something of an irrelevant and the values within regions are those which actually bind people together?  There are examples of that.  Increasingly in some countries, adherence to the idea of a national identity is not relevant.  Especially if the original boundaries of those countries were originally drawn in a very arbitrary way, they mean very, very little.  Many people are actually driven by their family ties or their local extended family ties, clan ties, rather than national ties and then, within that, to their religion rather than to a nation-state.  And this is, of course, increasingly something which we see in Africa.

Or are we perhaps moving towards a much more regionally fragmented society, whereby the five blocs I mentioned before plus South America have indeed a degree of regional autonomy, but there is no universal umbrella, there is no guiding spirit to move the world forward?  And at the same time, across that matrix, another one can be placed – that of those states which actually are pre-modern, are failing to some extent, whereby the autonomy, the power of government actually to protect its citizens, its first duty, is no longer in place, and that power is taken up by succession of warlords and chiefdoms.  Liberia, various others, would be a state which comes to mind.  Those states are now modern states where bound by interests of the nation-state – but a post-modern system is also merging perhaps within Europe whereby we have exceeded our sovereignty in a collective way so that there can be a rational decision-making – sometimes rational, anyway a collective decision-making – across a broad variety of issues, in which some aspects of sovereignty are attained. 

This, as you will be only too aware, is not universally accepted nor universally agreed within Europe – the great European Constitution experiment is currently resting, not necessarily dead, but it’s certainly taking a very long breather at the moment.  And we have now expanded in Europe so hard and so fast and so quickly that people are actually feeling that perhaps we’ve gone too far too fast.  But what is the reality of this?  What is the geopolitical reality of this?

Well, the political reality of this is that we are actually now, whether we like it or not, in a globalized economy.  To survive, for me to draw my pension in 20 years time or so, is going to require the Chinese economy to continue growing in a very successful way.  If we are going to enjoy the same standard of living, we are going to require the benefits of globalization.  And yet, right at the time when globalization has actually become a reality, issues of multilateralism, of how we all work together, are themselves being undermined.  They’re being undermined in various different ways by various different countries.  But if we have a situation whereby we have the Bretton Woods system with the international financial institutions pushing for agreements and loans and grants which have certain socioeconomic and environmental conditions attached, some assumptions attached to them in one direction, and we have, for instance, the Chinese Development Bank – which is better capitalized than the World Bank and the Asian Development Bank put together and is actually putting more money out on a yearly basis than both those banks put together – not necessarily so stringent in its adherence to those values, what then the sanctity of multilateralism?  Are we to assume that our own vision of multilateralism is something that is going to be shared by the Chinese or by the Indians or by the Russians? 

We have – you have your Navy in the Gulf of Formosa.  It’s been there.  It is protecting the U.S.’s ability to import oil.  Why should not the Chinese do that?  They are importing – they all need to import as much oil as anybody else.  And so then in this globalized world – a world of enormous interconnectivity – there is also perhaps the beginnings of the cracks in which what we need most – an umbrella in which a value system can be readily identified which actually affects us all and can be implemented – is starting to be undermined.  And we’re seeing this on a day-to-day basis in some of the decisions which need to be taken, for instance on Sudan and on Iraq. 

How does it affect us as individuals?  Well part of the problem – in this case, back to one of the options I mentioned before in terms of the clash of civilizations – is our sense of identity.  What is it that makes us individuals and gives us the range of values to which we aspire and which we indeed identify?  Those values are, to some extent, classified before this – perhaps they’re economic, they’re aesthetic, and they’re environmental.  Whilst at the same time, if we feel that those are written in stone, we only have to see what happens in countries where the socioeconomic and the environmental and the economic fabric starts to fray, and increasingly it is starting to fray.  It is in those societies where you have massive demographic shifts from a rural to the urban centers that the whole cultural fabric which has held such a set of value systems intact becomes undermined, especially when we are moving into massive urban co-migrations (?).  Twenty-one of the 33 mega-cities in the world, populations of 8 million, are cities which are inherently vulnerable either to sea-level rise or to massive water stress.  Economic stability is absolutely dependent, increasingly, upon environmental stability. 

And this brings us to the second strand.  We have been assuming, perhaps far too long, that climate change is something which happens in a disaggregated, somewhat separate way, from the rest of economics, from the rest of the environment.  This is not the case.  Climate change is going to be the extra stress on already incredibly over-stressed ecosystems.  We are living in a planet where ecosystem current capacity is already very, very frail.

I spent 20-odd years knocking around parts of the world dealing with some of these issues, and I can promise you that if you go into Turkmenistan, if you go into northern India, if you go into northwest China, ecosystem current capacity is right on the edge.  We are very, very nearly over the edge in some of these places.  And that is indeed a catastrophe because climate change will knock us over.  There is no doubt about that.  And we are much closer to the edge than we had, I think, previously thought.

That means, therefore – and I’ll come back to my last sentence in a second – but one of the issues that I just want to put on the table this evening for you to consider is that we are not dealing with something which is either necessarily linear – because I believe the impacts of this may be nonlinear – but also we are dealing with a systemic failure.  We cannot deal with these problems sector by sector, country by country.  We have a systemic crisis which can only be resolved by climbing out of our comfort zone and climbing out of the fairly narrowly defined ruts in which we normally view these issues.

Why, Mitzi has kindly put up this slide here.  It’s just worth pointing out that in terms of ecosystem current capacity – and having said we are already more or less at the edge – if China were, in 2031, to equal the consumption of the U.S. of grain at 900 kilograms per year per person, that would actually – China alone would equal two-thirds of the current global grain harvest.  Its consumption of paper would be 305 million tons, which is almost double the current production of 160 million tons.  Oil would be at 90 million barrels a day as opposed to the current production of 84 million barrels a day.  And it would have 1.1 billion vehicles.  Now there are about 800 million.  This comes from Lester Brown, who many of you will know here from – he set up the Earth Policy Institute.

The point of that is, of course, that’s just China.  India will have the same population, if not greater, than China by 2030.  So, can you double those figures?  Well, those – and this audience, again, I hardly need to rehearse it, but given the state of the world’s water, given the state of the world’s forestry, and given the state of the world’s atmosphere, doubling those figures is just not a sustainable way we can go.  We do not have the capacity to double those figures.  Of that I am absolutely certain. 

And this then leads us to a form of climate change.  If the ecosystem capacity is already so fragmented, what is climate change going to do to it?  I think Mitzi’s been kind enough to copy what I think is probably the most useful couple of pages, or page, from the Stern Review, which is this multicolored thing here, which you may have got in front of you. 

I got quite involved in reviewing the Stern Review, which was sometimes less of a pleasure than it might have been, and there are a couple of points I’d love to make.  And the first is that the Stern Review comes up with two particular, I suppose, recommendations, or bits of analysis which people have grasped hold of.  The first is that the cost of climate change is going to be about – the impact, therefore, is going to be 5 to 20 percent of GDP, let’s say 12 percent of GDP, which is a lot.  However, the cost of dealing with climate change, and therefore mitigating a lot of worse impacts, is only going to be about 1 percent of GDP per year. 

This suggests that we need to do is to stabilize at 550 parts per million.  The problems of economics and economists is that such a statement is extremely useful, is an extremely catchy statement, and politicians around the world want useful, catchy statements, and it’s great.  The problem with this is it hides an awful lot of difficulty.  The difficulty of stabilizing at 550 ppm, which requires us to put a cap on our emissions by 2020 and then reduce by about 1.5 percent a year forever, continue that reduction – I say forever; for the next 100 years – as opposed to stabilizing at 450, which would require us to put a cap on our emissions at 2010 and then reduce by 6 percent per year.  Okay?  If we stop at 550, that’s considered to be somewhere we can stabilize without walking into catastrophe.

The point of this slide, this figure that Mitzi has copied for you, is it demonstrates actually we are already at 430 ppm CO2 equivalent.  That means we are going to hit 450 ppm in about 10, 15 years.  Once we hit 450 ppm, that means we definitely hit 2-degrees warming.  If we hit 2-degrees warming, that starts the process, which is almost unstartable I would have thought, of getting to 550 ppm, which is 3-degrees warming. Now, that 3-degrees warming; that 550 ppm is where the Stern Review has said we can afford now to aim for, as a stabilization figure. 

At 550 ppm, there is a 50-percent chance that there will be massive crop failures in many developing countries, that there will be between 50 to 40 percent of global biodiversity loss, that we will have started an unstoppable process of tropical deforestation, that we will have started the permafrost in Russia and Canada melting.  It has already started melting, and that the temperature in the Southern seas, particularly of concern in the Southern Pacific, would have risen beyond the 2-percent level at which phytoplankton can survive.  There is a 50-percent chance if we stop at 550 that we will hit those figures.  As a betting man, I would say a 50-percent chance of certain catastrophe is not great odds.

Having said that, I therefore want to go back to this issue about stress upon stresses.  We are no longer looking at something which is merely an environmental externality that markets can actually provide a solution for.  You are looking at something which is going to undermine the main drivers of socioeconomic welfare and also the main drivers of our security because insecurity is not something which pops up in a random way; it is driven by deep inequity, deep misery, and a deep feeling of marginalization.  And of one thing I think we can be absolutely sure is that that level of environmental stress will do nothing other than increase those three drivers.

Nick Stern also recognize that that impact of climate change is the equivalent – not disastrous, but is the equivalent of facing simultaneously the economic impact of World War I, World War II, and the Great Depression.  In terms of global terms, sure, there is enough money to go around.  In terms of immediate impact, the countries which are going to be most appallingly affected are those who can least take that impact.  And that means we may be facing in real political terms, something of the complexity of the Cold War.

However, the Cold War had one particular benefit, with enormous thanks to the U.S., we could just stand and look at each other.  Indeed, arguably, we spent 30 years standing and looking at each other, and as long as nobody blinked, we could just stand and look at each other, and then the economic processes within the communist bloc unwound everything.  This time around, that is certainly not the option.  We do not have the luxury of standing still because the enemy is not on the other side; we are the drivers of the process, and we are going to have to move, and we’re going to have to move fairly quickly.

We are entering, therefore, I would suggest, a new era in geopolitics, which is not he geopolitics of the great game in Central Asia between Russia, the U.K., and India, of trying to ensure that boundaries were not breached in order to meet some maritime haven.  It is not going to be the geopolitics of a multi-polar society or a regional fragmentation; it is much more going to be the geopolitics of scarcity. And the scarcity is going to be the main pillar that is probably going to be the determinant of security, and climate security is very much going to be akin to political security.

There are four or five different elements I think in this geopolitics of scarcity, one of which energy security General Ward started to talk about very well at the beginning.  A couple of other aspects to energy security I would like to discuss.  The first is that certainly are we dependent upon many countries who do not necessarily have the same political aspirations as we do or share the same values, but their political structures, their policies are themselves unstable, and some of them very unstable.  Many of them are going to find themselves more unstable because of problems of climate change.

Also, at the same time, in terms of energy security, we have put ourselves in such a locked-in, cement-like dialectic with those who supply hydrocarbons that moving outside of that is going to have it’s own difficulty.  So many of the international negotiations are so difficult because of the enormous amount of inertia that is required to move any of the negotiating positions.  This doesn’t mean purely climate change.  It covers trade, energy; you name it.  That inertia is so entrenched that it will actually act as a drag on the security discussions which we will most need to focus.

Water is going to be another major issue.  It is already becoming something of quite significance.  I was told the other day that the Chinese are looking with increasing interest that the waters of the Brahmaputra, which happen to rise, I believe in Tibet.  I can’t imagine the reaction of the Indians to the Chinese taking interest in the Brahmaputra.  Equally we have got the Northwest Passage in Canada rapidly becoming a passage, which many international shipping routes – shippers would like to use.  It cuts 8,000 kilometers off the average passage around the world.

Canada would obviously very much like this to be considered its own national waters.  The U.S. and others, for very understandable reasons, would like it be considered international waters.  What happens to Bangladesh?  Bangladesh has a coastline which is at current rather indeterminate, mostly being composed of mud.  If water, the sea levels, are to rise one meter, its boundaries are likely to retract quite significantly.  Well, it’s truly bad luck for Bangladesh.  It’s particularly bad luck for Bangladesh when it hasn’t yet under the law of the sea laid claim to the hydrocarbons in the Bay of Bengal.  If it’s – and it has two years in which to do so – if it fails to do so, then China and India are going to be very interested indeed.

Nuclear issues, in such a particularly thoughtful audience, I will not need tread particularly carefully around the nuclear subject, but you will be only too aware that both in China and in India, and in Europe, and even here I understand, people are now saying that if we are indeed facing the problem of global warming, then the only option is to go for nuclear with new third or fourth generation, nuclear generation capacity.  That may indeed bet he way to go.

I, however, have two questions I would like to put on the table on that.  The first is that if we are going to go down the route, are we actually sure about the economics?  Have we actually done the economic modeling so that we know what the comparison is once you put in place the real cost of decommissioning and the real cost of waste disposal, what the actual comparative cost is with renewables, or going for carbon capture and storage from coal in a major way?

Also, in a world where the geopolitics is changing so quickly and where regional tensions are rising, are we absolutely sure that our treaty of non-proliferation is a sufficiently robust enough document in order to get us out of some of the problems, which we could anticipate?  I don’t know.  I think it’s unlikely.  That is going to be a problem if we go down a nuclear route as a means of trying to get ourselves out of climate change and at a time when we haven’t taken the strategic analysis – we haven’t done the strategic analysis we should have done as we look at all the issues of security that are starting arise, because the security issues, I think, are going to be quite significant.   They’re going to be both hard and soft.  There are going to be hard security issues in how are we going to deploy our forces, which are already amazingly over-stretched.

    The U.K, Army is currently at just under 100,000 people, and that is a reflection of a view, I would have thought about five or six years ago, that people felt that actually overseas deployment wasn’t going to be quite so arduous after all.  There was going to be a wonderful peace dividend.  That peace dividend seems to be a remarkably small duration.  I mean, we’re currently operating in a number of very difficult theaters, as you are with far more people than us.  And indeed, it is likely – it is likely – that if we are entering into the geopolitics of scarcity that we are going to have to deploy many more people in many more difficult places in order to retain our own security options.  But do we have the appetite to do that, and do we indeed have the ability to do that in a world where China, India, Russia, South America is going to be become increasing concerned about their own perfectly legitimate rights to resources?

    Soft security is also going to be an issue.  How are we going to deal with counterterrorism?  Counterterrorism is so often driven by a very difficult socioeconomic, let alone philosophical, concern.  If we’re going to deal with the soft security issues, then we’re going to need to deploy our forces in a radically different way.  Also, we’re going to need to deploy our military’s personnel in a very different way.  We now appear around the world – and I speak with no particular emphasis, but it would appear from the general burden that the NATO forces around the world are facing, that we actually are deploying them both as soldiers and as peacemakers and as proxy governments and developers and technicians and architects and as teachers and as health experts, and they’re not there for that. 

And if we are facing massive geopolitical changes driven by exogenous forces such as climate change and environmental stress, let alone the political issues, all right, we’re going to have to think about how many soldiers we have, how many service personnel, and how they’re going to be deployed.  And that is, from a security point of view, the easy way of looking at it because I think that we have probably now – so we are probably now at the start of a hundred-year process of very, very, very different security concerns because not only are those security concerns outside ourselves but also within our countries, because people are no longer bound by the feelings of national identity, nation statehood, as I mentioned before.  They have other allegiances and those allegiances are shifting.  All of us have multi-identities, but are we ever going to be absolutely sure which identity is going to be uppermost first, particularly – particularly when so often our interventions seem to actually exacerbate some of the feelings which are driving terrorism in the first place?  If we’re going to deal with this, it’s going to require an awful lot of money. 

Well, the IEA, the International Energy Agency, reckoned a couple of years ago that just to cope with the investment and the energy infrastructure in the next 25 years, we’re going to need $18 trillion.  And they revised it upwards this year to about, I think, $22 trillion.  That’s quite a lot of money.  If it’s going to be a carbon neutral, then it’s going to be more, much more money than that.  And that’s before we’ve even started to talk about adaptation.  That’s really just energy investment and mitigation rather than adaptation.  And adaptation is not going to come cheap either, both in terms of hard infrastructure – how do we change the level of roads; where are we going to build our new towns; are we going to have to move towns; are we going to have to, as in the U.K., consider closing down entire stretches of coastline in East Anglia?  What on earth are we going to do about London, beautifully situated 2,500 years ago in a flood plane?  Not the best place for a capital city at the moment.  And you must give a lot of sympathy to the Dutch, all of whom are sitting in an extremely vulnerable place.  It’s going to be very expensive.

    The money is not going to be found, ladies and gentlemen – of that I’m absolutely sure – by a process of bilateral aid, and part of the problem is that we have set up ourselves in a negotiating position, either within the WTO or within the Kyoto Protocol or in the non-Kyoto Protocol negotiations, or on a bilateral basis, that we are going to provide an awful lot of public sector finance.  There is never going to be enough public sector finance in the world, ever, to provide this sort of cash.  It’s going to have to come from the private sector. 

And the private sector is only going to move in areas where there is sufficient political stability and sufficient policy certainty to ensure that the risk/reward ratio that the private sector wants is going to be met.  That does not include failing states; nor does it include states in which the infrastructure is likely to be either underwater or fragmented or blown up in the near future, or for which there is not political certainty or policy certainty for tariffs to be met.  And that means that Africa is in deep trouble.  That means that many parts of the Far East are in deep trouble for the sort of sustained private sector investment that we want. 

    Last year, under the G8, the U.K. – and I was heavily involved in this – tried to set up something called the energy investment framework.  And the idea of the energy framework is to try and do three things: A, to coordinate the international financial institutions – the World Bank, the European Bank of Reconstruction Development, the Asian Development Bank, African Development Bank, Inter-American Development Bank – to ensure that their message to their governments with whom they deal was actually integrated, that they were making the best use of their financial instruments, and that actually they were getting access to the sort of capital markets that we required. 

    It is taking quite a long time to move but it is moving slowly.  To be effective, though, it has to have everybody’s support.  And also, as is becoming patently evident, if we are going to move in China and India, where we have very large issues because both the Chinese and the Indians are going to use their coal fuels as – coal is a fuel source, as a major fuel source from now on, we’re going to have to go down the carbon capture and storage route. 

If we don’t do carbon capture and storage, and if they do use coal, and if we in Europe use coal, and if you in the U.S. use coal, then the 550 ppm scenario we were looking at is going to be on the comfortable side and is more likely going to be 650 ppm, and we’re going to be looking at very high levels of sea level rise and massive biodiversity loss.  And yet, unfortunately, we don’t have the financial framework to pay for carbon capture and storage, which is anyway not yet completely commercially available, and anyway is using technology which people feel should be best used in Europe and America first, for IPR issues. 

    So we’ve got a certain amount of convincing both the Chinese and the Indians and the Europeans and the Americans that actually this technology should be used as quickly as possible.  If we don’t, then the cost of trying to deploy carbon capture and storage technology later on, after we’ve built – the Chinese are building 1.2 gigawatts of coal power capacity per week at the moment, and this is going to continue over the next 10 to 15 years.  Putting in carbon capture and storage capacity after they’ve built everything is going to be so much more expensive.  But to do that, we have to show that we are working together and that we are trying to find a policy framework in which everybody has an integrated position. 

And this, therefore, gets me down to my two last points, you’ll be delighted to know.  The first is that if we’re going to do anything really sensibly around here, it’s going to have to be domestic capital and it’s going to have to be national policies, but national policies operating within a multilateral framework because the problem with globalization is that, as far as foreign policy is concerned – in my current job, foreign policy is a concern – is that there is no such thing as foreign policy anymore.  Somebody said to me the other day, we are all living in a developing country and it’s called planet Earth, and that’s very true.  There is no such thing as foreign policy because in an age of globalization, anything the Chinese do is going to affect us here and anything that the Indians do is going to affect people in Brazil.  We are all interconnected.  Obviously, there is national interest but it’s very hard now to say there is a “them” and an “us.” 

    If we think in those narrowly defined ways, that there are those and there are us, well, we’re going to find that it’s going to be extremely difficult to come up with the policies and the answers and the solutions to a problem that requires a massive welding together of interests.  And that interest is going to be based on two things: finance, huge amounts of finance, which is going to be both domestic, private sector, and also public sector that only possibly operate if we are prepared to make some pretty significant leaps both in terms of what we’re prepared to do and also what we’re prepared to implement.  If only we could implement all our existing policies now, in terms of energy efficiency, then we would not be facing the problem that we are.  If only we could find the finance, actually, to make sure that we were massively reducing the cost of solar panel units in India, then some of the security issues in northern India might be reduced. 

Just one point I’d like to come back to before I come to my absolute final point is that one of the issues of water security really I think needs to be brought out, that finance is not the answer to the problem.  The Chinese are facing an incredibly water-stressed economy.  Shanghai’s aquifers are at a very low level, I think at about 25 to 30 percent.  It is likely that Shanghai is going to have to use salinized water – desalinized water, sorry – within the next 10 years.  Chinese, very strategic nation, are thinking ahead of us and have started to build the necessary water infrastructure to bring the water up from the southwest of China.  All the water from the southwest of China is fed by glacial melt.  Glacial melt, in about 25 years’ time, is not going to be there in anything like the capacity that’s going to be required.  What then, Shanghai? 

    If we’re going to deal with this problem, I would like to suggest that the only way we can is by going forward on the basis of trust.  And trust is credibility and trust is legitimacy.  And that means that we have to look again at what we’re doing both in our security operations and what we’re doing in our WTO negotiations, what we’re doing in our bilateral negotiations, what we’re doing in our bilateral trade negotiations, and what we say to each other when we talk about these issues.  We do not have the luxury, I believe, to drive for narrowly described national advantage.  Up until now, foreign policy, geopolitics, has to some extent been a game of chess, seeking for advantage of one piece over the other.  Ladies and gentlemen, our problem is it is not a game of chess that is now at stake.  What is now at hazard is the chessboard itself. 

Thank you very much.

    (Applause.)

    GEN. WALD:  We’re going to have the microphones available here in the room and we ask you that – the conversation is being recorded so please say your name, your organization, and keep your questions brief.  Thank you.

    Q:  Sir, my name is Rod Adams.  I’m the founder of Adams Atomic Engines, and I’d like to ask you a question about your dismissal of nuclear power and your acceptance of carbon capture and storage.  We’ve been safely storing used nuclear fuel for about 60 years without hurting anyone.  The total amount in the U.S. that we have stored is about 77,000 tons.  Actually, it’s less than that right now.  A single 1,000-megawatt coal fired power plant produces 45,000 tons of CO2 mixed with nitrogen every single day.  I challenge your analysis that you can have any possibility of capturing that and storing it safely when you believe we can’t capture nuclear fuel and store it safely.

    MR. MUNDY:  Thank you very much.  Don’t misunderstand me.  I’m not in any way anti nuclear industry at all.  I’m actually agnostic.  I just feel that if we are going to take a position whereby we are going to go down the nuclear path, then we need to do a couple of things: first of all, have a real understanding of the economic costs of doing that, what the level of subsidies are – the real level of subsidy that’s required to do this in the long term; and secondly, to have a fairly clear understanding of what some of the security implications of that might be if this is followed around the world where the countries concerned are not so blessed with the level of security that you have here. 

Also in terms of carbon capture and storage, I don’t think at all that the world has the ability to capture all the carbon dioxide that it’s going to be pumping out from these coal powered stations.  Don’t get me wrong; I don’t think so.  I do think, however, that if India and China and the U.S. and Europe are going to use coal powered generation capacity as they are, inevitably, for the next 25 years, then we’ve got to find a way – or 30 years – within that period of doing whatever we can to reduce the carbon dioxide from those plants.  That’s not an either/or.  I’m just saying whatever we do, we’re going to have to use every single tool that we’ve got effectively as soon as possible.  That will, I’m sure, include nuclear.  It’s going to have to include CCS as well.

    Q:  John Koster (sp), Coast Guard.  Wouldn’t control of the human population offer just as significant benefits as these other measures that have been mentioned?  And if so, why is there so little significant promotion of the idea?

    MR. MUNDY:  I’m glad I’m not standing for election in the U.S. on that particular platform.  (Laughter.)  It has, as you know, been tried in China with some success.  It isn’t being tried in India, and I think demographics would demonstrate that where you have countries which actually go from a least-developing-country perspective to a middle-income country, that population rates start declining.  And therefore, it may well be that the answer to that – certainly all the projections would seem to indicate that as economic welfare increases over the next 20 years, that the overall population level will start declining, in relative terms, to stabilize at about 10 billion people. 

I think that it is extremely hard – I think you’re right; if we had a population of 2 billion people, we wouldn’t be in the situation that we’re in.  We currently have a population of 6.2 billion people and it’s going to rise to 10 billion people in the next 30 or 40 years.  I think it’s going to be an extremely difficult subject to broach with any degree of political bind.  In developing countries, particularly, who regard their population as being their major source of economic growth, I just don’t think politically that it’s going to, stated as you’ve stated it, have a snowflake’s chance in hell.  I think if you were to put it in the argument that as economic growth increases, so welfare increases, so the need for large a family decreases, then it’s a more attractive proposition.  But that’s the reality.

    Q:  Geuta Mezzetti, Defense Science Board.  I’d just like to add back in some of what I heard General Wald talking about earlier, which was the vulnerability of large, lumbering, highly centralized systems that can be manipulated, impacted by single events, deliberate or accidental.  I mean, is there anything – whether you’re talking about nuclear or you’re talking about coal, you’re talking about replicating a highly vulnerable infrastructure in an increasingly unstable world, due to a variety of factors, not the least of which is population.  So has there been any discussion about integrating those two things?

    MR. MUNDY:  There’s quite a lot of discussion going on currently, certainly in the U.K., and I wouldn’t wish to speak about what’s going here in the U.S., but on what is the security risks associated with large infrastructure like that, and particularly with LNG terminals as well, which are extremely expensive and make an enormous bang when they go up, the short-term answer, as in so many things, is increase the security arrangements around them.  That is only a short-term answer.  I mean, the long-term answer is obviously to reduce our dependency on importing the stuff in the first place and also to try and diversify the fuel sources and the range of fuel types to minimize it. 

But you’re quite right.  No.  I mean, the security implications only increase as we go forward.  And equally, my other point I think on that was that it’s not only our security concerns; other countries have their own perfectly legitimate security concerns about their natural resource supplies as well.

    (Cross talk.)

    Q:  Oh, excuse me. 

    GEN. WALD:  Go ahead, sir.

    Q:  Do you want me to go ahead?  Mr. Mundy, I’d like to ask you a question about your chart.

    GEN. WALD:  State your name please, sir.

    Q:  My name is Jim Jordan.  I’m with Polytechnic University of New York.  Given your figures on grain and paper and your comments on water in China and other places, what’s your thoughts on the current U.S. sort of – I don’t know what to call it – the frenzy over ethanol as a means of diluting our consumption of oil?

    MR. MUNDY:  Far be it for me to give a comment on U.S. policy.  I would merely wish to iterate something that I heard Lester Brown discuss when I was in Washington just before Christmas, which was that on his analysis – and these figures are his not mine – that on his analysis, I think he said that if all the ethanol distilleries currently planned in the U.S. were off and running, then that actually would equate to 70 percent of the U.S. export of grain.  And I think that there is, therefore, an interesting linear analysis to be had on not only what is the environmental impact of going toward massive ethanol increase, but also what is the trade impact of that around the world?

    One of the things I am doing a certain amount of in the U.K. is looking at the relationship between those countries which will have certain characteristics of economic development, which are dependent upon, for instance, agriculture for export, which also have very grain-fed agriculture-dependent economies and yet which may be importing oil, and perhaps may also be importing grain.  It’s very easy to work out that those countries are not only frequently very vulnerable to climate change themselves, but also are particularly vulnerable to massive oil and grain price rises as well.  Those countries, which are so anyway fragile – socially, economically, and politically fragile, I think a major dislocation of the grain market would be extremely unfortunate. 

    And that’s, you know – the other remark is to say, sir, that I think that ethanol will have a role.  But another massive issue that needs to be addressed, not only here but also certainly in Europe and around in the world, is energy efficiency.  What we can’t do is to assume that we can supply the current demand levels as they stand.  We must go down a much more energy efficient path because it’s only if we do both, diversifying our fuel sources and becoming more efficient, that we can hope to beat this, I think.

    Q:  Hi, I’m Lisa Wright with the office of Congressman Roscoe Bartlett, and I’d like you to comment on the impact that peak oil might have and also the relationship between energy and economic growth and the way the world financial capital system is set up upon the predicate of economic growth, which is based on increasing energy inputs.

    MR. MUNDY:  I’m delighted that that’s not my Ph.D. thesis.  (Laughter.)  That’s quite a question for – (unintelligible) – isn’t it?  Your last point first.  I think the issue of how the world is kind of set up in economic growth, it is as it is, and is it sustainable?  If that is your question to me, is that model sustainable as we currently are, I’m not entirely convinced it is.  You know, there’s been a lot of work in the World Bank and other places on green accounting and how that factors in what actually is the proper capital cost of accounting.

    If you were to view some of the climate security issues that I have discussed in terms of agriculture, water, and fuel security at the same time, then economic growth, as predicated by the normal economic models, is not a sustainable outcome.  But I doubt, by your look, it is not the answer to the question that you were anticipating.  Do you want to rephrase it so I can have another bash at it?

    Q:  What will be the challenge of coming up with the capital to make the changes that you envision if there’s going to be a shortage of energy to supply the economic growth from which the capital might come?

    MR. MUNDY:  What is required – we talked about this earlier today.  What is required is to some extent quite simple.  It’s policy certainty and policy consistency.  It’s not so much that everything should be written in stone but there should be at least a clear direction of travel.  And policies should be actually seen to be integrated across different sectors.  As I was saying early on, we have a systemic problem and there’s no point in having something which is trying to work towards carbon financing the energy sector alone if in the building and the transport sector carbon policies are not also enacted. 

So the simplest answer, I think, is that finance will respond when it sees that there is a degree of integrated policy coherence across all sectors, as indeed is starting to happen in Europe.  And one of the things the European Trading Scheme is starting to demonstrate is that not only are the sectors increasing, but also that there is going to be some degree of fungibility in terms of finance between housing, between transport, between aviation, and between the major energy users, and that’s terribly important.  I think if we can put in place a policy, globally, which demonstrates there is fungibility of carbon value across sectors and there is sufficient long term – and it has to be 25 years, probably, as a minimum – then that will start to drive the financial shifts we require.

    Q:  Good evening, Sunjin Cho, Institute for Defense Analysis.  Thank you very much for explaining the remark covering three element: the national security threat, environment threat, economic threat.  My question is financing issues and you mentioned your job is – one of those jobs is coordinating with the U.S. and EU and China and India.  My question is, first, in the U.K, you have come up with the U.K’s plan to create energy technology institute, which is in principle a coordination between public and private sector.  Would you able to tell us what element of the issue? 

Second is dealing with international coordination.  You mentioned about your coordinating with the World Bank, Asian Development Bank, Inter-American Development Bank.  What are the best mechanisms to addressing these issues?  At the moment, the EU summit, one of the key agendas is energy security issues.  Do tell me – expounding about those issues and Stern report.  And my understanding is that the European Commission, environmental Commissioner Dimas is planning to come out with a directive to limit on CO2 emissions.  What is EU member state reaction on upcoming directives?  Thank you.

    MR. MUNDY:  On the first one, that was announced by the chancellor last year and is a public/private sector partnership with various private organizations, which – I say don’t quote me; I understand things are being copied down here, but I think Shell, amongst others, have contributed some cash towards it and the Treasury has put up a little bit.  It hasn’t yet started and it’s in early days and it’s just being worked out at the moment. 

    In terms of the coordination, I think what I was referring to was the energy investment framework.  And I’m sorry; your question was what is other good practices associated with the energy investment framework.

    Q:  (Off mike) – the World Bank –

    MR. MUNDY:  Yes.

    Q:  (Off mike) – background banking issues.  My question is, in theory, Asia Development Bank –

    MS. WERTHEIM:  Give her the mike.  Otherwise we don’t pick it up.

    Q:  We have World Bank and IMF and Inter-American Development Bank here, but what are the best ways to coordinate environmental security issues with these intergovernmental agencies including WTO?

    MR.MUNDY:  Okay, thank you.  Whew.  (Laughter.)  We are trying through the energy investment framework to do this by a number of different ways.  Each IFI has its own energy investment framework, but each energy investment framework tends to have three similar pillows.  The first one is access to energy; the second is mitigation; and the third is adaptation.  Within that, we are trying to get each IFI to share best practice.  For instance, EBRD is extremely good at energy efficiency and has been promulgating its experience around the world on that subject. 

The World Bank is, for instance, particularly good at things like the partial risk guarantee and its risk management structures and that’s been shared around the place.  The Inter-American Development Bank is very good at sub-national lending.  We’re trying to get the Inter-American Development Bank to push its experience there.  And we’re trying, at the same time, to ensure that there is some degree of coordination in the instruments and the structure of the instruments so that there can be a better blending, both between the IFIs but also with the private sector. 

And then, also, we’re trying to ensure that these things don’t just sit in Washington or in Luxembourg or in London or in Manila but actually have a much better regional traction, and regional groups like ECLAC, for instance, are holding a number of workshops around the regions and are pushing forward best practice. We’re holding a number of different conferences with the private sector – there’s going to one in March in London – in order to get the private sector to participate and come up with new instruments as well.  And we’re making some progress.  In terms of the WTO, the energy investment framework is very much a financial instrument stroke – policy instrument vehicle and the WTO falls outside it really.

One of the successes of last year, though, I think, with the energy investment framework, was that we managed to move the discussion of climate change by being actually directed by ministers of environment into ministries of finance.  And that, I think, was success because, A, if you want a decision made, you’ve got to go to the people that have got the cash.  The ministry of finance tends to have the cash.  And secondly, as I said, what we’re looking at in climate change is not a marginal environmental externality; we are looking at a really fundamental economic issue which needs to be addressed by those who understand financial issues and economic issues. 

    In terms of the Stern Review and the commission, what is a responsive private-sector players within Europe to of these issues?  I think it’s actually extremely favorable.  There are some who are saying help, help, competition; we’re going to move to China if it becomes too competitive.  We can’t possibly do it and you’re going to place a burden on us.  What is being demonstrated, however, up to now in the European trading system is that, A, there is enormous elasticity in the process and actually the market is kind of surprised and indeed competition is not usually affected, but secondly, also, that actually energy efficiency and moves to drive energy efficiency tend to increase productivity and value, and that people accept this. 

Also, but actually what they don’t like – and this I think is becoming evident here in some of the recent discussions that I’ve heard of here – is that the private sector, if it’s going to be regulated, well, regulate it.  If it’s not going to be regulated, don’t regulate it.  Don’t say to it we might, we could, perhaps we could – well, you know, in 10 years’ time or perhaps 6 months time, it’s going to be bad, it’s going to be good.  They hate that.  They much prefer to be told what’s going on and in Europe they’ve been told what’s going on and that’s fine.  They’ll get on with it.

    GEN. WALD:  Go ahead. 

Q:  My name is Martin Ogle and I’m here just as a private individual, although I work in Arlington, Virginia where the county board chair has declared his major emphasis for this year energy and global warming issues.  It will be interesting to see what roads they go down. 

With regards your toolbox, there’s all sorts of different tools that – part of which have been talked about tonight and others as well.  One is just simply realizing the situation and beginning the conversation, which has been a long time coming in certain areas, and then among the tools to actually deal with the situation that we haven’t really talked about too much tonight is the whole idea of conservation itself – not energy efficiency, not new technologies, but actually voluntarily using less, whether that be at a sacrifice or maybe perhaps not if we can figure out clever ways to do it. 

And so with regards to the first one, talking about the situation, I wonder if you could give your assessment of what role Al Gore’s movie played in bringing this to the conversational front in the United States.  And with the second, I wonder if you think it’s possible to have a real dialogue on conservation practices that brings that way up in the list in the toolbox?

    MR. MUNDY:  Thank you, and very interesting questions.  I would hesitate again to say what the impact of Al Gore’s film was over here.  Certainly in India, in China, and in Europe everybody was talking about it.  It had an enormous impact, not only because of who he is and the way he did it, but also just what he said.  And it had an impact across society.  My children for Christmas bought me two copies of the DVD.  (Laughter.)  They obviously felt I missed out on my homework somewhere fairly badly.  I have watched it that I can tell you.  You here would be a much better judge than I as to the impact.  I would only have thought that it has to be beneficial in terms of it’s an extremely eloquent piece of filmmaking which has a lot of facts in it.

    In terms of conservation, I think you’re absolutely right.  I think there’s an enormous capacity for that.  I was lucky enough to live in America for about seven years, from 1992 to 1999.  When I arrived in ’92, there was an enormous groundswell of feeling about conservation and the environment and everybody was really going on after the first U.N summit and people were extremely gung ho and full of what needed to be done.

    I remember then in ’94 – perhaps, no, it was ’94 or ’95, when the first press reports started coming in, well, was all this stuff really right, and it was pretty hyped up and do we actually need to do anything, and economics wasn’t going to determined by it.  And both here and in Europe, the air went out of the balloon.  If we can actually reengage people’s attention and make people understand the seriousness that we’re facing.

You’re absolutely right in that the only way we are going to get out of this – (inaudible) – is by personal action.  And personal action is going to be predicated on conservation and that would be the first step. Yes, you are absolutely right.  It is essential. 

And for those of us with young children, I had a fairly salutary expression – experience the other day.  I was going through a book of wildlife with my daughter, who’s eight, and she said to me, white rhino; how many white rhino are there?  I said, well, not so many as there were, all right.  Golden lemur, the next page.  Well, we’re more or less fresh out of golden lemurs, sorry about that, yes.  Sumatran rhino?  Not so many of those left either, sorry.  No, not so good.  We went through this book and at the end of it she looked around and said, what have you done?  (Laughter.)  I said, I’ve been working in conservation for 25 years.  She said, not very well, Dad. (Laughter.) 

So out the mouth of babes, exactly.  And the next generation are far more aware and conservation is writ large, I think.  Thank God.  Thank God.  So you were right.  That’s going to major for the first step, I think.  And I sort of –

Q:  Adam Siegel, Northrop Grumman Analysis Center, also a board member of the Energy Consensus.  I want to step back to your answer for the previous question just to give a point.  The previous speaker – you were talking about the economic volubility – the previous speaker in the series was the vice president from Wal-Mart, and Wal-Mart’s been quite extensive around the world, including the United Kingdom, on energy.  He commented they’re spending $500 million a year on energy efficiency and sustainability programs and their payback period is less than two years on that, so that they’re making a profit of $250 million year indefinitely off their $500 million investment.

    A question on trying to think about step-backs of if we try to think Stern report, economic, the most cost effective way of dealing with carbon, most economist I’m aware of do not view cap and trade as the better economic model for a financial model against cap and trade in that one of the things to think about – or just wondering, so you’re pointing to the fungibility of that carbon value and I see that and how that can be in the cap and trade.  But if you could talk about the fungibility of carbon trade value, sort of balancing though between a carbon tax and the approach of tax – actually I prefer using the word “fee” because you’re charging someone a fee for polluting rather than a tax on their right to pollute.  First is emissions cap and trade, and which way would be a better model to follow?

    MR. MUNDY:  Right.  Again, these are all such good questions I could bang on for an hour on each one before I fell down.  But, I mean, I think there are two issues here.  The first is that are we actually convinced?  And in Europe – I would hesitate to speak about the U.S., but certainly in Europe I’m not convinced that you would easily put in place a fiscal policy of such bite that it would make behavioral change happen as early as if you had a cap and trade system.  There is enormous elasticity in the process.  Just look at our fuel prices, which are at least twice as high as yours.  And certainly our cars are more efficient.  Do we drive less?  No.  Each year the chancellor puts up the cost of petrol.  Does it change our behavior?  No. 

We are flying more and more.  My brother flew on a business trip the other day to Italy, and the return flight cost him 1 P without airport taxes, which pushed the entire thing to about $18, I think, the entire trip.  If you were to put a tax of 400 percent on that – 1,000 percent on that – would that change his behavior?  I don’t know; I don’t think so.  I think it depends on where you start in the process, I think.  And I’m just not entirely convinced.  There are some very good measures.  The Chinese, for instance, have put on a tax on energy efficiency for some of their goods for export, which I think is a very interesting example and should be looked at. 

So I suppose my view is I don’t actually think it’s either/or.  I think it’s probably both.  And I think we should have a fiscal policy as well, which deals with this, but in a fairly nuanced way.  I think in terms of cap-and-trade and carbon fungibility, again, there are two issues on that. 

The first is that if we are going to deal with carbon capture and storage without the nuclear lobby support on this, and if we are going to deal with – well, I should say the expectations of carbon capture and storage now in India and China, if we are going to do the expectations of the avoided deforestation countries of Brazil, Africa, and Indonesia, they are expecting a stream of finance.  The only possible source for that finance is going to be carbon finance.  It’s certainly not going to be a bilateral aid program, which is going to deal with this.  There’s just not a hope in hell.  It is arguable whether there is even enough carbon finance to deal with this, if it’s going to deal with domestic reductions at the same time.  And therefore, if we are going to drive technology transfer and financial transfer in the way that the current bilateral and multi-lateral negotiations seem to suggest, then we’re going to need to find finance.  That’s certainly not going to be fiscally driven, so carbon finances as we think about now would appear to be the only option.

Having said that, does such a system need to be one world system such as the Kyoto Protocol put in place?  My own view is that, actually, I think it would help if it was, because you would get a better harmonization of standards and systems, which would enable the process to work better.  If it doesn’t happen on that basis, and goes to a plural-lateral system whereby here in the U.S. you develop your own system; Europe has its own; Japan, China has its own, well that’s fine, if we feel that we’re going to get the same depth and market liquidity as we would have under one uniform system. 

And also if there is fungibility.  The whole benefit of current process is that whether you’re doing it under a Kyoto Protocol mechanism or under the European trading scheme, if you are a company in Europe, you can get either a ERU, a CAR, or an ETS allowance and it’s the same thing, more or less, for compliance purposes.  And that means that in terms of financial modeling and the interplay of the financial markets in this, and their feeling of security and assurance, that helps enormously.

If you’re dealing with a different set of market instruments, two things happen.  You may not get the necessary liquidity and depth of the market, a drive for technology and financial transfers you want.  And also, arguably, you just make a toy pit for those who are expert at financial arbitrage, and the benefits actually rest in global market accounts in major financial houses rather than the countries who are trying to reduce carbon dioxide emissions.  Is that what we want?  I don’t know.

(Cross talk.)

Q:  My name is Chester Joy; I am with the United States Government Accountability Office.  But I’m also here tonight passing as a member of the climate project.  And I really first of all want to thank you for your remarks as well as the folks who invited you here.  And obviously, your answers to the last question showed a tremendous grasp about some very technical mechanisms, et cetera, and how they could be employed.  But I’d like to step back to your two larger comments that struck me the most, and I’d ask you a question.  That was that we stand on a threshold of a new and somewhat unknown global system, and then secondly, that the fundamental problem is going to be trust.  And I’m wondering – I certainly don’t want to place you in the position of giving policy advice to the United States – but I am wondering what it is the rest of the world might be looking to the United States for as an act of transcendent trust that would be a positive thing to do?  And what is the world possibly looking for the United States to do that would indicate something trustworthy?

MR. MUNDY:  I’m not sure how Socrates viewed the cup of hemlock when it was given to him, but – (laughter) – in terms of the basis of a Socratic dialogue, I think I’d like to pass on this one.

Well, Mitzi, it’s such a pity this is all being written down and recorded.  I’d give you a much better – (laughter) – much franker answer.  (Cross talk.)  I think – shall I put it in this way?  There have been a number of instances in the last few years, which you certainly don’t require me to enumerate, whereby it would appear that the willingness of the U.S. government to embrace a multilateral approach has perhaps been more in evidence by its willingness to move away from that.  And at the same time, the message that is being given by the administration very correctly and very rightly is that we are all facing a collection of problems and concerns, which is going to require a collective action to resolve. 

I think collective needs to mean not only the rest of the world with the U.S., but the U.S. with the rest of the world.  And that is, I’m sure – and I’ve worked here for so many years – is an idea which will be warmly embraced by everybody in this room, and indeed in everybody’s daily lives here is something I’m sure is evident.  But if you travel around the world, there is frequently a question mark over that process.  And I think that issue of how the U.S. moves forward on a number of different issues is going to be absolutely paramount. 

And I personally think that perhaps the least contentious, and something that would be in the U.S.’ interest as much as everybody else, is actually warmly embracing the changes that have been suggested at the UN, and actually ensuring the UN becomes a functional, well-funded entity would be a great step.  And I think that everybody needs to be behind the U.S. in supporting that.  It’s a major institution, which needs all our support.  Because as I was saying earlier on, we are facing geopolitical challenges, which are going to be very quickly, if they’re not already, outside the ability of the U.S. to handle by itself as a hegemon, outside the ability of Europe or NATO to handle, but going to require the African Union and everybody else to come to the table.  And that can only be done by a basis of trust and a belief, I think, and the UN system is actually the glue that holds it together.  I think, Woodrow Wilson, I don’t believe was wrong and we need to remember that.

Is that a sufficiently egg-shelly type answer to your question?

(Cross talk.)

MR. WALD:  Time for one more, or do we have the room until 8:00?

MS. WERTHEIM:  Well, we actually have it until 8:30, but that’s too long because he came over sick, so I want to get him back home.

MR. WALD:  How about two more questions?  Three?  Three more, okay.  Three more questions; I’ve got one right here.

MS. WERTHEIM:  Sorry, Margaret.

Q:  Hi – Peter Rudd (sp).  I write for Energy Washington.  Allow me to offer you another cup of hemlock and maybe ask the question a little more directly.  If you were an American Caesar and you were setting U.S. energy policy for the next 20 years, what would the focus be on in a climate-constrained world?

MR. MUNDY:  Energy efficiency.

Q:  Margaret Daly Hayes from EBR Associates.  I want to follow up on the anti-penultimate and anti-anti-penultimate questions.  You described what now appears as a series of incremental steps.  But I think the message of your presentation is that we really need to form a bandwagon for these changes.  And my question is, is there – rather than starting with the United Nations; and it would be great if we would support the United Nations, but – do we need the EU and the U.S. to lead this?  Is there a core group of countries without which we will not be able to move this process forward?  And particularly, do the post-industrial countries have to take the lead because developing countries are very likely to say, well, you guys had all the benefit of polluting the planet and we don’t want to be deprived of those benefits?

MR. MUNDY:  The short answer to that is yes.  Let me tell you, doing this without you is very, very tough.  Doing it with you is going to be difficult.  But we really need you with us.  And we need you with us for three reasons.  A – the enormous financial, technical, and human capacity which you bring to the table.  I mean, each one of you is worth so much in this way.  Secondly, in terms of what the U.S. already contributes to global warming, it’s got to do something about it.  Without the U.S. doing it – as it is starting to in a very successful way in the last few years, have not been devoid of policies on this at all – but it could do more; we could all do more. 

Thirdly, as I said, unless we get the U.S. on board, then I can just tell you that my job in India and in China and around the world, when I am selling something as the UK or Europe and they say, and the U.S.?  And there is always a large silence after they’ve said that.  And also, the fact that there are many initiatives that the U.S. is following, which are superb, which are totally complementary to what I am pushing and my colleagues in every other European country are pushing.  We have the same objectives.  The Asian Pacific Partnership is exactly the right thing to do.  It has all the right boxes to be ticked.  In many ways, it’s exactly similar to the energy investment framework.  It has the same sort of idea of trying to push financial mechanisms. 

It is seen to be competitive.  And even when it’s complementary, for it to be seen to be competitive rides coach and horses through the process of trying to garner trust and support.  And that, even as a perception, is appallingly divisive.  And as I said earlier on, this is only going to be, if we are really lucky, if we all work at this together, we might pull this off.  If we’re doing it separately, we have so little chance.

MR. WALD:  Last question, back here.

Q:  My name is Pat McCardell (sp).  I’m also a volunteer with Al Gore’s climate project.  The U.S. government currently provides massive subsidies, billions of dollars, to our very mature and established and profitable fossil fuel industries.  Do you think that if there were the political will to end the subsidies for the oil, gas, and coal industry, and allow them to compete on a level playing field with renewable, with wind and solar, that that could make a significant difference in say, 10, 20 years?

MR. MUNDY:  I think it would.  And I think it would be a – if you can get the American administration to do it here, could your next port of call be Number 11, Downing Street to talk to the chancellor, because I think there could be as much benefit in England and in Europe as here.  Obviously, I think one of the problems, as I mentioned before, is inertia.  And that inertia is both political and economic.  And until we’ve actually had an understanding of what the level playing field is, it’s very hard to move that inertia.  So I think yes, I think it could be very useful.  Not just here though.

MS. MITZI: Justin, this has been truly fabulous.  Thank you so much for coming and sharing these great insights with us.  (Applause.)  General Wald, thank you for joining us and introducing this. 

Our next session is going to be on building green.  Our speaker is Bob Fox, who is building the second-tallest in New York.  And it’s going to be a lead platinum building.  So he is going to talk to us about construction.  I think that is on the 19th of March.  Please return your badges and your envelopes.  We’re trying to recycle.  And thank you all for coming.

(END)