OPERATOR: Excuse me, everyone, and thank you for your patience in holding. We now have our speakers in conference. Please be aware that each of your lines in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given if you would like to ask a question.
I would now like to turn the conference over to Mr. Sebastian Mallaby. Mr. Mallaby, you may begin.
SEBASTIAN MALLABY: Thank you very much, operator, and thanks to all of you who have joined the call this morning. I'm Sebastian Mallaby. I direct the Center for Geoeconomic Studies here at the Council on Foreign Relations. And with me I have Michael Levi, who is a senior fellow at the council for energy and the environment, and also director of the recent task force that the council sponsored on climate change. And Michael has the added benefit of also having just published a book on a separate subject, nuclear terrorism. So if any of you in the Q&A section would like to ask about Iran, Michael is very good on that issue.
So we're having this call against the background of the G-8 meetings Monday to Wednesday of next week. Obviously there's a lot of stuff in the air about this, and if you want to come to those issues in Q&A, we can have a go at responding. There's the question of the IMF and the World Bank warning that food and fuel inflation could severely destabilize poor countries. There's signs of backtracking on Gleneagles commitments to Africa, both in terms of aid and AIDS aid in terms of volumes of money committed, AIDS in terms of treatment access. And then of course in the background you've got the question of whether the macroeconomic stresses both in the G-7 countries are going to cause trouble and also, I think, very interestingly, in emerging economies, whether the inflation pressure in the Gulf and China are going to force a rethinking of the currency pegs there and therefore a fundamental realignment of what's been called Bretton Woods II.
But what we want to focus on for the first 15 minutes or so before opening it up is Michael Levi's expertise on the climate issue. So maybe, Michael, first of all, I could just ask you, the G-8 has been focusing on climate change for the last several years. Where did it leave off last year and what has it done since?
MICHAEL A. LEVI: Well, thank you, Sebastian. It's good to be with all of you this morning. The G-8 has indeed been focusing on climate change, quite sharply, since the Gleneagles meeting a few years ago.
Last year, there was an enormous amount of news around climate change leading into the meeting. You may recall, a week before last year's G-8 meeting, President Bush came out with a proposal for a new series of major economies meetings on climate change, a new forum for discussing the climate change issue with the biggest emitters. And that caused a lot of noise around the summit and a lot of controversy around the summit. And at the end, what it came out with was a pledge to seriously consider agreeing on a global goal for halving emissions by mid-century and an agreement that the president's process would be subservient to the U.N. process and that all these things would feed into the ongoing U.N. process.
Since then, we've had action on a variety of fronts on climate change, both within and related to the G-8 and the G-8 plus five group. Most notably, in Bali, in December there was a global agreement on a road map on a plan for working toward an agreement by the end of 2009 in Copenhagen on a global deal for dealing with climate change -- not an agreement on any specifics, but an agreement on how to go about finding a deal. And all these pieces are going to be feeding in to that process that was started at Bali.
On top of that, over the last several months, there have been G-8 meetings at the level of ministers: environment ministers, energy ministers, finance ministers.
Many of these different meetings have gone at the climate issue. There has been one in particular specifically on climate change.
And you've got smaller agreements, either just amongst the G-8 countries or amongst the G-8 countries plus a few others, on things like cooperation on energy efficiency. There was an agreement on that a month or two ago. You're looking at discussions on things like nuclear power -- so a variety of different tracks coming into this meeting; now at the same time, none of the really heightened expectations that there were last year.
MALLABY: So we're in a sort of incrementalist, more workmanlike phase, where, at the ministers' level, people have been making programs without there being sort of the drama of higher expectations. Is that what you're seeing?
LEVI: I think that's a fair judgment. There is still some hope amongst some attending -- some of the countries coming to this that there may be a breakthrough, an agreement in particular on a long-term -- what they call a long-term target, so a target for 2050 for where the world should go in terms of reducing its emissions. But there are a lot of complications in that. Firstly, there isn't clearly agreement on what that target should be. And secondly, there isn't agreement on who should be making the deal, whether this should be part of the G-8 plus five, the G-8, the Bush administration's Major Economies Meeting, so that adds an extra complicating factor to it.
MALLABY: And do you expect that the Japanese host of this G- 8 meeting will be pushing more in the sort of high-drama, big-target side, or more on the detailed sort of working along in the existing grooves side?
LEVI: I expect that the host will be pushing on both. They have a variety of priorities. The Japanese have publicly said that they would like agreement on cutting global emissions to half their current levels by mid-century. That contrasts with the European goals halving them from 1990 levels by mid-century. The United States hasn't put out its own goal here.
But the Japanese are quite clear that that's where they'd like to head. And I think they would be very happy to get agreement on that.
At the same time, they would like to have agreement on other specific measures, for example, on nuclear power, on cooperation, on carbon capture and storage. They're also interested in getting buy-in to what they call their sectoral approach, an approach to setting global and country-by-country, in particular, emissions targets based on looking at the different technologies available in different sectors of the economy. So these things break down at a variety of levels.
Cutting across that is the strong Japanese desire to make sure that the United States is part of the process. And you saw this at work in Bali in a big way that, I think, was underrecognized by a lot of observers.
The Japanese acutely understand that there is going to be a different American approach to climate change in a year. And what they are very afraid of is pushing hard in the near-term, for a deal or for setting on a path that excludes the United States, so that even a new administration can't come in and rejoin smoothly.
So in Bali, for example, you saw the Japanese resist calls for an agreement on emissions reduction targets for the developed countries. Many interpret that as a general Japanese rejection of these sorts of targets. It was nothing of the sort.
What it was, was a very strong effort to make sure that whatever the deal was, the United States could be part of it, so that a new administration could pick up and be part of the process going forward.
And I think you'll see a similar thing at this meeting; the Japanese trying to balance a desire to have the strongest possible outcome with an even larger interest in making sure that whatever path this meeting sets the group on for the future, the United States can be part of it. And a new U.S. administration can steer it in a direction that they will be pleased with.
MALLABY: Right, so the sort of Japanese diplomatic penchant for being sensitive to forcing the other side to lose face is actually particularly useful at this juncture with a pending change in administration in Washington.
LEVI: It really is, and on top of that the Japanese really lay at an interesting -- an important crossroads on climate change policy in general. They share a sort of bottom-up approach with the United States where they want to look at the specific measures that can be taken to achieve particular goals, in contrast with the European approach that tends to focus on setting the goals and then figuring out how to meet them.
So they have some philosophical commonalities with the United States and, frankly, with the Bush administration in particular, so they can provide that sort of bridge. They also, because of their intensive technical cooperation with China, have a bridge-playing role there as well.
So they -- it's an interesting country to be hosting this meeting, particularly in terms of its focus on climate change.
MALLABY: So if you were to think forward to next Wednesday, as the sort of concluding exit news stories are being written about this event, what do you anticipate there? Will there be any accomplishments on the climate side that the participants will be able to point to? Or will their desire not to force America's hand mean that there really won't be much to point to?
LEVI: What's most likely to come out, as far as substance with actual numbers that people can point to, is some sort of agreement on cooperation on research, development, demonstration of technology. This is something where all the countries are on board, including the United States. It's really at the forefront of American policy. We're hearing about a $10 billion a year commitment for cooperation on these technologies. Not clear, exactly, what that means. If you total up the budgets of the different countries involved it's already quite high. So this all comes down to what we mean by "cooperation" on these technologies.
There may be some movement forward there.
We could be surprised and see agreement at least on a range of potential long-term goals for emissions reductions, possibly out of the G-8 meeting, possibly out of the Major Economies Meeting, which will also be going on at the same time on the tail end of the G-8 meeting. So that's going to be another question. You may get agreements within the G-8 that happen to be written up in a different communique as part of a different meeting. So both will be important to watch at the same time.
We can -- there can always be surprises, but I don't expect huge breakthroughs. I don't expect an agreement from the G-8 on near-term emissions-reduction targets in particular for the countries involved. The Bush administration is simply too wary of setting out numbers in the absence of commitments from the rapidly emerging economies. And frankly, the sorts of numbers that the administration would be willing to sign up to, even within that context, probably are not acceptable to most of the other G-8 members.
I'll add on top of that that the last G-8 member, Russia, is an incredibly complicated part of this entire mix. They may be even more resistant than the United States to taking ambitious action on climate change. And they're still a very vexing part of this entire question, not only on climate change but on energy security, which will also be high on the agenda at this meeting.
MALLABY: Can you talk a bit more about the Major Economies Meeting and just remind us which economies are considered major, and how is that process sort of dovetailing or not dovetailing with the G- 8?
LEVI: Sure. This process is working quite closely along with the G-8, especially when you look at this G-8 plus five group. So you have the G-8 countries. You add the plus five, which is Brazil, India, China, Mexico and South Africa. On top of that, the meetings of the major economies include countries like Indonesia. That is a major emitter because of its deforestation, not because of its economic activity.
And the Major Economies Meetings process also includes groupings of countries. It has representation from the European Union, from the United Nations, from the European Commission; so a variety of other players, very squarely focused on essentially pre-negotiating a post- Kyoto global deal.
There is going to be very close interplay between the two at this meeting. There have been reports, for example, that in the U.S. comments on the draft G-8 communique many things have focused on which grouping, which setting will actually make the various declarations. Now, this could be constructive or it could be counterproductive. On the one hand, competition often leads to good results. So if there are two processes, each competing to come out with a stronger result, that may lead to positive outcomes. At the same time, it could really lead to deadlock, if it becomes more important to have your print on the result than to actually get the right kind of outcome.
MALLABY: Yeah, and presumably if one set of countries feel more invested in the G-8 plus five but the bigger announcements come out of the Major Economies Meeting, the countries that feel more invested in the first track may sort of, you know, snub the second track. And so the second track's supposed accomplishment doesn't get implemented because it doesn't have the support of some of the stakeholders.
LEVI: Well, every country within the G-8 plus five grouping is also within the Major Economies Meetings grouping. So I think if something does come out of either -- these are all consent -- these are all essentially consensus agreements, though sometimes they can be slightly fudged. If something does come out, I think it will be meaningful, regardless of which of the two it comes from. I think if there is a strong consensus statement on, for example, a long-term global goal, that will really feed in to the next round of U.N. discussions, regardless of which piece it comes out of.
I don't think anyone is going to be sign up to something just because they feel that they have to on these kinds of decisions that are going to have big implications for the ongoing negotiations.
MALLABY: And do you think, looking beyond next January to a new U.S. administration, that the Major Economies Meeting track will continue to exist in parallel, or will there be some move to fold it into the broader U.N. umbrella?
LEVI: I suspect that the Major Economies Meeting track, as it exists, will essentially get folded in as some kind of sub- negotiation in the U.N. process. There's a definite interest in finding a way to keep these discussions going, some sort of discussions going with the major economies. There is an understanding that it simplifies things a lot when you don't have to go through the speeches from a wide variety of countries that do have important stakes in the issue, but that are not necessarily key to unlocking near-term progress on it. So having really the core countries can help make progress in important ways, and I think there is a fairly wide recognition of that.
I would expect to see this sort of pre-negotiation effort folded more into the U.N. process, but that doesn't mean that we're not going to see big multilateral major economies-type efforts in the future. I think they will resemble the G-8 plus five process, though, more than the major economies process, in that they'll focus more on specific actions that can be taken by those countries and specific agreements beyond the global level on what can be done.
MALLABY: Michael, you've had your own experience of climate diplomacy recently, insofar as you spent a year directing a task force which included people from a very wide variety of perspective of climate change. And you were looking for what were the constructive policy proposals that could be signed off on by everyone from Republicans to Democrats, from environmental groups to energy company executives.
Having tested that process and discovered what policy proposals are, A, useful and, B, sort of able to command consensus support, do you see things that -- you know, policies that would make a big difference but which at the G-8 level are simply not being adopted, which are being overlooked?
LEVI: There are a lot of different things that can be done firstly at a unilateral level by a variety of countries but then at the G-8 level. I think the G-8 is actually looking at a variety of constructive proposals that can get broad support.
I would highlight one example, that the U.K. and the United States will bring up in particular at this meeting, which is reducing tariffs on green technologies and enabling technologies for clean energy products.
We're talking a lot about subsidizing the flow of technology from wealthier to poorer countries. Well, at a minimum at least, as part of that, we should also be removing the barriers to allowing the flow of that technology.
Looking at things, like revisiting our approach to biofuels, is something that the G-8 could do sensibly. It has spoken about biofuels in the past and it could speak out on them now. And I think it will say something. Unclear exactly what it will say, but we saw the potential for real agreement there.
I mean, that's really a particularly interesting example, where the politics would have suggested to us that there would be deadlock, in a broad coalition within the United States. But we could come to agreement actually on phasing out subsidies, for things like conventional corn-based ethanol, and on reducing tariffs for biofuels.
So these are the sorts of things where action can be taken. I think a big lesson there is simply that discussion on a wide range of areas may reveal political opportunities that we don't foresee.
MALLABY: And finally one big picture question, Michael -- before we open it up to Q&A -- which is, if you sort of, you know, step back a bit and see this whole climate debate from 10,000-30,000 feet, do you think that, in fact, the model of Kyoto I, in other words, a cap-and-trade system within at least a decent chunk of the advanced world, is a good model to be looking at for whatever comes next?
Are we going to get a global cap-and-trade? Are we going to get -- is that just simply too ambitious, and we need to think in terms of other, more specific deals, for example, on forestry? How do you see this whole evolution? And do you think that G-8 players and, you know, the Major Economies Meeting sort of get that? Are they sometimes working diplomatically towards a place which they'll never arrive at, and so they would do better to invest their energy working towards a different set of goals which would be more attainable?
LEVI: Well, it's not clear that the G-8 plus five group is looking at a global cap-and-trade sort of system, which I do think is not tenable in the near term. It may be -- it may make sense amongst many of the advanced countries, but countries like China and India kind of don't have the capacity to implement this sort of system, or really the ability to predict the future paths of their economies anyway, that makes setting a cap particularly meaningful.
That doesn't mean that these groups can't have discussions about what reasonable targets are. It just means that if there is agreement on what reasonable targets for missions reductions are, some of these countries, rather than meeting them by agreeing to caps might agree to specific sets of policies and measures that could get them to those targets. So the United States might agree to a particular cap and then actually sign up to meet it. China might agree to a particular target for reduced growth in emissions, but might sign up by committing to standards for fuel economy, for renewable energies, for energy intensity in its economy.
So we do need to separate the sort of big goals from how we actually implement them, how we sign up to them. And frankly, the kinds of patterns that the G-8 plus five group has been looking at tilt in a direction that I think we're going to see more of in the future, looking at things like technology agreements, agreements on specific subsets of the problem.
That doesn't mean, though, that a global deal that really set a framework within which all these pieces could operate wouldn't be invaluable.
MALLABY: Okay, good. That's great. Operator, can we now please open up to questions from people on the call?
OPERATOR: At this time, we will open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch-tone phone now. Questions will be taken in the order in which they are received. If at any time, you would like to remove yourself from the questioning queue, press star- two.
And our first question comes Erin Medlicott.
QUESTIONER: Thank you. I wanted to ask if you think that the Bush administration will use our involvement in Iraq and Afghanistan as an excuse not to agree to funding any of the G-8 recommendations, because it might add to our deficit.
MALLABY: Do you mean --
LEVI: This probably goes most to the Africa Challenge, Sebastian.
MALLABY: Yeah, do you mean recommendations broadly, not specifically on climate?
MALLABY: I don't observe, over the last seven years of the Bush administration, a huge tendency to give up spending of any kind, particularly on a foreign policy priority of the president, just because of the deficit. I mean, you know, they've repeatedly demonstrated a willingness to, you know, spend money if they think it's important.
And reducing the deficit is something they talk about, but it's quite far down their list of priorities. We're not talking a sort of Ross Perot-type administration or even a Newt Gingrich type of approach. You know, for the administration, deficits have always been, I think, secondary.
So therefore, you know, what you see in Bush's press conference yesterday is calling on other G-8 leaders to maintain commitments on things like doubling aid to Africa by 2010.
You did not see the president say: Well, because we've got a deficit, we're not going to -- you know, we're not going to deliver on these commitments. In fact, the U.S., on things like spending on malaria, HIV/AIDS and so forth, has been increasing its budget much faster than anyone would have predicted before the Bush administration came into office.
LEVI: I'd add, on the clean energy side, the administration's spending on renewables has increased substantially in the last couple of years.
Now, there's very legitimate debate over where that money is going and whether it's directed into productive areas. But again, it's not something that's being spending -- that's being constrained by overall budget pressures.
QUESTIONER: Thank you.
OPERATOR: Thank you. Our next question comes from John McKinnon.
QUESTIONER: Hey, I'd like to ask a couple of questions which are pretty unrelated. One is, could you take the Outreach Five countries and the (NEM ?) countries, the developing emerging economies, as a group and sort of, you know, say which ones have been closest to the developed countries in terms of setting targets and which ones are the real outliers and have been resisting the most?
And the other question is not climate-related, but could you just preview a bit what's going to happen on the food aid issue, the food prices issue, which seems to be emerging as a big concern lately?
MALLABY: Sure. Michael, do you want to take the question about which emerging economies are closer to G-7 priorities in terms of climate?
LEVI: Sure. I don't know that there are any of the additional countries that are particularly close to the G-8 priority or G-7 priorities on climate. If you look at the sort of -- the most common approaches from the G-7, clearly the U.S. aversion to stringent near-term goals is shared by a lot of the developing countries, including China and India and so on.
But if we're going to say that the G-8 or G-7 position is one of adopting caps, I don't see interest in that from China or from India. But there's potentially greater interest from countries like Brazil or Mexico. But still I think we are quite a ways away from anything that would resemble Kyoto-style caps for them.
Now, as far as coming to agreements on other specific measures that they might take, ambitious measures, I think you may have more of an opportunity with a country like China, for example, than from a country like India, for a couple of reasons. I mean, and these are the two places where people have focused a lot.
Firstly China is usually more willing to cut deals than India is. And so while they may take certain positions now, they're going to be more involved in the give-and-take of negotiations.
And secondly they've sorted out where it is they'd like to go, for their own domestic reasons and for their own foreign policy reasons, than India has.
If you look at China's plan for action on climate, that they released in advance of last year's G-8 plus five meeting, really in preparation for that meeting, it involves a lot of specifics. It involves goals for reducing, ambitious goals for reducing, the energy intensity of their economy, ambitious goals for increasing the share of energy generated from renewable sources. These are the sorts of things that could be translated into commitments as part of an international agreement.
At the same time, you saw on Monday, India released its first ever national action plan on climate change, which was incredibly fuzzy and didn't include anything, in the way of the kinds of specifics that might be incorporated in a global deal. So simply the lack of progress on the domestic front, in a country like India, makes it difficult to engage as part of a global agreement.
I'd add one other thing: The potential for progress on forests, which account for somewhere -- it is very difficult to measure, but somewhere between maybe 15 and 20 percent of global carbon dioxide emissions, is quite different from the potential for progress on energy and industrial emissions. The forests don't have the same competitiveness issues associated with them that things like power and industry do.
And you have Brazil and Indonesia -- Brazil in both groups and Indonesia within the Major Economies Meetings -- put together accounting for roughly half of global emissions from deforestation. So I don't know about progress at these particular meetings there, but I think as we look toward an agreement at the end of 2009, forests may be one place where there will be more progress than elsewhere. And in that sense, those two countries may end up getting somewhere closer to where the other -- to where the G-7 nations are.
MALLABY: Let me just take just take a quick shot at the question about food. At the Center for Geoeconomic Studies here at the council, we've posted a working paper on food aid back in May. The author was Laurie Garrett. If you want to find that, you just have to do www.cfr.org/cgs, like Center Geoeconomic Studies. And Laurie Garrett's paper essentially focused on the tension between the sort of short-term response to a global food crunch, which is often, you know, more food aid and the desire, in the longer term, to stimulate more food production, particularly in developing countries that have a lot of agricultural potential if only they could get the investments in better seeds, better irrigation, better infrastructure around the farm economy that you need to do a green revolution.
And so a country like Mozambique, for example, I think has got a huge potential to develop serious commercial-scale farming that would substantially add to the total output of food in the world and get at the fundamental cause of the problem we face, which is that food demand has grown much faster than food supply.
And food demand has grown obviously because the locus of economic growth in the world, which used to be concentrated in rich economies, has shifted to emerging economies.
And for every extra unit of growth you get in China, you're going to add a lot more to food consumption, partly because there are people there who still live on a dollar a day. And if they get more money, they're going to have a better, you know, eat more.
And then there's also the content of what people eat. The shift from grains to meat and dairy products constitutes a net increase, in terms of the burden on the global food supply. Because it takes between five to eight kilos, I think, of grain to produce a kilo of meat, even though the nutrition sort of content doesn't go up nearly as much to compensate for that.
So the net of it is that so long as we're going to get fast global growth in emerging economies, where diets are shifting, we're going to have upward pressure on global food demand. And we need to do something about food supply to respond to that.
And so whilst food aid is a good short-term response to a crisis, and President Bush referenced that yesterday in his press conference, in the longer-term, we need to be thinking more about things like sort of, as I said before, better feed, better irrigation, better training for farmers, roads so that they can deliver their food to market.
There are three policy blockages, I think, to better food policies right now.
One is the export restrictions that developing countries, emerging markets have placed on food, which is an understandable political measure, to bottle food up inside your own country, so that your own people have more of it. And it keeps prices down domestically.
But obviously, any time a country puts on an export restraint, people on the other side who would have imported that food suffer a more acute crisis. So this is a kind of beggar-my-neighbor policy. And there were a lot of countries that put export restraints on under the weight of the initial shock from higher food prices a few months ago, and some of them have now seen the light and reversed course. And perhaps you're going to see more pressure in Japan next week to make progress in terms of resisting the temptation to put on export restrictions.
I think there are two other policy problems in terms of things that could be done from a political perspective to improve food output. One would be to quit subsidizing corn ethanol, which I don't think makes any contribution on the climate side and obviously has enormous negative consequences in terms of tying up land that could have been used to produce food and therefore driving prices up. It's not THE reason why food prices are higher, but it's certainly a contributing factor. But I don't see any near-term likelihood that the United States or others who subsidize corn ethanol are going to change their mind.
And second, but finally, policies hostile to genetically modified foods, which clearly have higher yields and better ability to reduce -- to resist drought and resist pests and so forth -- that resistance, notably in Europe, hampered the ability of countries in Africa to deploy high-tech crops and therefore boost yields, and they can't do this because they fear that if they do that, their agricultural exports to Europe, which is a key market for them, might be blocked off because of European dislike for genetically modified seeds.
So that's the final policy shift which I think could make a quick difference. And again, I see little prospect of that in the near term.
OPERATOR: Our next question comes from Inna Dubinsky.
QUESTIONER: Thank you. I have two questions. The first is whether it makes sense to keep anti-democratic Russia in G-8 if it is such a strong, as you say, resistant force against energy security and climate change.
And my second question is how much of a leverage might it be in the -- in G-8 if Russia and U.S., say, achieve consensus and act cooperatively on issues.
MALLABY: Can you just repeat the second one again?
QUESTIONER: How much of a leverage would it be if -- in G-8 if Russia and U.S. achieve some consensus and act cooperatively on issues?
MALLABY: Okay. Do you want to take a shot at that, Mike?
LEVI: Well, I think there are two separate questions. You can question whether it was a wise decision or not to bring Russia into the G-8. But right now to remove Russia from the G-8 would be a real irritant, to say the least, in relations between the two countries when there are a wide variety of areas that they need to cooperate on -- some very obvious ones, like on energy, like on Iran -- so not particularly productive there.
Yes, will Russia cause issues within the G-8? Does it -- of course. It doesn't share a lot of the values that many of the -- that the rest of the G-8 countries do. But that's something that we're simply going to have to deal with.
Now, as far as the United States and Russia coming to agreement on various things and the potential for that to drive action forward, it really depends on the issue. And it depends on where their agreement sits in relation to the rest of the countries at the table. Agreement on climate, for example, would probably be so far away from the other six countries that it wouldn't really drive things forward.
At the same time, to hit at the other issue I mentioned, agreement on how to approach Iran, which has been up in the news this week, would make a big difference in driving forward how that group of countries approached that challenge. So it really does come down to the specific issue in question.
QUESTIONER: Thank you.
MALLABY: Next question.
OPERATOR: Thank you.
Our next question comes from -- (name inaudible).
Brazil's President Lula da Silva this week said that developing countries should set national targets to reduce greenhouse gas emissions. Do you think that will have any reverberations in the G-8 talks next week?
LEVI: It all depends on what exactly that means. There are a lot of different ways that one can approach, one can integrate these sorts of national targets into a system. I don't know that the specifics have been completely laid out.
But the version of this, that a lot of developing countries have talked about, is one where these countries lay out national targets. And if they fail to meet them, there are no consequences.
If they reduce their emissions below those targets, they generate emissions credits, that they can then sell into the markets, the cap- and-trade markets in developed countries, helping those countries meet their own targets at lower costs.
This would probably be an improvement on the existing clean development mechanism, which is the current way that carbon markets are used to finance emissions reductions in developing countries.
But it depends entirely on what those baselines, what those targets are, that are set by the developing countries. And that applies across the board, not just for developing but for developed countries.
The United States has put out targets of its own that other countries rightly see as inadequately ambitious.
And it will depend on the kinds of targets that countries like Brazil put out there and on how they are tied to financial flows. That will determine whether others see them as acceptable.
MALLABY: Great. Next question.
OPERATOR: Thank you. Our next question comes from (name inaudible).
QUESTIONER: Hi. I know there was some skepticism when the Major Economies Meetings were first announced about whether they would help or hinder the process. And I'm just wondering if you have a comment on that and whether you think a new administration will continue those meetings.
LEVI: Sure. I think there's no doubt that the Major Economies Meetings are seen in a more positive light than they were when they were first announced. That said, they were seen in an extraordinarily negative light when they were first announced, so there was a lot of room for improvement.
There's a difficult play going on, because to endorse something that the Bush administration has supported on climate change could be very politically dangerous domestically, for a lot of countries, and internationally as well. But my understanding from those involved in the process is that they see this more intimate forum as productive because of its intimacy but that it's undermined by the positions that the United States and some others are bringing to the table. Now, that could mean that with a new U.S. administration and new positions, the process could be reinvigorated. At the same time, there's a certain taint that it has unfortunately, in my opinion, acquired.
So I think, as I mentioned earlier, we will see efforts that focus on the major economies. It may be under a different name. It may be under a different formal structure. There will certainly be those sorts of focused discussions. But a new administration will probably seek to very demonstrably, visibly break from Bush administration approaches to climate change.
And this is the flagship piece of that.
MALLABY: If there is a new name, it probably will not be "coalition of the willing."
LEVI: It will probably not. It will probably not involve the words "major economies," which is -- which will make things mighty confusing, because that will be the entire purpose of it.
MALLABY: (Chuckles.) Okay. Let's have one more question or a couple more questions, if there are questions.
OPERATOR: Thank you. Our last question comes from Katie Paul (sp).
MALLABY: I think we can actually -- we have more time. If people have more questions, we can keep going. So -- but go ahead.
QUESTIONER: Hello. Hi, thank you.
I'm wondering if we could go back to that idea of the Japanese model trying to include the U.S. in whatever agreement is reached, and who else might adopt that model and how successful a strategy it might be and what they would need in order to give teeth to whatever agreement is agreed upon.
LEVI: If they try to give teeth to any agreement, any really major agreement whose goal is to simply keep the United States on board now, that's going to undermine the purpose of it. In order to keep the United States on board, you'll probably need to have something without much in the way of teeth. That's what we had at Bali, and that's what I expect to continue along here. I don't think that this is something -- this is something that the other countries, they can be dragged along with it. It's not from the other countries that are going to lead.
I think that Japan sees this as its responsibility. It took a lot of heat at Bali because it was perceived as being one of the countries standing in the way. If there is any other country that is going to go in that direction, it's probably Canada, not necessarily to pull the United States along, but frankly because it is roughly as hesitant as the United States to commit to ambitious emissions- reduction targets.
So no, this is really a Japanese-led sort of thing to make sure that the focus now is not on trying to lock up an agreement for everyone by the United States and then hope that they can shoehorn a new U.S. administration into whatever narrow framework is being developed when a new administration comes in next year, but to really keep the road wide while steering it in the right direction, so the new administration can come in and actively engage.
MALLABY: Michael, listening to you, it seems to me that, you know, if coming out of this G-8 meeting next week we're going to get maybe something on R&D cooperation and perhaps a couple of other smaller things, but they're going to be -- there won't be sort of anything dramatic, and nor will there be sort of targets with teeth. And so the sort of right commentary after that summit will partly be to say: Okay, so we understand that in the context of a looming U.S. election, this was smart diplomacy not to box the U.S. in. But the question is, next time around, when there's the next G-8, will they also be offering up toothless agreements? How does one move from being toothless to being toothful?
And you and I have talked a bit in the past, and I think it sort of relates to this question that was just asked. You know, how do you coordinate in terms of U.S. political machinery? How do you coordinate a climate process that has to move forward on the international front and at the same time move forward domestically within Congress? When climate change legislation was brought up recently in the Senate, it did pretty badly. So we see there are major political challenges in Washington. There are major political challenges on the international field. Are there mechanisms to try to make these things work in tandem?
LEVI: Well, there are a couple things that are going to have to happen.
First, there's an extra complication coming up, because even when a new administration comes in next year, it's going to take quite a while for them to staff up that administration, to get key people in place who are going to deal with this, and really to make sure that they get their strategy straight on this issue. So that's going to be very challenging next year. And frankly, the G-8 meeting next year is roughly around the time when they will probably be getting their act together, and it will be a good focal point to make sure that the United States has its real strategy in place.
I still wouldn't expect something with what I would call "teeth" by next year. I think that with six months to go until Copenhagen, the real focus will be on priming the ground for some sort of international deal, if one is possible.
Now, as far as moving domestic and international together, on the one hand we've got big challenges internationally, big challenges domestically. You can add those up. At the same time, progress on each front can be supportive of progress on the other front. To the extent that people see the potential for broad international action, they are going to be more comfortable with domestic action and vice- versa. So you can see the two pieces potentially playing into a positive dynamic rather than a negative one.
I'd add on top of that, it's important not to over-interpret the failure of Lieberman-Warner a few weeks back. Yes, it clearly shows that there are a lot of people who don't want this sort of action on this front, but this was a very particular bill with very particular problems at a very difficult time, during the middle of a presidential election. You're at a point where the big focus is high gas prices. You have bill that is almost 500 pages long that is brought out with roughly one and a half weeks for people to look at, very difficult to analyze, very difficult to assess and determine whether this is a smart bill or not in that sort of time.
And on top of that, there is the expectation going into it that it was going to fail -- the expectation for months, going into it, that it was going to fail. That means that all the -- none of the key players had any incentive to compromise, any intention to negotiate on the bill. Why show your hand if you know that you're not going to win anyhow? Better wait till next year, people have said, until there's a real negotiation and then people will show how they're willing to compromise.
Does that mean we're going to deliver something next year so the United States comes to the table with a domestic plan in place? Not necessarily. But I do think you'll see a lot more progress when you have different circumstances and when you have presidential leadership in moving things through.
All that said, domestically in the United States, the tighter the cooperation between the executive branch -- between the president and Congress, the more effective we're going to be here. I think we thought of this a bit too much as a traditional environmental negotiation where the executive can mostly do. We should be thinking of it a bit more like a trade negotiation, where the impacts on the economy are significant, both upside and downside, and that means that there's going to have to be very close cooperation, much closer than there has been, between Congress and the executive branch, in order to get that domestic foreign policy dynamic lined up properly.
MALLABY: Operator, do we have any more calls -- any more questions?
OPERATOR: No, sir, there are no more questions in the queue at this time.
MALLABY: Okay. Well, I think we'll wrap it up.
Thank you all for joining us. Thank you to Michael Levi. And let's do it another time. Bye-bye.
OPERATOR: This concludes today's conference call. You may now disconnect.
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