Juliano Assunção

Interview

Q/ Sustainable development involves official growth and nature protection objectives. And these objectives have multiple points of tension, but also some promising synergies. In your opinion, what were the main factors or market and state failures that strained the goals of economic development and environmental protection in the past, and where do you see the greatest opportunities to generate these synergies between economic development and environmental sustainability?

Yes, in economic development and the environment, sustainability is an issue that is as important as it is complex. This goes back to the period of the Industrial Revolution, when we really created ways to change the standard of living of modern society. But those ways were very much based on the use of fossil fuels and their use, and despite driving a whole economy that developed in different countries around the world, collaterally it generated a pattern of greenhouse gas emissions, gases that ended up accumulating in the atmosphere and promoting global warming, which we were not aware of at the time. In fact, this was our awareness of the problems and issues associated with development as a society.

In a way, there was an initial moment when it was not even a market failure, but simply an ignorance of this side effect of development. When we look at today, in fact, there is a market failure, in the sense that we recognize that all the decisions related to fossil fuel consumption fail to internalize the social cost of those measures. And we are in a process where there is a very dramatic consequence of these emissions in terms of climate. The temperature has changed significantly and scientists indicate that it will change even more in the coming years if this pattern of emissions continues.

So, I believe that the great challenge for humanity is how to reconcile this process of economic development, which is necessary to improve the living standards of modern society and, at the same time, create conditions for this process to coexist harmoniously with the environment, compatible with the protection, mainly of ecosystems. But, on the other hand, there are also possibilities of synergy that are implied in the fact that we are far from reaching our productive potential. We have exploited several natural resources rather inefficiently over the last decades. This offers us an opportunity to do more with what we have, to produce more with the use of natural resources.

For me, the big interface between the economic development agenda, social inequality and environmental protection is precisely, today, finding ways to make better use of natural resources, understanding that we need to take into account the costs of our decisions as a society.

Q/ Now, on climate negotiations, this notion of fairness is of central importance in global climate agreements. And four frequent aspects in these discussions are the historical responsibilities in the emissions, the unequal impacts of climate change, the disparity of development between countries and the insufficiency of emission reduction commitments in the NDC. In this regard, what are your thoughts on these components and what mechanisms could encourage countries to assume more ambitious and equitable agreements in the fight against climate change?

I think climate justice is a relatively recent perspective in the discussion, both in the climate agenda and in the development discussion. My perception has to do with the fact that, when we look at the income or wealth of different societies, a process of emissions is implicit. You have a very clear pattern between greenhouse gas emissions and per capita income, it is very evident.

In a sense, climate justice has to do with the fact that those countries, which have a more comfortable position, are the ones that have caused the most damage in the climate agenda and continue to do so; they are countries with a higher per capita income than the others. This puts us in a more feasible position where mitigation action, reduction action, should occur more significantly precisely in those places that have more financial resources to do so.

In this way, the social justice agenda, for me, has a very relevant component, which is that the richest countries in the world have a lot to contribute, they have the conditions to do so, and therefore, they should contribute more to this climate agenda. And there is another element of climate justice, which is that the countries most exposed to changes, to floods, So, I think that the question of justice is very clear in this situation, precisely because of this contradiction. On the one hand, the rich countries are the ones that emit the most, the ones that contribute the most to the problem and, on the other hand, the most exposed countries are those that are, in fact, vulnerable. Therefore, a question of justice must be an integral part of the climate discussion. 

Q/ On energy mitigation, climate change and ecosystem protection, they have areas in common, but they can also conflict. In your opinion, what should be the role of biofuels and hydropower in the country’s future, considering the balance between mitigation and ecosystem protection?

Yes, the issue of climate change mitigation, greenhouse gas emissions and ecosystem protection have different configurations in different parts of the world. Typically, in the high-income world, northern countries tend to be countries that are already at the limit of their productive possibilities. So, for example, when the United States increased the ethanol content in the gasoline blend, the price of wheat went up because when in a country where you are using resources more efficiently you need to allocate some goods for a certain activity, there is going to be a shortage for others. So you have this more explicit tension in these higher income countries. However, in the lower income countries and in particular the Latin American countries, especially Brazil, for historical reasons, they are countries that have exploited their territory with the main objective of occupying it.

Thus, in Brazil, since the arrival of the Portuguese, we have observed a process of occupation of the territory that did not seek the most efficient economic production for each area, but rather to occupy the territory. And this took different forms in different governments with a more recent boom under military command, which really decided to occupy the Amazon in a quite artificial way, with a lot of public policy, which ended up generating great damage to society. So, in those countries, this tension is minor, because there are areas that are far below their productive potential. So the discussion on biofuels in Brazil does not put pressure on deforestation. We even have some studies that show the opposite, because in some developed areas with more intensive activities that employ more people per hectare, that use more capital and more investment per hectare, the pressure on deforestation actually decreases. So, I think what is interesting about this potential tension between climate mitigation and ecosystem protection is that it has a very clear direction. In tropical countries this tension is much less present than in higher income northern countries.

Q/ The protection of ecosystems and biodiversity is among the biggest challenges on the sustainability agenda. This may be partly due to the difficulty of identifying and measuring the benefits we derive from them. In your opinion, what would be the most promising instruments for the protection and recovery of our ecosystems and biodiversity, and what restrictions are imposed due to the lack of institutional and implementation capacities in the region?

The protection of ecosystems, mainly in tropical countries, which also tend to have a smaller State, historically, is a challenge that has many dimensions, but I think it is a challenge that requires very strong governmental action. There is no kind of well-structured market, we don’t even understand environmental services very precisely, so a market logic in which you have decentralized decisions about what to do and where to do it, doesn’t work in the case of ecosystem protection because there is no organized structure that benefits from ecosystem services. But we know that they are very important and crucial for us, whether it is for us Brazilians, for us in Latin America or for humanity as a whole, because they play a role in various global systems that are extremely important for human life.

However, the government is the only actor that has the conditions to do this because you really need to incorporate in your decisions the importance of these ecosystems and use instruments that are effective for this purpose. In Brazil we had a breakthrough in the early 2000s, when we started using technology, strategic information to monitor deforestation almost in real time and, from there, take government measures to combat deforestation. It was a very successful process where even in an environment where the state has limited capacity for action, technology was used to greatly increase the effectiveness of public policy. We have some studies at CPI where we try to quantify this and we can show very clearly that government action was absolutely fundamental for the protection of ecosystems. So, I think and I hope that in the horizon of some decades, we will understand better the role of biodiversity and ecosystem services in different areas and we can develop other approaches. But I think what we have today to address these problems is basically the governmental action through conservation areas, satellite monitoring, a series of public policy elements that are relatively well consolidated, and Brazil I think has a lot to show in this area.

Q/ How do you see carbon pricing as a global mitigation instrument and what institutional arrangements do you see as the most promising for the future, be it taxes, tradable emission permits or voluntary market agreements?

The relationship between carbon pricing and climate, and the climate agenda has been around ever since economists got involved in this discussion. Because, in a sense, the climate agenda has to do with what we economists call an externality. That is, it is a situation in which, when we consume fossil fuels, we do not internalize the damage they cause in the atmosphere and greenhouse gases.

There is nothing more natural than to think of a way to incorporate the social cost of decisions into the decision making process of companies and households, and carbon pricing would be a natural way to do this. In fact, carbon pricing applications have been established in several places. Europe developed what they call the ETS market, which is carbon, mainly focused on industry. You have the carbon market in California, you have countries adopting carbon taxes. And all these initiatives are very well mapped on a World Bank platform that monitors the evolution of the carbon price that is embedded in each of these applications. When we look at the results of this platform there is a very clear feature, which is the fact that there is a huge dispersion in the carbon prices in these different applications. This illustrates a great inefficiency.

So, if on the one hand we are moving towards an almost free solution to the climate problem, on the other hand, we are doing it in a very inefficient way. Because if there is one thing we know in economics is that the price of carbon should be the same all over the world, because one particle emission in China is equivalent to one particle emission in Brazil, so there is no reason for these prices to be different. When we are really committed to the climate agenda, addressing it efficiently, we will need to have these integrated markets. So I don’t think we can make carbon a fundamental piece of the mitigation agenda as long as these markets remain segmented. I also believe that the voluntary market can help us gain some volume, some traction, but it has certain limits, so we need a market with government participation, that is regulated and that there is this integration between the different countries. 

Q/ And on this issue of the disparity between carbon prices, you already referred to the inequality between rich and poorer countries in this struggle. Could you elaborate on this a bit more?

Yes, the inequality in the carbon price that we observe between these different countries illustrates a great inefficiency. There is a counterpart to this inefficiency that has to do with the fact that there are many opportunities to mitigate carbon in some parts of the world. In particular, in tropical countries, which are lower income countries , there are two important elements: there is a lot of sunshine, in general the renewable resources in this tropical belt are quite abundant, and secondly, there is a huge possibility of forest restoration, but this will not save us from the climate crisis. So, today, the richer countries need to mitigate their greenhouse gases and they could take advantage of an opportunity that exists in tropical countries. This opportunity has two fundamental elements. On the one hand, it is associated with the abundance of renewable energy resources, because these countries tend to be very sunny and have a lot of wind resources as well. And secondly, there is a huge potential for forest restoration in this tropical zone.

Although the forest restoration agenda will not save us from the climate problem, because it also has its limits, it can buy us valuable time. And, at the same time, it would be an opportunity for the climate agenda to contribute to the protection of ecosystems in this tropical belt, bringing large-scale resources that will be important, both from an environmental point of view and from a social point of view for these countries. I think this element of efficiency gains is very much aligned with the issue of reducing inequalities between countries, precisely because you have a very large mitigation need in those with lower incomes and a lot of ground could be gained in this direction.

Q/ And finally, what institutional framework do the instruments, taxes, tradable permits and all that you have already mentioned require, and how do you assess the capacities of the States in the region to implement them?

It is a big challenge, perhaps the most central one, because what scientists are saying is that we need to implement an absolute reduction in the level of emissions on the planet as soon as possible. Otherwise, we will not be able to reach the goal of keeping climate change in a relatively safe range, which will no longer be so comfortable, and it is below 2 or 1.5 degrees, which are the parameters that guide these climate measures. The question is how we get there.

What we have today is a diplomatic process closely associated with the annual climate conferences, the COPs and other circles that are being formed around this, which have a process, a timetable, a speed of action that is incompatible with the challenge we face, in addition to a set of public policies that contribute to making the problem even worse. And perhaps the most obvious example of these policies is the fossil fuel subsidy, which still exists in several countries. The IMF estimates that what we spend today on direct fossil fuel subsidies is in the order of 4 trillion dollars a year.

This is an element of public policy that does not even require so much institutionalization, but the understanding of the different countries that it is important to act in a concrete way in relation to climate, which could be adopted immediately, with very relevant effects on the pattern of emissions. And the justification that is often given is that, if you remove these subsidies, there will be an impact on inflation and there could be an impact on poverty. But, in reality, we have to approach the problem from perhaps a broader economic perspective, trying to understand what kind of public policy instrument is more appropriate for each problem. The public policy instrument that, historically, is more appropriate for dealing with inflation is the interest rate, not a direct subsidy to goods or services.

What we have to deal with poverty are programs such as the one in Brazil, the case of Bolsa Familia. These are programs that are direct income transfers and we have experiences all over the world that manage to alleviate the issue of poverty. Thus, there is no reasonable justification, from an economic point of view, to allocate public budget to subsidize the consumption of fossil fuels that contribute so much to the climate agenda.

On the one hand, I think we have this institutional challenge of coordinating the action of countries, of which there are relatively few. The G20 represents 80 % of the problem, in general terms, so it is a relatively small set of countries that can do a lot. There is this challenge of coordination, which seems feasible, but, in addition, there are much simpler issues that could be adopted immediately, such as the most obvious example: the reduction of fossil fuel subsidies. So, I think there are these two elements. On the one hand, there are some institutional challenges that will be necessary to reduce emissions in absolute levels, but, on the other hand, there are opportunities that we can take immediately and, with them, have a significant impact on the climate agenda.