October 13, 2022

Interviews

# The Geopolitics of Stuff

The material economy is back. Economists and commentators in recent decades had heralded (or lamented) the arrival of an automated, redundant, frictionless system of international commerce. But over the past two years, multiple global crises have exposed the fragile physical underpinnings of world trade. Persistent shortages and spiking energy bills are transferring the pain of distant crises to ordinary workers and consumers.

The global pandemic and the invasion of Ukraine are proximate causes of the current turmoil. But longer-running forces are driving the seize-up in supply chains, making it unlikely to let up. Policymakers are taking emergency lessons in the sinews of global trade: energy, materials, location, logistics, labor. We see a mad scramble to reacquaint leaders with the hard stuff of the global economy, with the moment calling for a new set of experts to come forward—and talk to one another.

The last two years has demonstrated the power of feedback effects—how crises and policy responses magnify each other. Sanctions have sharpened geopolitical tension, for example, and produced more inflation. Uneven international access to finance for energy worsens climate vulnerability, causing countries to then pay a higher price for debt.

This roundtable discussion—“The Geopolitics of Stuff”—featured Kate Mackenzie, Tim Sahay, Joe Weisenthal, Thea Riofrancos, and Skanda Amarnath. Experts in subject matter ranging from price controls to metals mining to markets, the panelists explored recent policy moves towards more direct management of the economy: bans, nationalizations, rationing, windfall taxes, and price controls. Where are these measures well-designed? When are they counterproductive? Read an edited transcript below, and watch a recording of the event here.

The event is the inaugural presentation of a new project: The Polycrisis, a series focused on the political economy of climate, and its attendant security dilemmas, with an emphasis on Global North/South dynamics. The Polycrisis is founded and led by Tim Sahay and Kate Mackenzie. Coming soon, you can expect a series of articles, more roundtables, and a newsletter by Tim and Kate. Sign up here to receive updates and new content.

### A discussion on commodities, supply chains, and climate

Kate mackenzie: Joe, on Odd Lots, you and Tracy Alloway have covered the world of “stuff” over the past two years—choke points, bullwhip effects, bottlenecks, and the impacts of increasingly frequent and severe weather events. Back in the macro blogging days of the late-2000s, understanding how the world worked, where crises came from, was all about getting to grips with finance. What is the role of macroeconomic policy in this new world we’ve entered?

joe weisenthal: Post-2008, we were all concerned with bank balance sheets and sovereign finance. In 2010, the biggest challenge that most rich economies faced was insufficient aggregate demand. There has been a flip, and we can mark that shift in March of 2020. Since Congress’s huge fiscal bill and the unveiling of new tools by the Fed, the story has changed. From 2021 to today it’s been supply chains and energy. For us as journalists, the approach has been to start with the issues people are talking about and then pull on the strings.

We did our first episode on supply chains in December of 2020, when shipping costs between China and the US rose dramatically. We spent all of 2021 talking about supply chains, but it wasn’t intentional—in questioning why shipping costs were so high, we found out that the unidirectionality of US imports from China meant that ships returning to China had no containers on them. As a result of the shortage, container prices increased. This brought us into the ports, and the trucking bottlenecks there.

In retrospect, I think a lot of us would like to return to the earlier set of problems, because we actually know how to solve an aggregate demand shortfall. Today, things seem much more challenging. I don’t think there is some grand solution to solving questions of global stuff, whether that’s logistics or the incorporation of renewable energy onto the grid.

It’s important to understand, though, that the traditional macro world still exists. There’s a lot of appetite to talk about lumber prices and used car prices, but the Fed still operates in a traditional macro framework. But what we have learned is to ask, “Why is this really going on?” We’re interested in pressure points, so when the Fed argues that we need to raise interest rates to fight inflation, we have to ask how this instrument will really operate. Similarly with the ECB and energy prices—we all know it isn’t equipped to deal with them. So the question for us now is: what happens when we apply these blunt instruments to a world which is fragmented and complex? This tension I think is the interesting story of our moment.

Km: It is tough when the tools available just don’t really seem to be up to the job.

jw: We can see this very clearly with housing. Everyone, including at the Fed, knows that rents are unaffordable and home prices are surging. When the Fed raises interest rates, mortgages go up but supply worsens because home builders exit the game. The blunt tool will pressure the housing market and probably help ameliorate inflation, but it won’t resolve the core problem underlying US housing: why is it perpetually so expensive? At some point we will need a housing-specific policy.

It would be nice if we had a strategic housing reserve like there is for oil, and then we could use something like Skanda’s Strategic Petroleum Reserve (SPR) plan, and sell housing now with the commitment to buy more housing in five years. We need an SPR for all the sectors! But we don’t have it.

Km: Skanda, could you take us through your SPR proposal?

Skanda amarnath: The SPR is the Strategic Petroleum Reserve. It’s a series of salt caverns owned by the US government. Historically, they have been filled with a lot of oil. They are not currently full, because they are being drawn upon to provide some marginal supply to the market given the supply risks from the Russian invasion of Ukraine.

The real value of the SPRs in our view is not about releases. Yes, releasing stockpiles of oil can help meet current consumption desires. But the real power of SPR is in the vacant stores—empty caverns that can be filled with oil. You can take supply off the market in the crash. This is useful because of the cyclical nature of oil markets. The US has grown as an oil producer; it now produces more oil than Saudi Arabia. That has been a function of the fracking revolution in the 2010s. But we had three big oil price crashes in a matter of seven years: we had the big 2014 to 2016 decline in prices that went from triple digit oil prices to $25. We had a mini crash in 2018–19 related to the trade war with China. And then we had negative oil prices in April 2020. That cyclicality shakes out producers. It forces them to restructure and be bought out. It has led to a more consolidated industry in the US, but also an industry which is more reluctant to invest. Shareholders are really mad about the amount of lost returns, and they are demanding that management admit that their risk mitigation technique should really be one of under investment. Better to under-produce and settle for high prices. So the volatility has over time led to less investment and higher hurdle rates. We had an oversupplied market in April–May 2014. We had an oversupplied market in 2015–16. In those instances, you can find ways to contractually bind the SPR through a forward contract or by selling options such that when the price goes down that supply is being put into government owned caverns. SPRs are therefore really valuable to provide a significant amount of stability. As for the SPR’s climate impacts, low prices are neither good for reducing consumption, nor are they good for industry. But oil prices going up to$200 because of precipitous declines in global supply is a problem for a whole host of end users. So you want to avoid this precipitous decline in global supply and curb that risk. SPRs can smooth out the volatilities in the short term.

KM: In the climate world, we always talk about “managed transition” as being the goal. Nobody wants economic recessions or harmful energy crises. And the size of the SPR capacity in the US is substantial.

SA: It is 714 million barrels of storage. Demand balances are usually about 500,000 to 1 million barrels per day, and that’s the order of magnitude that they’re releasing right now in SPR sales, so the marginal demand can actually be shifted by what the SPR does.

Km: Related to this question of smoothing the transition is the supply of minerals: rare earths, cobalt, lithium, and bulk minerals like copper. Thea, do minerals present a path towards development for countries in the Global South? And what is their role in the geopolitical shifts we see underway, and what do these markets tell us about the global order?

THEA RIOFRANCOS: We have these extractive sectors labeled “critical minerals” due to their importance, applications and susceptibility to disruption. They include lithium, cobalt, nickel, and rare earths, among others (copper isn’t on there even though it is important because the supply disruption is minimal, but it could be moved onto the list in the future).

I want to start with a simple and counterintuitive claim: the fact that these markets are now linked to the energy transition hasn’t changed much about their operations. When we think about their potential as a route to development, it is important to remember how they haven’t changed rather than how they have.

What do we see when we look at extractive sectors? We see inelasticities on the supply end and on the demand end, which leads to swinging prices. In some cases, that volatility increases because of financialization and commodity trading—as in the recent fiasco in the nickel market. These prices are even more volatile because of financialization and commodity trading. Copper price movements are also linked to big movements in commodity trading. The volatility in prices raises questions for sustainable development, because revenues will also be volatile.

A couple of points on the crude power dynamics in the global order. First, there is a huge disparity between where raw materials come from and where profits end up. The top 20 percent of the global population consumes the majority of industrial metals—there is an extreme inequality in the distribution of metals and the products they end up. Second, the extractive sectors consume a lot of water and produce a lot of toxic waste. In general, lower- and middle-income countries remain net exporters and net producers of raw materials. And rich countries—with China inching its way into this category—are net appropriators. The inequality in these sectors is one set of reasons why we might not expect it to be a route to broad-based development within those countries.

There are some changes underway now. One is that Global North countries are passing muscular policy and moving into these sectors. The US, EU, and now also in Canada, all want to onshore these sectors, to control the entire battery supply chain. Brussels and DC are throwing a huge amount of money across the supply chain, in the form of de-risking investments, cheap loans, and venture capital. These are giveaways, with no public stakes or equity, without any public ownership. So we could critique that just within the Global North, setting aside global implications.

But your question is how does this affect the Global South? Two points here. One is that the move to onshoring is hypocritical—which isn’t an interesting critique, everyone’s a hypocrite—because Global South countries have for many decades tried to pursue resource nationalism and industrial policy developmentalism and been chided, and in some cases sanctioned against doing so, or dissuaded by the IMF and WTO.

A more substantial, but still speculative, point is the question of how the influx of money and investment in the extractive industry in the Global North is going to bring competition to these markets. Primary producer countries may not remain primary producers. That might decrease their leverage, and also their market share, and therefore their revenues. This is related to the question of hawkishness in these new policies: will producers be cut off from some of their markets, either because they are an “entity of foreign concern,” or have dealings with one, or just because of the prioritization of Made in America minerals?

Tim sahay: Thea, you wrote a paper recently on the “security versus sustainability nexus.” The picture is usually of Western companies going to resource-rich countries in Africa, Asia, and Latin America, getting those cheap resources, screwing around with environmental rules, contaminating the water, killing whoever they need to kill and then bringing cheap resources to the Global North. Why should they not want to do this anymore? Where are the carrots that they are getting from rich countries to come back?

TR: The first question is: why do Global North governments that promoted that regime of neoliberal globalization and dispersed supply chains not want it anymore? It’s easy for me to see why investors and firms would take free or cheap money, and start setting up operations in new places. But when I first looked into this, it was less clear to me why Washington, DC or Brussels were not satisfied with this cheap import scheme, and also with the ways in which it externalizes environmental harm and political contention.

Some of this connects to the aftershocks of the commodity boom. One legacy of that is a kind of capital discipline: after boom-bust cycles, there’s a drying up of money for exploration, production, etc., and a prioritization instead of things like buybacks. At the same time as investors were reacting to the commodity boom and bust, Global North governments were getting worried about access to raw materials. The origin of the onshoring push dates to the period of the bust, in 2010–2012. In the past couple years, with the pandemic and supply chain snarls, there’s been an opening with broad salience around supply chain security.

The way that this works out is a bunch of “deal sweeteners” for supply chain investments from lithium mining to cathode cells, to EVs, the whole thing. Companies will get money, your consumers will get rebates, there’s a whole industrial policy there.

But what’s the trade off or the tension? There’s the question of whether this particular type of industrial policy is publicly beneficial, whether leverage is being used to increase public ownership, stakes, and decision making. Or is it just free money for companies that have been basically paying off their investors for a long time? And the question of whether producing minerals in the North is actually more sustainable. There’s a big regulatory gap until we can actually say that production is more “responsible” at home. The focus is really on the “deal sweeteners,” and not so much on the “responsible supply chains.”

Km: It is hard not to see a depressing picture here. Tim, your notion of “electrostates” reclaims agency for Global South nations. Where do we see signs of that approach?

TS: The dire inequalities in mask and vaccine distribution that we saw in 2020 and 2021 represent the contemporary model for dealing with the energy crisis. A shortage of something leads to a bidding war. And in that bidding war, the countries and people who have the capacity to pay the highest prices will be first in line in a global commodity market.

We saw that with masks: most of those produced in Asia ended up being flown out of Vietnam and China and sent to Europe and the US. Similarly, there were some efforts to pull together money and vaccines for the developing world, but there was always a shortage. So low income countries were put at the back of the queue. This literally became a matter of life and death.

The energy crisis is also a question of life and death. People who don’t have access to an AC in the summer or heating gas in the winter are facing higher risk of mortality. And there is a direct link between the announcement of a successful vaccine, rising energy prices, and reopening increasing the demand for energy. Since the end of 2020, we’ve been in a global bidding war.

One wild example of that, just recently, was when the entire country of Bangladesh lost power. They had been rationing before that, but at some point, the limited supply of gas just meant that there was an entire blackout of the grid. Why doesn’t Bangladesh have enough gas? Bangladesh had bought gas via long term contracts on the global market. But the companies which had promised to supply Bangladesh with gas said: “wait a second, I get ten times the price if I sell into Europe, so I’m just going to break my contract with Bangladesh, pay them the penalty, and go make more money in Europe.” So there’s a direct link between shortages and blackouts in the Global South, and energy, the ability to pay, and finance it through debt in Europe.

That’s what developing countries are responding to—that the entire world-order is slanted against them. They have shortages of money. Shortages of stuff. And broadly speaking shortages of technology. So that they can’t make their own mRNA vaccines or generate sustainable, cheap, and secure green energy at home.

So to your question: is there any power they can exercise? In the case of large developing countries, like Indonesia, India or Brazil, they do have power. One aspect is just pure market power—Indonesia can demand access to technology as a condition of access to its 300 million person market. That’s the kind of power we see developing countries exercising at this moment of uneven markets and the geopolitics of war.

Strategically, they have used non-alignment as another bargaining tool. Mexico, Brazil, India, Indonesia, and dozens of other countries in the Global South have remained neutral regarding Russia’s invasion of Ukraine. One reason for this, in Brazil for example, is fear: joining in on the Russia sanctions would block access to Russia’s fertilizers, threatening the entire soy market and agricultural industry. At the same time, dependence on the West for technology and money means they can’t give open support to Russia or China.

The “electrostate” is the counterpart of the petrostate—countries rich in oil and gas make a lot of money by selling it to the rest of the world, and use that money to create a social welfare state domestically. Norway is probably the best example of this. The question is whether countries in the Global South which possess the critical raw materials that Thea described can use those minerals to industrialize their way up the value chain. Indonesia for example banned any export of raw unprocessed nickel. Companies have to set up battery factories inside Indonesia to get access. So the Chinese company CATL, South Korea’s LG, Volkswagen, and Tesla are all coming into Indonesia to set up joint ventures with the Indonesian state-owned mining giants. Under that deal, Indonesia gets to export batteries.

Contrast this with the colonial picture in which countries in the Global South exported raw materials, and then used that precious hard currency to import finished goods from the west. By forcing Chinese, German, and American companies to set up shop inside your country, you take ownership of your own nickel and churn out the batteries that sell for a pretty penny in the global market.

Thea, you’ve written about Latin America’s lithium triangle and the potential for a “Lithium OPEC.” How does that compare with the Indonesian model?

TR: There has been a weak and vague attempt to set up a Lithium OPEC—OPEC is not really the right word for it, it is some kind of policy coordination between Mexico, Argentina, Chile, and Bolivia. Those countries all currently have left or center-left governments and a lot of lithium. But they differ in how big their sectors are. Chile and Argentina are actual exporters, while Bolivia and Mexico aren’t quite there yet. That matters for their ability to coordinate.

I don’t foresee a lithium OPEC developing. It’s not an accident that oil is the only commodity that we got third world coordination around. That happened in a really particular conjuncture of the original nonaligned moment, which was much more auspicious and ambitious. At that time, there were ideas for an OPEC of minerals like copper, but only oil took off.

But to go against this pessimistic framing, we could definitely see governments using more leverage as the supply crunch worsens. The less lithium you have on the market, the more bargaining power producers have. The Pink Tide and the commodity boom both gave way to dramatic contract renegotiations that funneled a lot more money to those governments. But did that lead to post-extractive development models? That’s a much thornier question. Certainly more money stayed in the country, but supply-chain upgrading is much harder.

KM: We have a question for Skanda from the audience: The SPR is a good example of attempting to manage largely private investment cycles. What other tools do governments have to manage the investment cycles underpinning a managed transition?

SA: I’ll be optimistic here. I think there is room to do this for many transition mineral inputs that have the same properties of cyclicality—a long time lag between the investment decision and production, and inelasticity in supply and demand as Thea pointed out.

Oil is hard to store, so it’s not trivial to be able to store oil over long periods of time. It’s actually a lot more straightforward to store copper, aluminum, or lithium carbonate. The easier it is to store things, the easier it is to think about developing stability. There’s a lot of people that are interested in stockpiling. Maybe we should stockpile everything else! Prices have surged on not just oil, but also on lithium, and a host of other commodities. What do you do about that? It’s really about creating downside certainty. That usually involves the state underwriting some of that risk. If states do that, they can create conditions where hurdle rates can be reduced.

There are also things that the US Treasury can do. It’d be a little out of the box and more politically contentious, but we’ve proposed how the Treasury’s Exchange Stabilization Fund can be used to cut off downside risk. This is an important component for a host of valuable commodities. Using these tools well, and using them judiciously is a separate question. But we should be thinking about using these tools for commodities that tick the same set of boxes that oil ticks.

Ideally for the energy transition, we also want to ramp up the ability to produce other commodities. If the 2000s was the story of the China boom, the 2010s was a series of stories for every single commodity where producers were shaken out. There was so much industrial capacity within China. And for other producers, that industrial overcapacity meant really poor returns due to low prices. That is a lesson that’s still pretty hardwired into the brains of a lot of people making decisions about investments. The climate conversation should be in part about understanding how these commodity markets work, and developing public sector levers to shape things.

KM: Do the challenges of 2022 represent some turn away from the emphasis on market efficiency as the tool for allocation?

JW: It does feel like it, doesn’t it? Across ideological spectrums there’s a pessimism surrounding the idea that market mechanisms can solve major global problems. Take the CHIPS act. Most people would say that the current structure, where you have some R&D centers in the US and most advanced semiconductor manufacturing elsewhere, is not great and carries risks.

Then with commodities themselves: as Thea mentioned, there are national security concerns surrounding the purchase of the cheapest commodities. And boom-bust cycles are corrosive; there are real long term costs for having entities get washed out and producing unpredictable markets. In retrospect, it would have been nice to have the SPR as a stabilizing force when oil was negative $40, or zero, or maybe$20.

Many people are discovering that the slow growth period of the 2010s was extremely costly. I mentioned the decline of lumber mills. Or the scarring of housing producers that still remember 2007 and 2008. Even fifteen years later, we’ve never gotten back to that old equilibrium of high housing production.

Regardless of ideological priorities, these cycles have made people pessimistic towards market solutions and more optimistic about the public sector playing a positive role in accelerating industry.

KM: An audience question for Thea: we focus a lot on scarcity and the security of supply for critical minerals. Are there any possible substitutes?

And for Tim: do Global South countries actually have the fiscal capacity to underwrite the downside risk of sharp falls in export commodity prices? If not, is the OPEC cartel model better?

TR: There are substitution possibilities, but not for lithium. Battery chemistries get pretty ornate, and you can swap different elements in and out. Those generate trade offs around power density, energy, density range, and so on. But lithium cannot get substituted for the time being.

There is also a huge sunk cost issue here. The auto industry is a multi-trillion dollar industry, and it is pouring huge amounts of money into one technology (minus Toyota who are still betting on hydrogen). Hydrogen is a useful technology for other applications, but for passenger vehicles and mass transit, we’re gonna have a lithium battery story. I am in favor of substituting elements which can be substituted, especially using recycled feedstock in place of new mining. But you cannot get rid of lithium.

We want to imagine a magic substance that has no environmental harm, no geopolitical risk, is abundant and cheap. But that kind of technofix is not real; raw materials are the substrate for all of this production, and they carry environmental harm and geopolitical risks.

One issue I’d like to throw into the mix is demand. Take lithium as an example: Lithium is experiencing a crazy supply crunch right now. The numbers are from the top forecaster—Benchmark mineral intelligence—There are forty or so lithium mines that exist globally, including the small ones. By 2035, we will need almost double that in new mines (seventy-nine total) to serve projected EV demand. Even if we recycle a lot, we will need fifty-four new mines. This is a huge factor of growth. As Joe has discussed on Odd Lots, mines take a decade to come online. So, if we need seventy-nine new mines by 2035, they should have started yesterday.

We also know that protests are on the rise, often for good reason. That makes the opening of new mines riskier. So this intense supply crunch will affect the price of EVs and subsidies will have to increase to cover that for ordinary consumers. The supply crunch generates a series of downstream and knock-on implications.

We’ve been talking about different ways to manage this “stuff” crisis: Skanda is talking about reserves and smoothing volatilities. If Isabella Weber were here, she’d be talking about price controls. Joe has talked about how we incentivize the production of more stuff. I’d like us to also think about how we use what we have; how we channel things to priority purposes, but also how we think about reducing some forms of demand. Affluent people don’t need an Electric Hummer. It is a terrible use of lithium. Can we make that illegal? I would support that law, and I can imagine a populist coalition around it—think of the War Production Board, the Atomic Energy Commission, the Texas Railroad Commission. These are all agencies at the state and federal level that regulated, and often constrained, the use of raw materials in the past. So there’s precedent, in addition to price control and supply provision, for shaping demand.

KM: Yes! There just hasn’t been enough attention on demand side measures for stuff. From what I’ve seen of transition mineral projection scenarios, there are critical assumptions about how much is actually used and how much is recycled. Does anyone else have thoughts on that?

TS: There are indeed many things you can do. We can invest in them, but we could also just ban certain types of activities. Thea’s absolutely right that during war there are scarce materials, and states have to choose whether rubber will go to tanks or car tyres. Those are decisions that get made in extreme rationing scenarios.

Taxes are also climate politics. Taxes are a great technology to cut climate emissions. In general, fiscal policy is a good way to encourage certain types of activities and consumption. If you could have an infinity tax on your fifth home, that would reduce the amount of emissions that might be coming out from your fifth home. You can imagine graduated taxes on private jets. Or a tiered tax on long distance flying, where you have to pay higher carbon taxes after two flights a year.

That is an underused area of fiscal policy, and for obvious reasons: rich people control the levers of political power, and therefore can fight back against taxes. That was the message of the yellow vest protests in France—why should lower and middle income people pay taxes on heating oil and fuel to commute to work, while private jets are exempt.

As for the question on fiscal capacity: there’s a reason why Isabella is unable to join us today. It’s because she’s designing a €200 billion program for the German government to subsidize and cap the prices of what people and companies are paying for the energy bills. That €200 billion number is 5 percent of Germany’s GDP. Did Germany spend that during the 2008 financial crisis? No. Were Greece, Italy, Spain and Portugal allowed to spend 5 percent in fiscal stimulus to get through their massive unemployment and homelessness crises? No.

The state has been remade during the Covid-19 and energy crisis: what the state is allowed to intervene in, and at what level and scale it is intervening. The British Government tried something very similar with the £150 billion price cap proposal. That’s also an enormous 6–7 percent of British GDP. It’s not clear if any developing country has the ability to finance that kind of spending with debt—India is not going to go to the bond market and borrow 5 percent of its GDP for solar panels, batteries, and bill subsidies. They would face severe punishment by the bond markets if they tried that. So there’s an unevenness of what countries are able to do, what they’re capable of doing, and which tools they’re reaching for. And which set of tools they say “Nope, we’re not going to touch that.”

JW: I am an unbiased mainstream media journalist, so I don’t take views on what the right policy should be. But I am frequently bewildered by how much appetite there was for austerity and demand management in 2010. Greece and Portugal were absolutely not given the green light for fiscal flexibility, even with double digit unemployment across those countries. Now we barely touch the idea of anyone, anywhere, conserving consumption. Whether for the rich, or for everyone else, it is completely off the table.

KM: I wonder to what extent it was the Rogoff and Reinhart narrative and its undoing after Olivier Blanchard came out against austerity in 2014–2015. Maybe it was also about how bad things became in Greece. Izabella Kaminska, my old colleague from FT Alphaville, had years ago suggested taxes on private jets. It would have seemed like a ludicrous climate person policy, but these measures are not unpopular among many domestic political constituencies. In climate policy, pricing carbon is seen as a solve-everything-policy when there are so many specific ways of targeting consumption.

TS: Joe, you’ve followed so many commodities and sectors on your podcast. Is there something new on the horizon? What is the new oil and new semiconductors?

JW: I do think the “Whack-a-Mole” is going to be nonstop. I was down in Texas last week, and I was talking to a farmer. Due to the drought, hay prices are surging again, and the hay price surge means that people can’t afford to carry their cattle for as long, so more people are taking their cattle to the slaughterhouses at a younger age. That has some dampening effect on meat prices, but it also means there are going to be fewer cattle being bred. That will mean fewer cattle born a year from now. Weather impacts are a huge part of new shortages.

We have been talking about these big macro things. But all of these drought and climate effects are pretty significant. That’s not going away. But that also just seems to be human history, right? You probably could go back 1000 years and find these recurring cycles. In 2018 we thought that oil and coal were really cheap, and the energy transition was happening. Then reality smacks everyone in the face again. I suspect that it’s going to be the decade of getting smacked in the face a lot.

KM: If you look at the energy transition, it’s really hard not to conclude that we are inexorably going in a direction of a less stable, less benign climate. But there’s something in the fact that climate impacts are diffuse and distributed. Certain communities are adversely affected at one time, and then others at another time, but it’s not all synchronized or uniform. That makes it harder to create momentum around resilience and preparedness or even for cutting emissions to avoid these impacts.

By contrast, the geopolitical realignment with the pandemic and war was so big and impossible to look away from that it managed to change the discourse. And it quickly changed ideas about what is possible. Skanda, Thea, what are things that tend to galvanize new thinking and behaviors?

SA: We’ve already discussed a couple of big breaks in terms of how the conventional wisdom has shifted. Even the playbook on industrial and trade policy that the US has been pushing onto developing countries for decades is out the window. Now, that is hypocrisy in one sense, as Thea pointed out. And it’s a shift in the conventional wisdom within the Republican and Democratic Parties.

Taking Trump as an example on the right, and Biden on the left, there is more room for policy experimentation. It is going to be interesting to see whether the shift leads to more collaboration with developing countries. In the end, there is a lot of interconnectedness that’s not going to go away. We’ve crossed a certain Rubicon there.

Likewise, in Europe, we’ve seen a new way of thinking. Germany is no longer talking about fiscal constraints. Fiscal constraints in the European context were a fiction. Now they have real constraints in energy. And that is a real problem. So when the real constraints come up, no one wants to talk about demand management.

We actually should think about smart ways to reduce consumption, however politically unattractive it may be. There is a real shortage of things that are really important, and yet, there’s not the same kind of attention paid to that. Experimentation will require thinking about a durable coalition in civil society which would be able to reshape institutions to deal with things. Experimentation can be good and bad, right? It can lead to a lot of failed ideas. But there is an upside if you get policy right. So I have some embedded optimism.

TR: Something has definitely shifted in the US policy conversation. Of course, we would like to see more discussion around industrial policy. It is an umbrella term—is a tax break for a company an industrial policy? The term doesn’t mean much without a plan attached to it. We can think about forms of public or social ownership playing a role, with the public sector demanding compensation for undertaking risk. Demand management tools are another missing piece.

I am pretty skeptical about bipartisan alignment—it has happened around terrible things like war, and austerity, so it’s not always a good thing. It would be interesting to debate the goals of industrial policy, sector by sector—what are the Democrats proposing that is different to the Republicans? And how do the left and centrist factions of the Democratic Party differ?

We’re at a very nascent stage of this in the US. Other countries have had much more interesting vibrant debates around industrial policy. The conversation shift on its own is not enough, we should start to distinguish political positions, winners and losers, coalitions behind each policy and get more granular in our discussion.

Ts: No one really has the answers to these questions—there are too many things moving at the same time. The phrase that Skanda used, “policy experimentation,” literally means we don’t know what to do. We’re trying to figure it out as we go along, and that is why you see one flip-flop after the other: we are going to ban this! And then we’re going to export it! There’s just a lot of flux right now.

Our reason for launching this project is simply so that we can get together and learn from each other about what the concrete issues are and who are the people blocking developments. This is all location-dependent. What the US can and cannot do is a function of the balance of power in Congress. What Europe can and cannot do is a function of what France, Germany, UK, Italy and the big countries in Europe can agree upon doing. What India or Bangladesh can or cannot do is a function of how many dollars they have, and how much fiscal space they have to try out new things.

So we need to get different people with different skill sets and expertise, talking to each other, learning from each other, and writing and explaining things to each other.

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##### The Wall Street Consensus at COP26

November 18, 2022

Analysis

## Collective Action and Climate Finance

Can the COP move markets?

At UN climate summits, the items that appear on the agenda are usually those that advocates have fought hard to include. This year’s COP27 meeting in Egypt is no exception. Years of effort have culminated in getting loss and damage—finance…

November 9, 2022

Analysis

## A New Non-Alignment

How developing countries are flouting Western Sanctions and playing the great powers off each other

This essay first appeared in GREEN, a journal from Groupe d’études géopolitiques. In March of this year, as Russia’s war in Ukraine intensified, China’s Foreign Minister Wang Yi made a trip to New Delhi to speak with his Indian counterpart…

### Uneven Channels

This year’s Conference of the Parties (COP), opening October 31, is hosted by the United Kingdom, whose agenda-setting privilege as host has made private finance a central focus of the…

### Investment and Decarbonization: Rating Green Finance

The Biden administration has committed the United States to cutting its carbon emissions in half by 2030 and achieving net zero emissions by 2050.