Saturday, December 29, 2007

Friday, December 28, 2007

Respect and care

The Guardian reports that Christian leaders are calling on the world to start showing these values not only to other human beings but to our fragile environment as well.

A noble cause.

Matric pass rates

All is not well in South African education. According to a statement on matric exam results by Naledi Pandor, minister of education, matric pass rates have dropped each year since 2004 reaching a low of 65.2% this year. Only 15.1% of all matrics are endorsed for University education, down from 18.2% in 2004.

25415 pupils (or 4.5% of all who wrote matric exams) achieved mathematics on higher grade this year, down from 25217 (or 4.77% of all who wrote matric exams) in 2006.

In the context of an economy diversifying towards service sectors that on average require higher skilled jobs this is certainly not good news.

Thursday, December 27, 2007

PES and rangelands

Africa has vast rangelands. Could these rangelands be managed and incentivised in such a way that ecosystem services are provided in a sustainable way?

A new working paper from CAPRI sheds some light.

Monday, December 24, 2007

Climate resolution in Polokwane

It looks as if South Africa has entered the road towards climate responsibility.

A new resolution accepted by the African National Congress paves the way.

It is about time and we can only hope that this will be taken very seriously.

Friday, December 21, 2007

Coal, crude oil and carbon

The rise in oil prices will lead to less carbon emissions, right? No, not right. There is another force at work according to research results published by Daniel Gros on VoxEU. That force is the relative low price of coal in comparison to oil. This point is also made in the latest World Energy Outlook 2007. Despite a nominal rise in the price of coal in recent years, the even higher price increases in oil leads to a substitution away from hydrocarbon (e.g oil) to pure carbon (e.g coal).


Just look at the speed at which China is adding coal-fired power stations to their grid and one could see this force in action. China become a net coal importer in the first half of 2007.


This is bad news for anyone interested in curbing CO2 emissions and good news for those with coal reserves and trade links with rapidly growing developing nations. It is time that these two interest groups start discussing in earnest the apparently very different roads they have started to trod on.

Thursday, December 20, 2007

Innovation by accident

The Economist in The Accidental Innovator tells the story of Evan Williams, innovator and founder of Blogger. An intriguing piece on the role of accidents in innovation.

Reminds me of what Albert Einstein once said: The intuitive mind is a sacred gift, the rational mind is a faithful servant"

Wednesday, December 19, 2007

Poverty and blindness

Blindness is associated with poverty in Pakistan a new study in the British Medical Journal reported. Lower access to and quality of eye care services are contributing factors. The study further reports that 75% of global blindness is preventable or treatable.


This is more then likely also the case in Africa. Africa, with 10% of the population, counts 19% of the worlds' blindness a study in Clinical and Expirimental Optometry reports. SightSavers International estimates that more then 27 million people in Africa are visually impaired and almost 7 million are blind.


Apart from the impacts on human dignity and loss of well-being, poverty and blindness have direct and indirect economic costs. The same document from SightSavers International mentioned that direct productivity losses in sub-Saharan Africa due to visual impairment was estimated at almost $1.83 billion in 2000, expected to rise to $4.3 billion in 2020.

Well-designed anti-poverty interventions are not only beneficial to the economy, they also reduce human suffering and improve well-being.

Go Gabon!

Gabon has the highest purchasing power in Africa at PPP US$12 742 per capita , according to the latest preliminary results from the ICP study from the World Bank. Botswana, Equatorial Guinee and Mauritius follow before the economic powerhouse South Africa with PPP $ 8 477 comes in at number 5. One distinguishing feature is that all of the top 4 countries are small countries with populations of less then 1.7 million.


This compares to a PPP $26 404 in the OECD, PPP $4091 in China and PPP $ 2126 in India.


Tuesday, December 18, 2007

African farmers adapting to climate change?

A new IFPRI working paper co-authored by Charles Nhemachena and Rashid Hassan from CEEPA sheds some light on the question how African farmers can better adapt to climate change. Policy options remain in enhanced access to credit, and better information on climate, agronomy and markets.


The paper argues further that government policies should support research and development on appropriate technologies to help farmers adapt to changes in climatic conditions. Examples of such policy measures include crop development, improving climate information forecasting, and promoting appropriate farm-level adaptation measures such as use of irrigation technologies.

This does make a lot of sense. Micro-credit schemes, better connectivity, early warning systems, science and research certainly will help in strenghtening the capacity to cope. Before sending only financial institutions, cellphone companies and researchers into the field there is another key question that needs to be addressed: whether more abrupt or even longer term gradual climatic changes will impose so much stress on African farming systems that such gradual adaptation measures will not be sufficient. Especially given that many African farming systems are already focussed on survival.

Economics in environmental policy

Every now and then someone has the nerve to produce a paper with a disciplinary heading. Needless to say, such a person needs to be an absolute authority in his or her field. Robert Stavins, mentioned as the top environmental economist in the US, has done so this time with a NBER working paper on "Environmental Economics".


After reviewing this subject field his main conclusions are that (i) the underlying normative stance of (Hicks-Kaldor) welfare evaluation as operationalised in cost-benefit analysis will continue to be debated, (ii) market-based instruments to environmental policy have already moved centre stage.

What does this mean? First, the evaluation of policies, programmes, plans and projects for their impact on social welfare is not an exact science. Cost-benefit analysis does provide (often vital) information in a broader decision making process, but need to include a sensitivity analysis on key assumptions to be really acceptable. Second, with increasing scarcity of natural and environmental resources, markets will continue to play an increasing role in the allocation of these resources. Examples are carbon trading schemes and payment for ecoystems services (PES).

As economists increasingly move into the field of environmental policy making this begs a sensitivity in the use of our evaluation tools and a good grasp on the power and limitations of market based solutions.

Cleaner coal-fired power plants and carbon credits

Buying carbon credits from cleaner coal fired power stations in developing countries is the next logical step in the development of the global carbon market. In fact it is already happening. PointCarbon reports that Ecosecurities is already buying carbon credits from cleaner coal plants in China.

Eskom, take note.

Cost benefit analysis and decisionmaking

An excellent two paragraphs from the Environmental Economics blog:

Jim Kahn (I hope I have the link right) on benefit-cost analysis (via the RESECON listserv):

The most important thing to remember is that Cost-benefit analysis (with its associated discounting process) is not a decision-making tool. It is an information organizing tool. It organizes information with respect to one decision-making criterion, economic efficiency. There are many other criteria such as inter-temporal equity, cross-sectional equity, environmental stewardship, etc that are equally important in the decision-making process.

It should also be noted that cost-benefit analysis can fail in the organization of data about economic efficiency. My view is that one should never pay any attention to any cost-benefit analysis that chooses one value for key variables such as the discount rate, the rate of growth of demand for energy, the rate of growth of population, etc. A truly useful cost-benefit analysis runs the numbers with different values for these key variables and then looks at how the bottom line is sensitive to the choice of values of these key variables. This sensitivity analysis is what permits us to wisely choose policy, choosing a policy that might not be the best under a particular set of circumstances, but one that we will not regret given the actual state of the world at which we arrive.

Post Bali

The Bali action plan was adopted which ultimately lead to a post-2012 international agreement on climate change.

According to the UNFCCC website:
Ground-breaking decisions were taken which form core elements of the roadmap. They include the launch of the Adaptation Fund as well as decisions on technology transfer and on reducing emissions from deforestation. These decisions represent various tracks that are essential to achieving a secure climate future.

For a full list of decisions made at Bali, including the CDM, see the UNFCCC website. One specific paragraph of interest to Africans:
Acknowledges the work undertaken in the context of the Nairobi Framework, launched
at the second session of the Conference of the Parties serving as the meeting of the Parties to the Kyoto Protocol, to catalyse the clean development mechanism in Africa;

Friday, December 14, 2007

Life is unfair

Vulnerable for being in Africa
Vulnerable for being least developed
Vulnerable for being a small island developing state

And the losers are? Read this two pager on the 100 nations most vulnerable to climate change.

Rising inequality also a US problem

The continued rise of the super rich is unsustainable in a democratic society. This is not a statement from the ANC conference in Polokwane, but a remark from Economist's View on the basis recently released data on the distribution of income in the United States. See here from tpmcafe for full article.

Thursday, December 13, 2007

Committed to mitigation as well!?

I almost missed it. The earlier article in the Mail & Guardian did not mention it.

Don't roll over. In Bali, South Africa committed to the mitigation of greenhouse gas emissions. Here's an extract of the text (and the full speech):

Some of our partners say that we will not get a climate deal without developing countries. Let's be clear on that: As a developing country we will take ambitious mitigation action. South Africa will contribute its fair share towards our common responsibility for the future. Our actions will be measurable, reportable and verifiable. Given the urgency indicated by science, there is no longer a plausible excuse for inaction by any country.

What is a fair share? If we look at emissions per capita we are playing with the giants. The same if we are looking at carbon intensity per economic output. So, we are certainly not talking about changing a few lightbulbs.

I can't wait to hear about the details of a constructive round table between government, Eskom, Sasol, some mining giants and the transport sector to explore the risks and opportunities of this.

Different responsibilities for climate change

We must all act with a greater sense of urgency. We have different responsibilities for the past; and we should all take common responsibility for the future. South Africa stands ready.
These are the words of Environmental Affairs minister van Schalkwyk speaking at the United Nations climate-change conference in Bali. For full story see link to Mail & Guardian online.

What exactly is South Africa standing ready for? Here is a synopsis:

1. Ready to receive adaptation funding. South Africa played a key role in the creation of a $500 million per year Adaptation Fund. The fund will be financed by a 2% tax on CDM projects. For more see article in Herald Tribune. How much will flow to South Africa and the rest of Africa is as yet unclear. As sub-Saharan Africa is very vulnerable to climate change this looks like a positive development.

2. Ready to leapfrog into low-carbon growth: the new multilateral climate regime should galvanise deep reductions in harmful emissions for developed countries, and enable developing countries to leap-frog to a low carbon-intensity growth path. How is this leap frogging envisaged to work? In an earlier statement by the minister it was said that
...on the part of developing countries, building on our existing contributions, a range of measurable actions could be undertaken. In addition to participation in up-scaled clean development mechanism (CDM) activities, this could include sustainable development policies and measures (SD PAMS), or reducing emissions from deforestation (REDD).

Based on historical trends, the CDM did not favour Africa. Only 2.6% of the 850 CDM projects worldwide were in Africa. But the Bali talks brought some hope that this will change. South Africa, with very high per capita greenhouse emissions and inefficient power stations certainly can do better in engaging with the CDM.

SD PAMs is a proposal that goes beyond the CDM. The rationale is explained in an earlier submission to the UNFCCC as follows:
The experience of the CDM to date, however, suggests that projects that produce large amounts of emission reductions, such as those targeting F-gases, often have little tangible benefit for local sustainable development, while other projects that have direct benefits for local communities may deliver fewer CERs and are accompanied by high transaction costs. Thus, although sustainable development is one of the two purposes of the CDM, and of a key concern to developing countries, the CDM only provides monetary incentives for the other, GHG reduction, purpose.

How this will work in practice remains to be seen. This becomes more difficult when markets start trading in uniform emission reduction credits.

According to the IUCN, the prospect for jointly achieving climate and conservation objectives by reducing emissions from deforestation and ecosystem degradation (REDD) has attracted significant interest within the environmental community. The Guardian reports with optimism that deforestation will for the first time be seriously included in the agenda for future negotations on a post Kyoto multilateral climate regime.

The contours of a climate roadmap for South Africa seems to emerge: continued adaptation while receiving credits for cleaning up our act and restoring our ecosystems. This strategy does suppose that developed nations start paying for adaptation and accept stricter caps on carbon in future. With Australia on board all eyes are on the US, again.

Back to the opening statement. How much responsibility we really share is another question. That is probably why it is called different reponsibilities. We take the responsibility of receiving well, you take the responsibility of giving well.

Or maybe we should seriously think about adding a bit more carrots, sticks and sermons ourselves?

Wednesday, December 12, 2007

Prawns for Africa

I am not suggesting that mariculture farmers have taken notice of the call in The China Monitor earlier this year to diversify Africa's interaction with China.

In fact, they have been planning this project for over 6 years...

Sea Ark Africa have announced plans to develop a high-tech closed bio-secure 1200ha prawn farm in the Coega Industrial Zone. Although Sea Ark International is a US based company, it is planned that China Direct will provide and manage mariculture technology.

Given that environmental impacts are managed appropriately this sounds like good news. Business Day reports that one of the reasons for choosing Coega was cheap energy. Just wondered whether increasing energy prices would pose any risk?

See also link for full article in Engineering News.

Carbon emissions, public nuisance and Eskom

ClimateIntel reports on the case of Connecticut v. American Electric Power, Inc., where the plaintiffs alleged that the power plants’ carbon emissions cause a public nuisance by contributing to climate change. Seven states and the City of New York filed suit in July 2004 against the five electrical utility companies alleged to be the country’s largest emitters of carbon dioxide. No decision has been reached yet.

The important question is whether such litigation (under tort law) is (i) a possibility and (ii) has a chance of succeeding in carbon-intensive South Africa? If this is the case the country is running a major risk as most of our electricity is generated by Eskom, the second highest polluting power company in the world. See also earlier blogpost.

A frustrating visit to Eskom's website, pre-occupied with load shedding, did not give any clues whether the company is doing some high level strategic planning on these emerging risks (and possibly opportunities). If Eskom is, we would like to know about it.

As the electricity crises is demonstrating so clearly, this is not only a company risk, but a country risk we are facing.

Tuesday, December 11, 2007

What did the IPCC say?

From Island Press:

In the past year, the IPCC released a new global consensus statement called Climate Change 2007. This consensus establishes without doubt that global warming is being caused by humans, and that its magnitude and impacts are greater than we thought just a few years ago.

The IPCC recently released a short summary of that report. That summary, prepared for policymakers, is nonetheless a challenging read for all but specialists. Yet the information it contains is far too important to be understood only by a select few.

See free download on "What the IPCC Said" and a link to IPCC 4th Assessment Synthesis Report.

Voluntary carbon offsets

Buying carbon offsets is a trend among the environmentally conscious rich. A bad trend as it (i) does not have a serious impact on carbon reduction and (ii) creates a false sense of achievement.
Much better is a clear market signals on the cost of not curbing carbon, such as a auctioned carbon rights under cap and trade system. This according to a contribution on the Globalisation and Environment blog with reference to an article initially posted on the Becker-Posner blog.


In my opinion this is a case of one market leading to another. The international financial system was also not created in one masterstroke, but developed gradually with voluntary exchange leading the way. At some point more structure is needed and a national and ultimately international system developed.

It is a normal development - there is a demand for carbon offset, there is no global cap and trade system yet or carbon taxes do not capture specific individuals' willingness to pay, with the result that voluntary schemes develop.

Monday, December 10, 2007

South Africa leader in cell phone banking

FNB alone averages over 100 million cell phone banking transactions a month. Click for full article on bizcommunity.

Food prices and ecosystem services

According to The Economist: The Economist's food-price index is now at its highest since it began in 1845, having risen by one-third in the past year.


With a longer term rise in food prices (see graph as published in the Economist), expect more pressure to farm marginal land and to increase production efficiencies.





This is not good news for the payment for ecosystem services (PES) movement, reported on in an earlier article on this blog. The land owner will respond to market signals on where the highest returns are possible. After 30 years of decline in food prices, farmers will again benefit.


Although ecosystems services are of considerable value, this value is not generally traded in the marketplace. If there is no signal on achieving returns on preserving ecosystem services, such services will be treated as if they are free, with knee jerk reactions to possible systems collapse in future.


Rising food prices only reinforces the importance of creating effective markets for ecosystem services sooner then later. With rising prices for carbon the tide may be turning, but it is still a long way before the worldwide market failure on ecosystem services is corrected.

Rising food prices increase the urgency to respond.

Friday, December 7, 2007

Microfinance and extreme poverty

Poverty in Africa remains high. Microfinance can play a role, but does not yet live up to expectations. Why not? This is a field on its own, but here is a starter: Much more needs to be done on linking microfinance to the financial sector, on providing a proper regulatory environment, on raising awareness and understanding and on flexible product design.

Poverty in Africa
The share of the very poor in Africa remain persistently high at around 41% of the population . According to the World Bank they are even increasing in some countries such as South Africa. Providing a safety net through the provision of social grants is one strategy, but has the drawback of creating dependencies, perverse incentives and does not offer a real long-term solution to poverty.


According to the IMF, there is sufficient evidence that Africa's poor, particularly those in the rural sector, value both deposit and credit facilities. Believing that poor people may also be creative and entrepreneurial, one suggested way to escape from the poverty trap is to provide the poor with access to credit.

Microfinance as an option
Using micro finance institutions (MFIs) as a poverty alleviation strategy does hold some promise, but it is no silver bullet. Poverty remains a multidimensional challenge.



Does microfinance work in Africa? According to a report from the Micro Finance Information Exchange, micro credit growth is slow while growth in saving services are very high. This obviously falls short of implementing the idea of ignite Africa's entrepreneurial spirit through the provision of credit.

What needs to be done to improve micro financing?

According to the IMF: Linkages to the formal banking system are important. MFIs rely on banks for a variety of services, including deposit facilities, liquidity management services, and, in some cases, emergency credit lines to cover cash shortfalls. For banks, the benefits are the opportunity to expand their client base through MFIs, and to expand their operations through the network of MFIs (including in the rural sector). The linkages between MFIs and banks also help to strengthen the linkages more broadly between the economic activities in the formal and informal sectors of the economy, and provide opportunities for small entrepreneurs to graduate from micro credit to conventional bank loans.

In addition, NGOs and donors are important to provide support and best practice and governments to provide regulatory frameworks.

According to the Africa Micro Finance Network: Microfinance must be accommodated as part of the macro financial sector; Microfinance must be viewed as financial sector component and not as poverty or development program; Country level networks need to define framework for appropriate systems, effective and sustainable financial services; Donors should focus on microfinance sector as a whole, and not emphasize only on the strongest MFIs; Linkages with formal financial institutions must be increased to better serve the low income population; Appropriate vision that translates into reality thus impacting microfinance outreach in Africa needs to be developed; Information exchange across networks should be increased

According to an article on Voxeu more flexible is needed in the design of debt products: Being poor is not just about having too little income. It is about having insecure income...Contrast this with the single most salient fact of micro-finance: nearly all contracts are fixed in their repayment schedules. This mismatch between debt payments and income can create serious distortions...

Increased understanding and awareness of microfinance products has also been raised as a problem for women entrepreneurs in a study done by the IFC, FinMark Trust and DTI as an obstacle in South Africa.

Thursday, December 6, 2007

Mobiles and the digital economic boom

A lot is said about the potential for mobiles to leapfrog Africa into world class connectivity. This blog also commented on the bright future for mobiles in Africa.

It is time to move beyond the hype and start asking the questions how this will actually work. Surely providing all with a mobile will not ignite an economy? One needs capital, labour, bioophysical resources, infrastructure, social networks...

It has been documented that mobiles can be used for banking and buying air time, and possibly can be upgraded to the buying and selling of products and services. It is also documented that farmers make use of cellphones to access the latest pricing information. The role mobiles play in nurturing social capital has also been discussed. But does this have a measurable effect on economic development?

The World Telecommunication/ICT development report 2006 does argue that mobiles in particular do have an effect:
The sector that so far has had the strongest impact in developing countries is the mobile sector, particularly since mobiles are not just a different or complementary way of communication but have opened up entirely new communication means in many parts of the developing world. The boom of the mobile industry has not just created new jobs and revenues but also contributed to economic growth by widening markets, creating better information flow, lowering transaction costs, and substituting for costly physical transport.

Apart from the impact of the mobile sector, the transformation of economic relationships and processes is particularly visible in those countries and areas that have the highest Internet penetration levels. The spread of broadband seems to have a particularly important role in certain areas, including for the emergence of e-commerce, teleworking, and e-education and health. This highlights the need for developing countries to pay special attention to broadband deployment and strategies.

Paying farmers to help save the world

This is the idea in a nutshell:

Ecosystem goods and services have a lot of socio-economic value.
Most of this value does not have a market price.
Agricultural activities is the biggest land-user and impacts on the continued provision of ecosystem goods and services.
Thus, incentivise farmers to conserve and restore rather than to farm.

Will it work?
The FAO released a report on the topic. Three main conclusions on the way forward were reached:

1. Don't even attempt this if the rights to environmental services are not defined and clarity is reached on who should bear the costs
2. Much more research on ecological and socio-economic implications of environmental service provision and use.
3. Institutional support and capacity building is needed

My take on this?
Good idea, but pretty much still in research and design phase.
No macro-level development option yet, but watch the space.

Sasol and Carbon

In an interview with Kim Fraser, head HSE at Sasol a few key points were made:

Sasol is already saving carbon dioxide:
Th swith from coal to gas in Sasolburg saved 7Mt per annum of carbon emission.
New savings planned: Efficiency and carbon dioxide reduction operations at Secunda and Sasolburg
Beyond that: more ambitious than that we do have plans, but they will only come into play in our much bigger investments which are over the next five, ten and fifteen years.

Sasol will expand on gas
expanding our use of Mozambican gas in a project at Secunda where we are going to add to that volume to the tune of about 20% over the next four or five years or more - that will not necessarily replace coal, but it allows growth in the total output of the plant without adding more coal through using gas from Mozambique

Sasol will sensitise countries where they are investing on environmental issues such as sensitising China and India on the different perceptions of the balance between environmental impacts and economic demands

Sasol places a premium on reputation
Where there aren’t standards that have been developed for those countries we subscribe to going in with the International Finance Corporation (IFC) branch of the World Bank - we use the standards they apply elsewhere in order to have access to the funds they’re prepared to provide. Now that’s not to say we’re going to use those funds anywhere - but attached to funding from the IFC one needs to subscribe to certain standards, and we use those as a starting point for any of those ventures. If the communities and the society there says “do something different” we will listen to that, but not to the disadvantage of our reputation

Photos on the floods in Plett

See for yourself what flooding can do to a prime beach destination.

Photo's from Look Out beach in Plettenberg Bay, South Africa as posted on the scott

Wednesday, December 5, 2007

Where will the next biological invasion strike?

It is well documented that biological invasions has serious socio-economic implications, but that economic development in itself partially explains biological invasions is less well described.

A new study in China has found a correlation between more indirect factors such as economic developments and biological invasion. Here's the abstract:

Increasing levels of global trade and intercontinental travel have been cited as the major causes of biological invasion. However, indirect factors such as economic development that affect the intensity of invasion have not been quantitatively explored. Herein, using principal factor analysis, we investigated the relationship between biological invasion and economic development together with climatic information for China from the 1970s to present. We demonstrate that the increase in biological invasion is coincident with the rapid economic development that has occurred in China over the past three decades. The results indicate that the geographic prevalence of invasive species varies substantially on the provincial scale, but can be surprisingly well predicted using the combination of economic development (R2 = 0.378) and climatic factors (R2 = 0.347). Economic factors are proven to be at least equal to if not more determinant of the occurrence of invasive species than climatic factors. International travel and trade are shown to have played a less significant role in accounting for the intensity of biological invasion in China. Our results demonstrate that more attention should be paid to economic factors to improve the understanding, prediction and management of biological invasions.

Next time, do not only look at biology and climate, but include economic development data as well when predicting biological invasions.

Inequality: nothing new under the sun

A study on inequality in ancient societies argued that ...[o]n the average, income inequality in today’s countries is not very different than it was in distant times. However, the extraction ratio – how much of potential inequality was converted into actual inequality – was significantly bigger then than now. This ratio measures how powerful and extortionary are the elite, its institutions, and its policies.

More on the extraction ratio:
...inequality extraction ratio, indicating how much of the maximum inequality was actually extracted. The median ratio in the ancient sample is 94% -- a huge share of the surplus was actually extracted by the elite. In contrast, China’s present inequality extraction ratio is 47 percent, while that for the United States and Sweden are only 41 and 28 percent, respectively.

Which begs the question: What current forces drive the extraction ratio down? What makes us different from ancient societies?

The autors do point to the observation that ...[o]nly in today’s extremely poor countries do actual and maximum feasible inequality lie close together (2003 Nigeria, 2004 Congo D. R., and 2000 Tanzania).

This may have some important implications for modern development policy:
Thus, the social consequences of increasing inequality under conditions of economic growth may not entail as much relative impoverishment or perceived injustice as the recorded Gini might suggest. This logic is particularly compelling for poor and middle-income countries where economic growth pushes up the maximum feasible inequality sharply. This rise in maximum feasible inequality tapers off later, as a society’s average income rises farther above subsistence, so that the inequality extraction ratio will be driven more and more by movements in the Gini itself.

This is good news in a globalised, growing and richer world.

But will the poor billions continue to tolerate higher (Gini-type) inequality, even if they do have access to more resources? Will relative deprivation not increase the pressure on the system?


CNN on Bali

See http://www.youtube.com/watch?v=Tec3alV8xkw for an introduction to Bali.

Initially posted on Scitizen

Tuesday, December 4, 2007

Free Development Data!

Where are the most inequal societies of the world?
How many pupils per teacher?
How much do we owe the world?

A refreshing new site has brought together a huge amount of data from reputable international organisations and research institutions around the world to help answer these and many more questions.

The link was initially posted by Dani Rodrik on his blog.

Nuclear Energy and Opportunity Costs

Nuclear power is often portrayed as the carbon neutral, environmentally friendly alternative to fossil fuel based alternatives.

Think twice, according to an article in the Scitizen:

1. The speed at which nuclear needs to be rolled out in such a scenario appears infeasible. Given the projection that 1/3 of all electricity need to come from nuclear by 2075, three average size new nuclear reactors need to be built per month. France, the leader in nuclear power plants has built 3.4 reactors per year.
2. Nuclear reactors are capital intensive and costs are likely to escalate.
3. Volatility in price of uranium and deoendency on imports of uranium. Fuel accounts for 15% of lifetime costs of a nuclear plant.
4. When environmental costs for the whole nuclear fuel cycle are accounted, that includes mining and milling of uranium, operation, and disposal of radioactive waste.
5. Disputable safety record.
6. Carbon emission over nuclear fuel cycle is about half of that of a natural gas alternative,
certainly not carbon neutral.

Without disputing the above, the article does not present a choice between alternative energy options. There is no way one can disregard one option without evaluating what the next best option would look like.

Economists have a great term for this called opportunity cost.

In a world of limited available resources (which includes a scarce environment!) transparency about the implications of alternative choices will serve us better then driving or disregarding specific energy options from the outset.

Monday, December 3, 2007

On Targets and Trading

Get the latest from Sir Nicolas Stern on achieving low carbon growth in the world.

Climate change and groundwater

Groundwater losses are certainly not the first thing one thinks about when climate change is mentioned.

There is a connection: saltwater intrusion.

According to an article posted on Scitizen this is how the process works:

Saltwater intruding from the ocean into the aquifer due to sea-level rise mixes with inland freshwater and creates a zone of brackish water. Previous studies have shown that saltwater would penetrate underground only as far as it did above ground in aquifers consisting of coarse sands and create a relatively sharp boundary between saltwater and freshwater. Our research, however, shows that when saltwater intrudes into a fresh water aquifer they mix intensively. The size of this mixing zone greatly depends on the stratigraphic structures of the sand layers in the coastal aquifer.

In general, coastal aquifers are made of different sandy and silty layers that have formed over time. Some layers may contain coarse sand, and others may contain fine sand and silt. Fine sand and silt tend to permit less water flow, while coarse sand allows more water flow. We simulated coastal aquifers consisting of realistic layers containing sands and silt. The simulation results showed that more mixing occurs between the saltwater and freshwater as the complexity of the aquifer's stratigraphy increases. This is because different water velocities in layers create complex flow paths in the aquifer.

Friday, November 30, 2007

Africa and Adaptation

Africa contributes a very small percentage to overall greenhouse gas emissions. Even with South Africa included, overall emissions are small, but of course, the ratio of emissions to economic output in South Africa is one of the highest in the world.

Climate change impacts are felt most by people living in Africa and other developing countries with the least ability to cope. The latest UN Human Development Report 2007/8 made the point that in developing countries, 1 in 19 people suffered from climate-related disasters between 2000 and 2004, compared with only 1 in 1,500 people in wealthy countries (see related article at Scitizen).

Clearly a global externality that need to be adressed by those who are responsible.

Bali: Demystified

What will happen in Bali when the world's decisionmakers on climate change meet? According to The Economist, watch the space for 4 things:

1. Some sort of long term commitment to deal with the problem, binding the 192 signatories to the UNFCCC
2. Following the EU's lead, further progress on emissions targets and reductions.
3. Getting developing countries in the net, possibly through emissions reductions for specific sectors, rather then entire countries
4. Controversially, discussion on incentives to not to chop the world's forests

At best we may see more cap-and-trade systems and maybe a surprise or two from developing countries. But agreeing on long term commitments and on deforestation incentives has less of an chance.

For South Africa? If our highest emitters, Eskom, Sasol, BHP Billiton and Anglo can agree on reductions we have captured most of the gases. That seems quite unlikely at the moment. It seems as if DEAT wants a greater part of the CDM action. Inclusion of South Africa's carbon intensive companies in an international trading regime might work even better. Anyone looking at that?

Adapation, again, is nowhere to be seen. A pity as climate change will bite long before we see a drop in accumulated greenhouse gases - even in best case mitigation scenarios.

Watching the Earth

South Africa's role in gathering information and monitoring global change received a mayor boost with the launch of the South African Earth Observation System (SAEOS). This according to a keynote address by Minister Mosibudi Mangena at the launch of the South African Earth Observation Strategy and the South African Environmental Observation Network Egagasini Node.

The importance of a system of a geospatial infrastructure to co-ordinate the collection, assimilation and dissemination of earth observation data to support decision-making processes in South Africa has become much clearer in recent years.

The SAEON design is continuously being refined to respond to emerging environmental issues, and corresponds with the GEO societal benefit areas. The current SAEON themes are Water, Soil, Nutrient Cycling, Biodiversity, Disturbance Regimes and Climate Change. The SAEON is relatively unique in the southern hemisphere and is the first in Africa.

Thursday, November 29, 2007

Poverty, shoddy scholarship and politics

The debate on whether South Africans are getting poorer or not is starting to claim its victims.

And I am not thinking of those 20 million-odd people living in these dismal circumstances while we continue to differ on politically senstive definitions.

As has been pointed out, the Living Standards Measure (LSM) is not a measure of poverty. All of those who are so happy using these figures to prove the point of decreasing poverty has now been blamed for shoddy scholarship. The LSM segments the South African market and is a measure on wealth or the standard of living with no relation to income at all (see SAARF)

South Africa rock bottom in international literacy study

Despite large investments in education we are not winning the war. 14697 students compared to US 4th grade level were surveyed from 397 schoolcountry side in an international PIRLS literacy study.

South Africa came last out of 38 countries after countries like Morocco, Kuwait and Qatar, Indonesia and Iran.

Where are things going really well? Russia, Hong Kong, Canada, Singapore, Luxembourg, Hungary, Italy, Sweden.

Wednesday, November 28, 2007

Coal fired power stations and increasing carbon costs

The question how viable coal fired powerstation will remain under higher prices for carbon will remain very relevant, especially in the European Union. This has important implications for South Africa as well as the EU still constitutes 76% of the South African coal export market (see facts).

According to this article at Platts, CEO of German based RWE, Roels, said he believes it will be profitable for RWE to build coal plants even under a scenario of 100% carbon auctioning and a CO2 price of up to Eur30.00/MWh.

RWE will proceed with the construction of two, 1,530 MW coal-fired plants in Germany.

No Import Taxes on Carbon in EU

The Financial Times reports that the EU is backing away from plans for a carbon tax on energy intensive imports from countries that are no fighting climate change.

South African exporters should be very relieved. This brings the focus back on the discussions at Bali in December and how a post Kyoto agreement will look like.

IT and Thresholds

The announcement that Google plans to branch of into Renewable Energy is telling of how times are changing. The world's biggest problems do ultimately attract among the world's best innovators. According to Larry Page, co-founder of Google "We want to apply the same creativity and innovation to the challenge of generating renewable electricity at globally significant scale, and produce it cheaper than from coal." Google's goal is to produce one gigawatt of renewable energy capacity that is cheaper than coal.

How? By focussing initially on advanced solar thermal power, wind power technologies, enhanced geothermal systems and "other potential breakthrough technologies."

This is another very important indication that the world's biggest environmental crises may turn into a booming industry. It is also a clear indication that the IT boom of the last couple of years has reach a stage of maturity and new growth areas are sought.

ABSA and the housing backlog

ABSA committed R2.6bn for an additional 100 000 housing units by 2010 according to an agreement signed by ABSA and the National Housing Finance Corporation (see article).

With 2.3 million people living in informal dwellings country-wide no-one is disputing the magnitude of the challenge. Based on historical performance the state and the cities alone will not be able to close the backlog. The injection of private capital should be welcomed, but there is a caveat. Given current underspending of city budgets' on housing, it seems however that the root problem is not related to finance, but to other factors such as availability of skills and crowding-out of housing developments due to other large-scale infrastructural developments taking place. How does ABSA plan to change that?

Tuesday, November 27, 2007

The costs of air pollution in South Africa

We have long known it, but now it is official. The country's energy intensive growth is creating serious side-effects, one of them being air pollution on the Highveld.

According to an article in the Mail & Guardian [t]he Highveld regions of eastern Gauteng and western Mpumalanga, including towns such as Witbank, Standerton, Boksburg and Benoni, among others, have been declared air-pollution hot spots. "There is little doubt that people living and working in these areas do not enjoy air quality that is not harmful to their health and well-being," the Department of Environmental Affairs and Tourism said in a statement on Monday.

Acknowledging the problem helps, but the real challenge is to move beyond policy rhetoric to economic incentives to reduce air pollution as well as taxes on air pollution should acceptable levels be breached.

Friday, November 23, 2007

Poverty - any options left?

The question on the magnitude of poverty in the country ignited a war of words. Here's the latest from the Presidency.

A few observations:

1. The point was made again that poverty is more then a lack of income. Fair enough. Again , depends what one measures.

2. Taking population growth into account one can have a rise in the absolute number of poor, but a decline in the proportion of poor to the total population. According to the Presidency: Using a national poverty line of R354 per month, the UNDP reported that the proportion of people living in poverty fell from 51.1% to 48.5% between 1995 and 2000. However, the absolute number of people living in poverty increased from 20.2 million to 21.9 million as a result of population growth. Other work by Hoogeveen and Ozler (2004) covering the same period, reports stability in the proportion of people in poverty using the R322 poverty line, and an increase in the absolute number of people living in poverty due to population growth.
So, be very aware which trend one reports on. Making no progress on absolute numbers of people in poverty means that we are fighting a losing battle.

3. Definitions of poverty matter! The percentage of population living below R3000 pa declined from 53.1% in 1996 to 43.2% in 2006, with an acceleration in the downward trend since 2000. That's still around 20 million people in poverty (earning equal or less then R250 per month)

4. Those that are under the poverty line of R3000 pa did experience an improvement in income and expenditure.

5. According to the Presidency: there is evidence that income poverty levels are indeed declining in part because of improvements in employment levels, but more importantly because of the enormously improved reach of the social grant system. The statement does not say, but how much is really due to improvements in employment levels?

6. The report goes on: The impact of improvements in the labour market on poverty cannot be overstated. The number of employed people increased from 11.1 million in 2001 to 12.8 million in 2006. That is an average of 340 000 more employed per annum or roughly 3% pa. Population growth over this period How did this translate to a significant impact on poverty if we have 20 million people in poverty?

7. The report makes the point the living standards has generally improved: the poorest income group (Living Standard Measure, LSM 1) fell from 10.5% to 4.8% of the population between 2001 and 2006. The bottom three income groups (LSM 1-3) shrank from 38.8% to 27.7% of the population in this period. Furthermore the incomes of people in the poorest groups grew by about 38% between 1993 and 2004, mostly as a result of the expansion of social grants.
Social grants makes life a bit easier, but will not lift one out of poverty.

8. The report argues that the central flaw in the SAIRR (Global Insight) report is the use of $1 per day as a poverty line. While this poverty line is recommended by the World Bank and used by most international agencies such as the UN, the uncritical adoption of this by SAIRR is unfortunate. This is particularly so in the context of the problematic nature of this measure especially with regard to exchange rate translations.

$1/day is a crude, but internationally used measure, and an appreciating Rand (since 2002) would decrease rather then increase the number of people living under this poverty line. More people would have lived under R12 per day then under the current R7 per day.

Technically, one would therefore expect that in an environment of a strengtening Rand, the number of poor living under the $1 line would fall not rise. This has happened according to the SAIRR, poverty peaked at 4.5 million in 2002 before reaching 4.2 million in 2005.

Given all of this where are we?
  • Progress on service delivery
  • Persistent high levels of income poverty no matter how this is defined.
  • Social welfare eases the pain.
  • Unconfirmed (probably small) effects of employment on poverty reduction.
With services delivered and social welfare payments close to its peak, what options are left to eradicate poverty?
How can the economy suck an additional 2o million people into a meaningful and dignified existence?
These are some of the questions that should pre-occupy our policy makers.

Before designing those carbon taxes..

National Treasury has released a document with proposals on further green taxes. This proposal should not be seen in isolation from climate policy developments in the the rest of the world. The Economist reports that the America's Climate Security Act (ACSA), although not liely to be passed soon, does support a cap-and-trade system with the possibility of border taxes for carbon intensive imports.

What does this mean for South Africa? Over and above the real threat of border taxes on carbon-intensive products, it does raise the question whether South Africa should not consider formally linking up to an emissions trading scheme in future. The CDM does provide a link to the EU ETS, but comes at the expense of higher transaction costs. We have a lot of carbon to sell, concentrated in one or two sectors and maybe at lower prices then Europeans and Americans can manage themselves.

Then we can still think about punitive taxes should we not meet local desired outcomes.

Carbon intensive exporters to the US and EU take note

Consider the scenario where the EU and the US have accepted a cap on carbon emissions, while the rest of the developing world has not. Will these two blocs consider a border tax adjustment on carbon intensive production elsewhere? Given South Africa's very high carbon intensity and bulk of export markets to the EU this not such a far-fetched question.

Border taxes do have practical problems, but it seems that it may be considered as a real option.

The IPCC has the following to say on border taxes:

Application of border tax adjustments, such as import tariffs or export subsidies, while theoretically appropriate for reducing leakage, pose a number of practical problems. Determining the emissions associated with the manufacture of a particular product, hence the border tax adjustment, is likely to be very complex because of differences in the fuel mix and production techniques used in different regions. Furthermore, the appropriate border tax adjustments may not be compatible with current multilateral trading rules. Likewise, implementing production and consumption subsidies and taxes at the appropriate level in all cooperating countries, given the differences in their existing tax systems, is likely to prove practically impossible.

A working paper by Joost Eveleijn, Prof at Duke University, as referred to on the Carbon Tax Center blog does suggest that border taxes are possible and should not be ruled out to protect US competitiveness in the case of federal climate policy.

The main arguments are that

1. ...such carbon tax amounts to “border tax adjustment” explicitly permitted under WTO rules for product-related or indirect taxes (such as VAT or sales taxes). The carbon tax is then simply the extension to imported products of the tax or cost of holding emission allowances imposed on domestic, U.S. producers.
2. ...[a] carbon tax is justified under the environmental exceptions of GATT Article XX. This second line of defense is needed in case (i) the WTO would not permit “border tax adjustment” for a process-based tax or charge such as an internal, US carbon tax or cap-and-trade system or (ii) the WTO does permit “border tax adjustment” but the adjustment is found to discriminate imports as against US products or between different sources of imports (in case, for example, the US would not impose the tax on countries, such as Europe, with their own emission cuts in place, or exclude very poor developing countries).

Thursday, November 22, 2007

Poverty: definitions and direction of change

The debate on whether poverty in South Africa has increased or decreased in roughly the last decade is continuing. The South African Institute of Race Relations claimed that peopleliving in absolute poverty (defined as less then $1 per day) increased from 1.9 million in 1996 to 4.2 million in 2006. Pres Thabo Mbeki refuted this claim as discussed in an earlier contribution to this blog.



Today the director of the SAIRR, John Kane-Berman, defended their publication. A few points were made:


1. Poverty is not a question of service delivery. Service delivery success is well documented leading to increased standards of living for millions.


2. Absolute poverty is rising, but it seems to be beyond its peak:
Some of the data we have published are based on a definition of absolute poverty, living on the equivalent of less than a dollar a day. On this criterion, the number of poverty-stricken South Africans rose from 1,9-million in 1996 to 4,2-million in 2005. Poverty peaked at nearly 4,5-million in 2002, but it has still doubled since 1996 (at constant prices). Mbeki finds this assertion “absurd”. But it is a consequence of the fact that unemployment has doubled. On the strict definition, it has risen from 2-million in 1996 to 4,3-million last year. On the expanded definition, it has risen from 4,2-million to 8-million, after peaking at 8,4-million in 2003.


3. Definitions of poverty as well as a focus on the direction of change seems to drive perceptions on the problem:
There are various definitions of poverty. The president refers to one published by his own office in June in which the poverty line is defined as R3000 per head per year. He says that on this measure, the proportion of people living in poverty has dropped from 53,1% in 1996 to 43,2% last year (in constant rands). Translating the latter percentage into actual numbers means there were nearly 21-million people living in poverty last year — a far higher figure than that of 4,2-million cited by our institute (for 2005).

Listening to all of this, were are we? My interpretation:

First, the difference between $1 per day or R3000 per annum seems very small to me (give and take a bit on the exchange rates). So depending how one defines it we have between 4 and 21 million people absolutely or just above absolutely poor in the country. That's a huge difference for a small change in definition. Definitions thus drive magnitudes and ultimately policy decisions on how to deal with the problem.

Second, there may be some evidence that social grants start to reach some of the poorest of the poor. Or is this decline artificially driven by an appreciating Rand? (have to check on that one). Social grants reach 25% of the population already and may have reached its plateau. It does look (and this needs to be verified) as if social grants are largely responsible for 'filling the gap' between the two definitions of poverty.

Third, it also seems that it is not due to sustained economic growth and job creation that poverty is reduced, but to some extent through the creation of a social safety net which may have reached its limits.

Verified information on this is vital for understanding the dynamics of the South African socio-economic system and vital for using the correct policy levers to influence better development outcomes.

Wednesday, November 21, 2007

The bright future of mobile

Mobile use may be at a tipping point, like Internet was a few years ago. General acceptance of 3G is increasingly playing a role in connecting South Africans to the world. This has important implications for banking:

the penetration of cellphone banking in SA has more than doubled in one year, according to the key findings of the cellphone banking research across all market segments

and mobile payments:

Mobile commerce – purchases and payments via a cellphone – has also increased significantly, from 7% of urban cellphone users last year to 12% this year. However, most of these purchases are for prepaid airtime top-ups – simple to do on a cellphone – as opposed to product or service payments.

Let's not forget adaptation

Mitigation of climate change dominates the international agenda and is significantly influencing South Africa's stance on climate change (see earlier post on this blog).


Adaptation to climatic changes is already happening, and if not supported and facilitated through longer-term planning, disaster prevention, early warning system and appropriate R&D to name a few, may lead to unnecessary hardship in a continent without the means to effectively cope with climatic change.


An interesting perspective on how the definitions of climate change is driving behaviour is provided in this insightful article by Prof Roger Pielke from the University of Colorado.

HIV/AIDS: Better then expected..but not for South Africa

According to a new UN report released today:
33.2 million people are estimated to live with HIV in 2007
2.5 million people are estimated to be infected with HIV in 2007
2.1 million people are estimated to have died from HIV in 2007

There is some good news. Worldwide, AIDS has long been overestimated, both in size and course. According to the UN report:

The estimated number of persons living with HIV worldwide in 2007 was 33.2 million [30.6-36.1 million], a reduction of 16% compared with the estimate published in 2006 (39.5 million [34.7-47.1 million]). (UNAIDS/WHO, 2006) The single biggest reason for this reduction was the intensive exercise to assess India’s HIV epidemic, which resulted in a major revision of that country’s estimates. Important revisions of estimates elsewhere, particularly in sub-Saharan Africa, also contributed. Of the total difference in the estimates published in 2006 and 2007, 70% are due to changes in six countries: Angola, India, Kenya, Mozambique, Nigeria, and Zimbabwe. In both Kenya and Zimbabwe, there is increasing evidence that a proportion of the declines is due to a reduction of the number of new infections which is in part due to a reduction in risky behaviours.

There is also some bad news. According to the report:

There was no evidence of a decrease in HIV infection levels among young people in
Mozambique, South Africa or in Zambia.


According to the UN, South Africa has now the dubious honour of being the country with the largest number of HIV infections in the world:

South Africa is the country with the largest number of HIV infections in the world. HIV
prevalence data collected from the latest round of antenatal clinic surveillance suggest that HIV infection levels might be levelling off, with prevalence among pregnant women at 30% in 2005 and 29% in 2006 (Department of Health South Africa, 2007). In addition, the decrease in HIV prevalence among young pregnant women (15-24 years) suggests a possible decline in the annual number of new infections. The epidemic varies considerably between provinces, from 15% in the Western Cape to 39% in the province of KwaZulu-Natal.
(Department of Health South Africa, 2007).



References:
UNAIDS/WHO (2006). AIDS epidemic update: December 2006. UNAIDS, Geneva 2006. UNAIDS/06.29E. ISBN 92 9 173542 6.

Department of Health South Africa (2007). National HIV and syphilis antenatal prevalence survey, South Africa 2006. Pretoria.

Tuesday, November 20, 2007

All kinds of growth

On the question how to approach a land-locked African country's development challenge, one needs to distinguish between decent growth and pro-poor growth. The former is best on the long term, the latter is not really growth but rather a form of social policy. This according to Prof Rodrik, Harvard-based economist in a recent blog post.

In South Africa we are hearing a lot of noises on this type of trickle-down growth versus a more populist pro-poor growth. The former camp highlights the fact that we may have started to turn the corner thanks to sustained economic growth, the latter camp highlights the high levels of poverty, the persistent high levels of unemployment and the sharp drop in HDI rankings.

We better have to get our numbers right. Or decide not to fiddle with and fight about the numbers but focus on (i) letting the growth-engine run as smoothly as possible and (ii) with a hawish flexibility to counter on any (unintended) side-effects on excluded third parties.

The contagious disease of inequality

Improvements in child wellbeing in rich societies may depend more on reductions in inequality than on further economic growth. This was the result of a study on the relationship between child well being, income and inequality. The study was published in the British Medical Journal and involved a cross-national comparison of 23 rich countries and cross-state comparisons within the United States.

These results do no necessarily hold for poorer countries:
...when international analyses include data for poorer countries, it is clear that among them, absolute material standards remain important for child wellbeing.

The explanation given by the authors for the link between inequality and child wellbeing is that children are aware of differences in status:

We have suggested elsewhere that greater inequality leads to increased competition and anxiety regarding social status. But are children sufficiently aware of differences in status to make the third hypothesis plausible? Research has found that before the end of primary school children are fully conscious of class differences: they can rank occupations hierarchically and are able to categorise people socially by outward indicators such as clothing, houses, and cars. There is also evidence to show how children’s performance is affected by status differentiation. For example, although tests showed that 11-12 year old Indian children from high and low castes could solve mazes equally well before they knew each other’s caste, lower caste children did much less well as soon as caste was declared. Similar effects were apparent when black and white American high school students were given cognitive tests. When told the tests were to measure ability, the black students did much less well than when they were told they were not tests of ability. White students did equally well under both conditions. Other experiments have shown how the creation of artificial differences in status can lead to differences in behaviour and performance.

If people are poor provide the goodies, if they become richer ask them to resist the temptation to watch the neighbours.

Monday, November 19, 2007

Poverty is not rising after all...

...that's what the President said in the latest ANC Today with extensive reference to the Development Indicators Mid Term Review released June 2007.


The IPCC on Climate Change in Africa

A draft copy of the IPCC's Fourth Assessment Report Summary for Policy Makers, released 16 Nov 2007, highlights Africa's vulnerability to climatic changes:

From 1900 to 2005, precipitation increased significantly in eastern parts of North and South America, northern Europe and northern and central Asia but declined in the Sahel, the Mediterranean, southern Africa and parts of southern Asia. Globally, the area affected by drought has likely increased since the 1970s.

There is also high confidence that many semi-arid areas (e.g. Mediterranean basin, western United States, southern Africa and northeast Brazil) will suffer a decrease in water resources due to climate change.

In Africa:
• By 2020, between 75 and 250 million of people are projected to be exposed to increased water stress due to climate change;
• By 2020, in some countries, yields from rain-fed agriculture could be reduced by up to 50%. Agricultural production, including access to food, in many African countries is projected to be severely compromised. This would further adversely affect food security and exacerbate malnutrition;
• Towards the end of the 21st century, projected sea-level rise will affect low-lying coastal areas with large populations. The cost of adaptation could amount to at least 5-10% of Gross Domestic Product (GDP);
• By 2080, an increase of 5-8% of arid and semi-arid land in Africa is projected under a range of climate scenarios (TS).


Some systems, sectors and regions are likely to be especially affected by climate change:
Africa, because of low adaptive capacity and projected climate change impacts

African megadeltas, due to large populations and high exposure to sea level rise, storm surges and river flooding.


South Africa speaks on a post-Kyoto regime

South African leaders, and more specifically the Department of Environmental Affairs are starting to make noises about post-Kyoto rules. It looks as if someone is realising that we have a global responsibility:

...increasingly, developing countries like ourselves will be expected, and should be expected, to take our fair share of responsibility and demonstrate our plans to contribute to the global response, albeit in a differentiated way that recognises our growth imperative and our small contribution thus far to the current crisis.

But then, further in the article it becomes clear that we talk about a very specific form of responsibility, one that follows the example of others and one that needs a little support:

In term of reducing emissions a strengthened Kyoto regime must weave together three strands:
* much more ambitious emission reduction targets for all developed countries,
* re-engagement of the USA and Australia in internationally agreed and binding emission reduction targets under Kyoto (the USA and Australia are two developed countries and large emitters who have not ratified the Kyoto Protocol),
* greater recognition of, and incentives for developing country mitigation action.

Given the idea that emission reductions today will only really benefit us a few decades later, the question arises how adaptation to the effects of climate change will be weaved into such a proposed post-Kyoto regime. The article mentioned that such a regime ...needs to balance the international response on mitigation, in other words reducing emissions, with credible and predictable support for adaptive activities in the face of inevitable climate impacts, but it is not clear whether this will be a specific focus point in the discussions.

So what's the bottom line? More of the same and this time we want to have a bigger share of CDM.

Did someone mention adaptation?




Friday, November 16, 2007

Rising poverty and the volatility of economic growth

The World Bank's African Development Indicators 2007 raises an important point that may shed some light on the economic growth - persistent poverty question: the volatility of this growth.

Quoting from the report:

This essay explores the patterns of growth in Sub-Saharan Africa over the past 30 years.
It fi nds that the volatility of growth—a product of confl ict, governance, and world commodity prices—has been greater than in any other region. That volatility has dampened
expectations and investments—and has obscured some periods of good performance for
some countries. Th e analysis here fi nds that pickups in growth were seldom sustained—
indeed, that they were often followed by ferocious declines. Hence, Africa’s flat economic
performance over 1975–2005. Where an economy started in 1975 is pretty much where it ended in 2005. Th e reason: when things go well they do not last, and when they go wrong they go very wrong. So, avoiding a decline from 2 percent GDP growth to –3 percent is as important as going from 2 percent to 7 percent. Indeed, it may be more important for poor people, who gain much less during growth pickups and suffer much more during the declines. The question for economic policymakers in Africa, then, is how best to sustain the pickups in growth. The answer: avoid the crushing declines.


The report does not say a lot on the relationship between stable economic growth and poverty alleciation, but does highlight that absolute poverty has declined in Africa:

Human development outcomes are improving across the region, and progress toward
the Millennium Development Goals is picking up. In 1990, 47 percent of Africans lived
in poverty. In 2004, 41 percent did, and on present trends 37 percent will in 2015.


Poverty gets more complex every day.

Coal - still the cheapest option

The Economist produced an interesting article on the continued expansion of coal-fired power stations. This graph (courtesy to The Economist) tells it all:



Thursday, November 15, 2007

The complexity of poverty in South Africa

The Mail & Guardian (quoting results of a report by the South African Institute of Race Relations):

"More than 4,4-million households have received electricity connections since 1995, four million received access to clean water, 2,1-million to improved sanitation facilities and 2,5-million to refuse removal facilities. In addition 2,5-million more households now live in formal housing, most of which was provided by the state"

The article continues:

More than 10-million South Africans also receive social grants from the state -- up from three million six years ago.The institute said that the successes suggested that relative deprivation, and not the failure of delivery, was behind the wave of delivery protests that had swept the country since 2006

Relative deprivation? Yesterday the same source published an article stating that South Africans living on less then a $1 per day doubled in a decade. Just to repeat:

In 1996, some 1,9-million South Africans survived on less than one US dollar per day. This had increased to 4,2-million by 2005.

Poverty is complex stuff.

Kendal on the list of top ten CO2 polluters worldwide

Naturenews published a graphical overview on the highest CO2 emitting power plants in the world. South Africa is at no 8 on the country list with 201 Million tons per year, for which Kendall power station alone is responsible for 26 million tons.

And, if you thought that this is a only a Kendall problem, there is some bad news: Eskom is the second highest CO2 emitting power company worldwide: http://carma.org/company.

There is no question about this - when will this start to cost us and how much?

Carbon taxes with a current account deficit?

In an article on Scitizen, Prof Tim Haab raise an important question on carbon tax policy with important implications for South Africa as well:

Proponents of carbon taxes like to say that taxes are preferred over cap-and-trade because taxes raise revenue that can be used to reduce distorting taxes on labor and capital. If a country has a budget surplus or a minor deficit, we'd say OK. But there is prima facie evidence that taxes on labor and capital are too low, not too high. In the U.S. we have a big budget deficit that is basically a big tax increase on our kids and grandkids. This big tax increase is discounted away, sure, but we think it is an important long-term problem, just like climate change. If a carbon tax raises revenue, the additional revenue could be used to reduce the budget deficit. This dissolves the efficiency claims about a preference for a carbon tax over cap-and-trade. If carbon tax revenues should not necessarily be used to reduce taxes on labor and capital then it is no more efficient, due to additional revenue, than cap-and-trade.

With proposed environmental taxes and a growing current account deficit in South Africa, we may be well-advised to broaden the focus of the current discourse beyond the carbon tax versus labour-income tax debate.

Wednesday, November 14, 2007

Trust and Water Markets

On attending a workshop on the emergence of water markets in South Arica, I was again struck by the importance of 'trust' in effective trade. The absence of trust between potential buyers and sellers, and between buyers/sellers and the regulator impedes trade, and at best raises the cost of transacting. Market transactions are a form of collective action and presupposes functioning institutions and networks.

Francis Fukuyama in the Great Disruption said:
It is perfectly possible to form successful groups in the absence of social capital, using a variety of formal coordination mechanisms like contracts, hierarchies, constitutions, legal systems, and the like. But informal norms greatly reduce what economists label transaction costs...

Trust brings costs down and eventually may have an impact on more efficient allocation of scarce resources.

Tuesday, November 13, 2007

SA poverty doubles in a decade

Despite relative strong economic growth, income poverty is still on the increase in South Africa. This is not only the case for the poor provinces, but also for the richer ones:

In 1996, some 1,9-million South Africans survived on less than one US dollar per day. This had increased to 4,2-million by 2005.

The Western Cape had the smallest percentage of its population living on less then a dollar a day -- however this percentage had doubled between 1996 and 2005. The only other province which had less than 5% of its population living in poverty was Gauteng. Poverty in the province, considered the country's economic powerhouse, also increased substantially from 1% in 1996 to 3,5% in 2005.

Do we need more economic growth or more direct anti-poverty measures?

See http://www.mg.co.za/articlepage.aspx?area=/breaking_news/breaking_news__national/&articleid=324695&referrer=RSS

Monday, November 12, 2007

Globalisation and inequality

Prof Kenneth Rogoff (Economics and Public Policy at Harvard University) on

...growth and inequality:
Are massive income and wealth differences an inevitable outcome of fast growth? By and large, the answer from history is “yes.” China, whose growth performance since 1970 has now broken every record, is well on its way to having the world’s most unequal income distribution. Indeed, China has passed the US and is nearing Latin American levels of inequality.

...and on relative diferences in income:
How much do America’s highest income earners make compared to the world’s billion poorest individuals? Well, if the top nine donated their earnings, it would be the equivalent of about three months income for the bottom billion.

...with implications for tax policy:
Rather than punitively taxing wealth, globalization strengthens the case for shifting to a flat tax on income (or better yet consumption) with a moderately high exemption. Aside from the usual efficiency arguments, it is just going to become increasingly difficult and costly to maintain complex and idiosyncratic national tax arrangements. Unfortunately, movements towards fundamental tax reform are on the back burner in most countries.

With absolute poverty on the retreat (with the notable exception of Sub-Saharan Africa), massive global inequality is likely to become the next big obstacle.

See http://www.project-syndicate.org/commentary/rogoff36/English for the full story.

Friday, November 9, 2007

Regional Economic Outlook 2007

According to the IMF Sub Saharan Africa growing strong, has improved macroeconomic and political stability, more fiscal space, but continued structural and institutional reform is needed. There is some heartening evidence that pro-poor spending increasing.

http://www.polity.org.za/article.php?a_id=120837

The Future of Coal

According to the IEA's World Energy Outlook 2007 the world’s primary energy needs in the Reference Scenario are projected to grow by 55% between 2005 and 2030, at an average annual rate of 1.8% per year.

the continued dominance of fossil fuels...Fossil fuels remain the dominant source of primary energy, accounting for 84% of the overall increase in demand between 2005 and 2030.

also coal...In line with the spectacular growth of the past few years, coal sees the biggest increase in demand in absolute terms, jumping by 73% between 2005 and 2030 and pushing its share of total energy demand up from 25% to 28%. Most of the increase in coal use arises in China and India.

and for those who did not now that China started importing coal as well... China became a net coal importer in the first half of 2007. In the Reference Scenario, net imports reach 3% of its demand and 7% of global coal trade in 2030.

why coal?

Price..Higher oil and gas prices are making coal more competitive as a fuel for baseload generation.

Chindia...China and India, which already account for 45% of world coal use, drive over four-fifths of the increase to 2030 in the Reference Scenario. In the OECD, coal use grows only very slowly, with most of the increase coming from the United States.

Cleaner technology...In all regions, the outlook for coal use depends largely on relative fuel prices, government policies on fuel diversification, climate change and air pollution, and developments in clean coal technology in power generation. The widespread deployment of more efficient power-generation technology is expected to cut the amount of coal needed to generate a kWh of electricity, but boost the attraction of coal over other fuels, thereby leading to higher demand.

http://www.iea.org/Textbase/npsum/WEO2007SUM.pdf

Wednesday, November 7, 2007

Decoupling economic growth from emissions is only way

"...the solution to the challenge of global climate change is as plain as day. The only chance of improvement is to decouple economic growth from energy consumption and emissions. This must happen in the emerging countries, and even more urgently in the old industrial economies."

Courtesy to Project Syndicate: http://www.project-syndicate.org/commentary/fischer19/English

Tuesday, November 6, 2007

Real action on poverty

Methods used in medicine are already making a difference in addressing poverty more efficiently.

See: http://www.forbes.com/2007/05/23/esther-duflo-poverty-tech-cx_07rev_ee_0524duflo.html?boxes=custom

Biofuels? Think twice (again)

Following the World Development Report 2008 referred to on this blog only a few days ago, an updated report on biofuel subusidies in the US entitled Biofuels: At what cost? from the International Institute for Sustainable Development again highlights again how ineffective bad policy decisons can be.

"Sustained high subsidy levels ... of ... biofuels are an expensive way to achieve various policy objectives, such as greater energy security and the lowering of greenhouse gas (GHG) emissions...In terms of energy security, the average subsidy costs of replacing petroleum with biofuels over the 2006–12 period are high: $ 12–17 per gigajoule (GJ) of petroleum displaced for corn ethanol and $ 16–25 per GJ for biodiesel. This translates to roughly $ 1.40 to $ 1.70 per gallon of gasoline equivalent and $ 2.00 to $ 2.35 per gallon of diesel equivalent—both a sizeable percentage of the current market value of motor fuels...The cost of displacing fossil fuels by subsidising biofuels is even more expensive than for displacing petroleum: $ 22 to $ 57 per GJ fossil fuel displaced for corn ethanol and $ 24 to $ 28 per GJ for biodiesel.

And then for the real shocker:

The minimum subsidy cost per tonne of CO2-equivalent reduced over the
2006–12 period is $ 295 for corn ethanol; $ 239 for biodiesel; and $ 109 for a hypothetical cellulosic ethanol case. This is the minimum cost, calculated by taking the lowest subsidy estimate and dividing it by the most favorable GHG displacement factor."


See http://www.globalsubsidies.org/IMG/pdf/Brochure_-_US_Update.pdf for a full report.

Monday, November 5, 2007

Budgeting for climatic changes

Sometimes environmental issues become financial issues out of sheer desperation. They are forced onto us. They start costing money; for example, the latest medium term budget statement hints at support mechanisms such as crop loss insurance in the wake of climatic changes.

This contains some serious warnings on sustainability of other industrial policies and development programmes, an issue highlighted by no other then Business Day. See http://www.businessday.co.za/Articles/TarkArticle.aspx?ID=3041255 for the full story.

Friday, November 2, 2007

Cellphone banking in Kenya

An article from the Christian Science Monitor: http://www.csmonitor.com/2007/1012/p01s03-woaf.html

Hard facts on cellphone connectivity

The recently released Community Survey (http://www.statssa.gov.za/community_new/content.asp) contains some gripping statistics on connectivity:



The percentage of households with computer facilities increased from 8,6% in 2001 to 15,7%
in 2007.

Only 7,3% of households had access to Internet facility at home in 2007.

The proportion of households owning a cellphone increased from 32,3% in 2001 to 72,9% in 2007.



Given current trends, poor South Africans might be better served by this phenominal growth in cellphone penetration as a platform for linking innovation to the marketplace, rather then focussing on a mass roll-out of PCs and PC-based internet connections.

Think twice about biofuels - WDR

The biofuels debate is raging. Not only given the obvious connections to energy and food security, as well as the impacts on land and water, but also because it is one of the development strategies contained in ASGISA.

The World Bank has added a word of caution in the latest World Development Report 2008.

"The challenge . . . is to avoid supporting biofuels through distortionary incentives that might displace alternative activities with higher returns. Governments need to carefully assess economic, environmental, and social benefits and the potential to enhance energy security. Other often more cost-effective ways of delivering environmental and social benefits need to be considered, especially through improvement to fuel efficiency" http://www.polity.org.za/page.php?rep_id=67&al_id=474738

For the full World Development Report:
http://econ.worldbank.org/WBSITE/EXTERNAL/EXTDEC/EXTRESEARCH/EXTWDRS/EXTWDR2008/0,,contentMDK:21410054~menuPK:3149676~pagePK:64167689~piPK:64167673~theSitePK:2795143,00.html

Thursday, November 1, 2007

Kenyan strawberries are good for the UK (and for us Africans)

Eating Kenyan strawberries at Christmas, in other words, is not a guilty pleasure, it is (part of) a moral obligation!

This is the conclusion of a new paper from Benito Muller at the Oxford Institute for Energy Studies. And surely one that deserves to be mentioned.

Kenyan strawberries have a comparative advantage above out-of-season UK grown strawberries. They are cheaper to produce, and are benefitting from something Africa has in abundance: sun. Even when emissions from long-haul flights are taken into consideration the argument holds, according to Muller. And, important for Africans, strawberries in Kenya contribute to jobs, livelihoods, income and human dignity in a continent where such (shall we call it basic?) goodies are hard to get.

For the full paper see: http://www.oxfordclimatepolicy.org/publications/mueller.html

China: Doing Deals that Last?

The R36.7bn direct investment by the state-controlled Industrial & Commercial Bank of China in Standard Bank is yet another stepping stone in China's quest towards being the world's number one economic powerhouse. And in Africa, it not such a bad idea to partner with a bank who has vast experience in unlocking the value of the continents' natural resources.

There is however legitimate concern on the sustainability of natural resource extraction and the resulting impacts on the environment in Africa. The Dragon is certainly not perceived to be very green. During 2006, the Chinese state Environmental Protection Administration published an official estimate of environmental losses of $84bn or 3 percent of GDP for 2004. Other estimates put the costs as high as 8-13 percent of GDP, effectively wiping out all the gains of economic growth.

On the other side, many African countries have also experienced that large capital inflows on the basis of natural resource booms contribute little to poverty alleviation and may even delay the diversification of the economy.

Africa’s history of natural resource exploitation and a lack of environmental control in China itself can easily lead to the conclusion to limit entertaining the Dragon on African soil. In fact, such sentiments, although not in relation to environmental management, have already started to surface with a comparison of China’s interest in Africa to colonialism and opposition politics in Zambia.

At least two aspects need further attention before we come to such a conclusion: the direction of change in China, and the need for clear rules of engagement in Africa. For the full story read the special issue of The China Monitor: http://www.ccs.org.za/downloads/monitors/CCS%20China%20Monitor%20March%2007.pdf

Tuesday, October 30, 2007

Green taxes and well being

The use of economic policy instruments for the management of natural resources and environmental pollution is not a new concept. But its application in South Africa certainly is.

The idea is simple: Business as usual leads to overexploitation and pollution beyond the point of no-return. More targetted policy interventions are needed to correct for this (growing) imbalance.

Such interventions can take effect through (i) the market system (e.g. taxes, charges, subsidies), (ii) by creating new markets (e.g. defining property rights, by creating offset systems and by creating a market for tradeable permits such as the EU Emissions Trading Scheme), (iii) through regulations (e.g. bans, permits and quotas, zoning) or through (iv) participation and education.

The Mail & Guardian published a recent article on the topic of green taxes in South Africa:
http://www.mg.co.za/articlePage.aspx?articleid=323180&area=/insight/insight__economy__business/.

Although the concept needs to be applauded the real test lies in the design of such taxes. And this design should not take place without evaluating the impacts of such taxes and the impacts of other kinds of interventions (as mentioned above) on criteria such as static and dynamic efficiency, distribution, rent seeking opportunities and development needs to name a few*. Environmental taxes certainly have a role to play, but DEAT as the responsible department should evaluate this in a broader package of other possible policy interventions as well.

* Sterner et al. 2003. Policy Instruments for Environmental and Natural Resource Management. RFF/World Bank/Sida.