Notes From Paris, Part 1: Forget The Developed vs Developing Country Divide

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The division between developing and developed countries has been a core feature of the global climate talks since the first meeting (COP) in Berlin in 1995. Back then, low-carbon technologies were considered far too expensive for poor developing countries and would have constrained their growth options. And besides: it was the developed countries who were responsible for the emissions. So, by the principle of justice, they should also take the responsibility. From a climate perspective, however, it made sense to also begin to decarbonise developing country economies, which often ran on particularly inefficient and polluting fossil fuels. The solution was to transfer money and technology from rich to poor. Subsequently, the divide between developing and developed countries became entrenched in the language, psychology, and negotiations of climate talks — and it still is central to the discussions today.

Today, this divide no longer makes sense, because the world has changed fundamentally: An energy transition is today clearly an opportunity, not a sacrifice. Low-carbon technologies — renewables like wind and solar, energy efficiency solutions, and electric vehicles — have become competitive with fossil fuels. In addition, they provide energy security, are fast to implement, and help keep air and water clean. Going green just makes sense — for developed and developing countries alike.

Of course, it is entirely understandable that developing countries continue to hold developed countries to account and to their word and try to get as much financial assistance as possible. This is a perfectly rational negotiation strategy. However, it is a sideshow. If a low-carbon energy system makes sense and there is an early-mover advantage, the future choices of developing countries will be driven by that, not by financial assistance packages.

The real question, in my mind, is a different one. Given that the global energy transition is the “business opportunity of a lifetime,” to go with US Secretary of State John Kerry — who will capture it? Which countries are confident that they can be winners of this global megatrend? Which countries are capturing an early-mover advantage?

The US believes it can be a leader in the new economy, because of a strong tradition of entrepreneurship, innovation, and efficient financial markets. So do many European countries, which believe they have a technological edge, relevant experience, and a number of key industrial companies. China believes it can be at least the manufacturing base for a global solar and wind boom. India seems to have now mustered the self-confidence to take a jump into the fray — it has a vast captive market, the IT skills (big data will be key), the entrepreneurship, and the technology companies. It could be more difficult for the poorer and smaller developing countries in, for example, Africa to build a competitive low-carbon economy. But then again, why not? This is an age of rupture — they can seize it.

What stands in the way is not finance. There is enough capital looking for good investment opportunities. It is not technology, either. Technology is sufficiently good for what we need today and will likely be improved exponentially as it is deployed more. The challenge is market design: how to create a market environment to enable the fastest possible shift from a slow, big-infra, monopolistic, political energy market to a nimble, consumer- and solution-oriented, competitive, diverse energy market? The trouble is that many countries, and particularly developing countries, lack the institutional ability to design new markets. This ability might be the only divide that matters today.

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