World Bank finally moves on from coal

World Bank Coal power stations will be a thing of the past

The World Bank's recent bold decision to stop funding development projects of coal fired power stations has been welcomed by most.  Since President Jim Yong Kim's took the helm, environmental policy has become a key issue for the World Bank. He has commissioned several reports into the dangers of rising temperatures and the impact reaching the critical four degrees celsius mark would have on the poor. While it is now official policy of the World Bank not to fund the construction of any more coal power stations, there is an exception. In circumstances where there is no alternative to coal, a coal power station may be built. The success of this policy will be shown by how many 'exceptions' are granted.

The World Banks movement to become more environmentally friendly in its development projects has been slow. In the past five years the World Bank has spent over $5 billion in coal power stations alone. Though within that same five years, it has doubled financial support to the renewable energy sector. Despite it long being known that coal is the worst form of electricity production for the environment, the World Bank has continued to use it. It has been slow to implement environmentally friendly policies due to the US's historic position of denying the existence of climate change. Though times are changing and there is a big cultural shift within the World Bank to be more conscious about the environment. The last coal fired power station to be built by the World Bank was in South Africa in 2010. There is one in development in Kosovo at the moment, though at the rate they are being constructed, it's not overwhelming. This official policy shift should cement the direction the World Bank is taking, and should hopefully also influence other World Bank development projects to be more carbon conscious.

As always, there have been critics of this policy. It has been argued by Aid Watch that a ban on coal fired power stations will lead to more damning and hydro electricity production. It is important when hydroelectric dams are built that the environment (and people living) downstream are considered. Many livelihoods depend on the flowing of rivers and the produce that comes from them. Yet as with any development project, there are always some costs. Some land and resources must be used in return for development. The World Bank has been keen to promote decentralised electricity production through solar panels and small wind farms. This allows for electricity to reach rural populations and doesn't require large facilities and cable networks. This off grid renewable energy appears to be the best option for supplying electricity to poor households in developing nations, while not causing severe disruption to the environment. 835 people die a year in Kosovo because of exposure to coal pollution, so it too is not a safer alternative to hydro electricity. The future for World Bank electrification projects looks to be in decentralised, local renewable technologies. Let's hope they stick to it!


Sources: 
World Bank to stop funding coal-fired power stations in developing countries - ABC Online
Can Jim Yong Kim end World Bank backing for coal-fired power? - The Guardian

The Congo's poverty will not end with mining

Gold miners pass mud along a human chain in an open pit mine
North-eastern Congo. (REUTERS/Finbarr O'Reilly)

The Congo is one of the most impoverished nations in Africa, with more than 70% of its population living below the poverty line.  Yet this troubled nation sits on more than $24 trillion worth of minerals. Such mineral worth is greater than the annual economic output of both the US and entire European area combined. But accessing and distributing such wealth has not only been unsuccessful in reducing poverty within the Congo, but it has directly attributed to increased violence with militia rebel groups, slavery and social instability.

President Joseph Kabila, who is seeking re-election in the coming months, has had a change of heart and is now seeking to tap into the Congo's troubled mines to bring economic prosperity to all if its people. In the past, foreign firms have been wary of investing in Congolese mines because of its bad reputation for human rights abuse, but also because of the instability of the country which regularly dips into localised, violent civil war. There is a critical need for foreign investment to reinvigorate the Congolese mineral sector and ensure efficient production. Local companies don't have the expertise, technology or skills to excavate minerals on a scale that rakes in exuberant profits. Though in neighbouring nations where this foreign direct investment does occur, typically, these profits mostly go back to the foreign companies, not the country itself. However in the Congo, where localised mining in the east is increasing, it is often decentralised and unaccountable to government officials, which causes other significant problems.

The history of civil war and militia violence that has plagued many African nations, including the Congo, means that local development of industry is hampered by systemic corruption. It is estimated that 98% of the mines operating in the east of the Congo is controlled, or have strong ties to militia groups. Because of this, local militia groups tax those who work within the mines, restrict which ethnic groups the profits go to, but most often just funnel the profits into munitions and war campaigns. Sadly, due to government ineptitude and corruption, whatever control government agencies do get over these mines leads to very similar outcomes.

What is most shocking about Congolese mining though is the way in which its operations seem only to be entrenching the poverty cycle. As most Congolese citizens live below the poverty line and have an income of less than $2 a day, or live on subsistent farms and have no income at all, the existence of mines should have very little affect upon them. However, as mines pay money, the notion of working in a mine for cash can become an attractive option for at least one member of a family. Such money, if received, can be used for buying more farm equipment, or much needed medicine. Though when most mines only pay their workers between 50c and $1 a day, the likelihood of them becoming indebted to the mine for other costs incurred (such as food, shelter or 'protection') leaves them in a position of virtual slavery. And as militia groups are the ones who benefit most from the mines, their campaigns of looting and disrupting local villages drives more people off farms and into mines, creating a vicious cycle of poverty and slavery.

As violence around mines becomes worse, and the profits from these minerals fund new conflicts, the international communities (though mainly the US') response through the 2010 Dodd-Frank banking act to restrict the importation of 'conflict minerals' has only plunged more citizens into poverty. For some mining operations, output has slowed by more than 95% as the only way to export these minerals is to do so illegally; which in and of itself results in less profits going to the impoverished workers, and less no security for working standards. The intentions of such a policy is commendable, as it attempts to stop multinational corporations purchasing cheap minerals which cause conflict within a post colonial nation. Yet the ban and reduction in purchasing of these minerals is already hurting tens of thousands of Congolese citizens who have moved to a life in the mines.

Even in a perfect world, whereby local governments weren't corrupt, where there are no militias and all the profits went back to the people; a mining boom in the Congo would still hurt many citizens. When a country finds a new export that brings in unprecedented financial capital from overseas markets, it drives more people to move into that industry because it is highly profitable. The consequence of this occurring rapidly is called the "Dutch disease". Simply put, the exportation of this new wonder good drastically increases the price of the dollar. This kills off any other industries which export goods, (such as textiles in the Congo) because international buyers can no longer afford the good due to the inflated dollar. It also rapidly increases the amount of imports into that nation. Because of the high dollar, it becomes cheaper to buy goods from overseas (such as food) than at the local market, which then kills off domestic industries. Then if at any point the export market crashes, such as if there is another global recession or minerals are found cheaper elsewhere, an economy that has completely re-geared itself for one industry is left with nothing to produce for domestic consumption or export. This effectively kills the economy, and damages it for decades to come. Though if magically, because of better governance and more responsible foreign investment, the mining sector in the Congo could be revolutionised, the Dutch disease would only hit the east of the Congo were most of the mining occurs.

The sad fact being is that we don't live in a perfect world. So there is little chance that the "Dutch disease" will reach the Congolese economy at all. Instead, the continuation of corrupt and militia driven mining will still occur, even while an international ban is in place. Though even if removed, it would cause just as much harm by increasing militias' ability to buy arms. It appears as though there is no solution to this most unfortunate circumstance. While it is depressing to end a post on such a dreary note, many economists, international institutions and trade experts advocate for varied solutions to help end poverty and instability in Africa (with varied and questionable degrees of success). What is clear though, is that mining in the Congo is not one of them.




Links:
Congo rape victims face slavery in gold and mineral mines - Guardian.co.uk
Digging for victory - The Economist
Still smuggling - The Economist
Mr Copper - The Economist

Levy turns flood reconstruction into political mess

Gillard and Bligh tour QLD flood areas
Image source: The Herald Sun

Despite a natural disaster that cost numerous lives, uprooted thousands of Queenslanders and left them homeless, and a reconstruction effort that will take years to complete, it is good to see politics in Canberra hasn't changed much. Both Liberal and Labor are squabbling at each other and all who will listen about how the other side isn't playing fair. Now they're turning to the popular kids - Oakshot and Windsor - to pick sides and tell the others they are wrong. For all the talk of a "mateship tax" and politicians keeping one eye on the "Lodge", the efficacy of the tax itself is being ignored. Instead, angry talk back listeners and radio hosts like Niel Mitchell are deciding on the validity of the tax, based on its popularity. No matter how the Gillard government plans to raise funds for the reconstruction effort, some people will be unhappy. But a longer term approach to disaster recovery funding is what really needs to be discussed.

The first step the government took to addressing the financial pitfall for the Queensland floods was winding back and cutting down on "Green investment" spending. While such actions were necessary, amongst some circles, it remains unpopular all the same. Julia Gillard herself may not believe (or want to acknowledge) that the floods of Queensland, NSW and Victoria can be attributed to climate change, but a reduction in "Green investment" won't make the flood waters rise. A lot of the Federal government's environmentally friendly initiatives have cost a lot, yet delivered little. The danger that exists in withdrawing funding from environment initiatives, is that the funds won't return. Once government coffers start filling up, new promises will be made in other areas, and the funds will go there.

The political debacle over recovery funding that has ensued, is paying little attention to the actual methods the Gillard government is doing to assist the recovery effort. Both Gillard and Abbott have done their fair share of hugging and 'meeting and greeting' flood victims in front of media packs. But it is the mentioning of the word 'tax' that is causing an even bigger stir amongst the opposition and tabloids. Reducing funds to existing schemes and delaying promises is one thing, but instituting a tax is laden with politically damaging connotations. Abbott was quick to put on the rhetoric about a tax not being about "mateship", but a cover up scheme for a government that is spending too much. Yet for all the spin and hot air, the tax itself is economically credible. The government must spend money on reconstructing Queensland's savaged infrastructure. As Queensland is a major industrial and mining hub of Australia, it makes economic sense to rebuild roads and rail that once were the economic lifelines of Australia during the GFC. Yet even principally, the Federal government should assist. As a Federation, each state assists others in times of need; it is the very essence of our federation. Otherwise we would be a cluster of 9 different independent States.

People may be outraged that they have already given to Queensland flood relief funds, yet that money only goes to helping people directly after the event (through relocation and clean up costs), not rebuilding roads, rail, hospitals and schools that have been washed away. Funds for the reconstruction need to come from somewhere, and raising revenue by adding a levy to income tax, at this point in time, appears to be the most economically sensible method. While NSW Premier Kristina Keneally claims that such a levy will put too much pressure on households and mortgages, this tax won't affect such pressure. By legislating such a tax, the RBA can clearly see funds exiting the market and slowing down the economy (because as people pay more tax, they spend less). Hence the RBA will defer increasing interest rates, because the Federal Government will be (inadvertently) correcting the economy cycle. At the end of the year, tax or no tax, families and households will be relatively the same. It is a question really of whom will be taking money out of your pay packet: the Government for rebuilding Queensland, or one of the big banks?

The political squabble and concern for people's hip pocket aside, one of the popular kids in the school that is the Australian parliament, has raised a valid point. Rob Oakshott believes that a national disaster reconstruction fund should be established. As natural disasters sporadically occur within each century, a more structured planned system in financing the recovery effort needs to be established. Every time a disaster occurs, whether it is a cyclone, flood or bushfire, the government's bottom line and spending promises are compromised in order to pay for the clean up and reconstruction. Gillard's flood levy may pull Queensland out of the mud this time, but it doesn't guarantee funds for any other disaster that could occur within the next few years. The real debate that should be occurring, is whether the flood levy should be transformed into an established "disaster fund" levy. That way, funds (or partial funds) will be on hand in times of National and State crisis. As politically dangerous taxes can be, Australia may continue to place itself in financial danger if it doesn't acknowledge and plan for future events like the Queensland floods.

Links: 
Flood levy does RBA's job - The Age (Business Day)
Flood levy to test Gillard's leadership - SMH
Levy flushes out a nation of heartless bastards - ABC 'The Drum'

Gillard faces battle for flood levy support - ABC Online

All bark but no bite - National Times

No excuse for floods tax: Abbott - The Australian

A very slow succession

It's been a long time coming, but it finally may be here. Kim Jong il appears to be stepping down and installing his youngest son, Kim Jong Un. For many years, King Jong Il's poor health and reckless nuclear ambitions have indicated such a transition was imminent; but nothing ever materialised. Though a couple of months ago, Chinese media sources reported the creation of a statue of Kim Jong Il. There are many statues of Kim Il Sung, Kim Jong Il's father and technically, still the ruler of North Korea. Though they were only erected after his death. This is because North Korean juche culture stipulates that statues of leaders can only be built and displayed after they've died. So either Kim Jong Il is shaking things up in the north, or he's finalising his affairs before steps down (or dies).

I've reported before on the future leader of North Korea, Kim Jong Un, but this time, his succession finally appears to be occurring. The health of Kim Jong Il has been like a roller coaster ride. One day he's reported to be seriously ill after a stroke, the next he is about to die of pancreatic cancer, and then a few months after never being seen, he meets up with Bill Clinton to negotiate the release of US journalists. Being the mysterious leader of one of the most secretive states in the world appears to be one of his greatest accomplishments. He's accredited with transforming the North into rogue nuclear state, however North Korea has no ability to project that power any further than South Korea. It's numerous nuclear tests and sinking of the Cheonan have angered it's closest and most powerful ally, China. Following North Korea's latest nuclear tests, which were in clear defiance of international law and UN condemnation, China cut the transmission line between it and Pyongyang. This resulted in around 80% of North Korea being plunged into darkness. China, usually the moderator between the western world and the North, actually took an active step to prevent North Korea from exercising its nuclear power, even at the possibility of creating social and political instability. China and the North have always had a love/hate relationship, but with a new leader soon to take charge, that relationship will be critical in ensuring a peaceful transition.

Aid being given to North Korea has been in a steady decline since 2005. Defying international law and acting like a recalcitrant cretin with nuclear ambitions does that. But with more famine and death being caused by natural disasters and consistent North Korean government neglect and mismanagement, more aid is being offered. Previous aid agreements, most notably between US president Bill Clinton and North Korea, saw the closure and abandonment of the North's nuclear reactors...for a while. It appears that any attempts by any international institution or government to quell the North's nuclear aims, has proven fruitless. Carrots don't tempt the North to do good, and the using the stick would result in war. Though there is one exception to this rule: China. It's China who not only keeps the North's few lights running, but it's entire economy as well. It's North Korea's largest trading partner, political ally and sympathiser. It's China who is either going to make or break this succession.

The main thing China wants is regional stability, hence it's warning to the North about playing too much with the nukes. So it's obviously going to accept Kim Jong Un's rule, just to prevent a regime collapse and 24 million refugees flooding across the boarder. But North Korea is still stubborn. It doesn't want China to micro manage all of its affairs, run its economy and plumb the land for all the resources it has got. Similarly, China sees the North as an inefficient, unstable state with an economy going nowhere. Under a new leader, I'll be China who gets the undivided attention of Chang Sung Taek (Kim Jong Un's uncle) and Kim Jong Un himself. This leadership change is the perfect time for China to capatilise on new trade relations; ones that encourage industry, more open markets, more free flowing of information. It's these small steps, that may help stabilise the North by making it less reliant on nuclear power to prop up its regime.

This hypothesis really does fall short thought when you look at it in the context of Iran. But then again, there's no super power "mother country" sitting next door to Iran, telling it what to do. North Korea is at its most politically unstable point in decades. Kim Jong Un isn't being paraded around as a national hero just yet. The pomp and grandeur being delayed is just a sign of ineffective and unstable government, let alone bad event management. So for all it may be worth, this very slow succession in North Korea could turn out to be an opportunity for China to make inroads into this recluse state, to the benefit of all.

Links:
Third Kim lucky? - The Economist
The unconference - The Economist

US watches 'leadership process' in North Korea - AFP

South Korea Offers Aid to North - Wall Street Journal

North Korea, in Secret, Moves Toward Anointing a New Kim - Time