Prologue

Brazil's participation in the United Nations Conference on Environment and Development (UNCED, sometimes called the Earth Summit or Rio '92) began in 1988. Then-President Sarney responded to the outcry in the international press on the “burning of the Amazonia forest” by offering to host the Earth Summit. Until then, global environmental concerns had been absent from discussions in Brazil. Typically, the reports appearing in the international press of events occurring in the Amazonia were most often regarded in Brazil as attempts to interfere with national sovereignty.

Moreover, the environmental movement was not very strong in Brazil at this time. Urgent, more immediate problems—such as the very serious water and air pollution problems in the cities—were consuming the attention of the fledgling environmental movement. Their focus was on such cities as Cubatao, near the Port of Santos, which became popularly known as the “valley of death.”

It was the Montreal Protocol on Substances that Deplete the Ozone Layer that first raised awareness of global environmental problems in Brazil. Political leaders and private citizens began to recognize that serious global problems existed and that events taking place inside national borders could influence the climate in other countries.

Prologue

Few issues have acquired priority in the international agenda in as short a time as global warming. Up to the early 1970s many scientists believed that the Earth might be moving towards a new ice age and that increasing levels of emissions of greenhouse gases (GHGs) from human activities would not alter this course and might even be helpful in slowing down this movement. It was only towards the close of the decade that scientific opinion tentatively endorsed the view that on average global temperatures might be rising. The first World Climate Conference, organized by the World Meteorological Organization (WMO) in Geneva in 1979, cautiously concluded that:

Despite continuing uncertainties in many of its aspects, this hypothesis made rapid headway in scientific circles in the 1980s. Workshops held in Villach (Austria) in October 1985 and in October 1987, and in Bellagio (Italy) in November 1987 gave impetus to this development.

The negotiations of the United Nations Framework Convention on Climate Change involved a long and dramatic process. Many players took the stage by turn, but none appeared in all the scenes nor dominated the action throughout. There were many heroes and few villains.

By examining the action in this drama through the lenses of more than a dozen witnesses, we have learned how different the perceptions of a shared event can be. Drawn from their personal recollections in late 1992 and 1993, each reconstruction of the events stands on its own for the reader to judge. Each participant sees the action in terms of how it affects the interests and institutions that he or she knows best. Each vision of the events is colored by the background and experience of the observer, which filters out some elements of the picture that may be readily seen by others. Studying this process can be instructive for future international negotiations.

Nearly all observers agree on certain factors that led to the success of the climate negotiations. We begin this chapter with an overview of some of those areas of agreement, then highlight a number of unresolved issues that must be addressed in the second phase of the climate negotiations. Based on the recollections presented in this volume, the third section of this chapter summarizes a set of proposals for shaping the structure of the next phase of negotiations.

The Framework Convention on Climate Change probably qualifies as the first global “sustainable development convention.” It integrates the basic human quests for economic security and for a safe and healthy environment. In this chapter we hope to do four things. First, we want to review how the nature of the climate change problem, and of its solutions, influenced the negotiations and resulted in a “sustainable development convention.” Second, the chapter will discuss how the process evolved over time—from science to negotiations to agreement—and attempt to draw some lessons from this experience. Third, we will review why we think the Convention's mechanisms and processes are significant. Fourth, and finally, we would like to highlight the importance of a “prompt start” to follow-up on the negotiations. We emphasize that the views expressed here are our personal views and are not to be considered as the positions of either the United Nations Environment Programme or the Government of Canada.

Climate change is a particularly challenging policy question. It is, first of all, a policy problem of unprecedented scope and complexity. The enhanced greenhouse effect is the unanticipated result of industrialization, land use and technological changes, modern lifestyles and our dependence on energy. In fact, someone has described it as the result of normal, not aberrant, behaviour. There is no particular villain, for we are all responsible.

Prologue

The framework convention on climate change was signed by 154 countries at the Earth Summit in Rio de Janeiro in June 1992. It represents—simultaneously—a success for United States diplomacy, a long-standing tension in American foreign policy, and a failure of presidential leadership.

There is little question that the climate change issue presents a difficult foreign policy challenge to the United States. The US is in the unenviable position of being at the same time the world's largest emitter of carbon dioxide and other greenhouse gases, the recognized leader of the international system, and the home of the world's most influential environmental organizations. The US therefore has no place to hide from the climate change issue at home or abroad and is universally perceived as both the largest part of the problem and the largest part of the solution. As much as President Bush and his closest associates may have wished for this issue simply to go away, it has refused to do so. In these circumstances, it is perhaps surprising that the final agreement signed in Rio is as well-designed and as forward-looking as it is.

Prologue

The twenty-fold increase in world industrial activity since the start of this century has had many negative repercussions for the environment. Pollutants emitted from these activities have seriously altered long-standing balances in the chemical composition of the Earth's atmosphere. During the 1980s, the annual increase in world industrial output was approximately equivalent to the total industrial production of Europe during the 1930s. Annual emissions of carbon dioxide in 1992 are estimated to be more than 20 billion tonnes, a figure that is expected to double before the year 2030. The effects of these steadily increasing emissions are reflected in today's elevated atmospheric concentrations of CO2 and other greenhouse gases. The concentrations of several greenhouse gases will remain high for decades. This is particularly true for carbon dioxide, which has a residence time in the atmosphere of up to 200 years.

Moreover, while mankind has succeeded in considerably increasing the sources of greenhouse gas emissions, we have at the same time significantly reduced the natural sinks (i.e., biological reservoirs that store carbon), especially through the processes leading to deforestation and desertification. More than one-third of the earth's original forest cover has already been lost due to the frenzied pace of deforestation. The global rate of forest loss today exceeds 17 million hectares per year. In some regions, twenty-nine trees are cut for each one that is planted.

Prologue

The negotiations of the Framework Convention on Climate Change dealt with very complex issues. The potentially profound worldwide impacts of any measure to reduce greenhouse gas emissions made these negotiations qualitatively more difficult than the negotiations that led to the 1987 Montreal Protocol on Substances that Deplete the Ozone Layer.

Business participation in the climate negotiations, and in international negotiations within the UN system in general, is a very new phenomenon. Traditionally, business has not taken part in such negotiations, nor has it particularly pressed to be included. To an “outsider” from the business community, the whole UN system has appeared to be a rather ponderous political machine that inches slowly along and accomplishes relatively little. Consequently, many business leaders have concluded in the past that an attitude of “benign neglect” for the whole process is most appropriate.

This attitude appears to be changing, albeit slowly. The UN Conference on Environment and Development (UNCED, also called The Earth Summit or Rio '92) and the preparatory process leading up to it provided new opportunities for business leaders to participate in a critically important international debate. Maurice Strong, Under-Secretary General of the UN and chairman of the Earth Summit, and others worked hard to open up the process, engaging as many non-governmental organizations (NGOs) and others as possible. Strong made a special effort to include representatives of business and industry.

One consequence of the cumulative Opec takeover in the 1970s was to extend state ownership to about 85 per cent of world oil-producing capacity. The member countries’ nationalisations altered the ownership of about 50 per cent; other state-owned companies in the market economies rose to about 10 per cent of the total; and production in the then Communist countries, which had been only about 17 per cent of world output in 1970 but was rising much faster, reached nearly a quarter of the total by 1979. In 1989, even outside the Soviet Union, the proportion of state ownership was close on 60 per cent. Much of the 40 per cent of world capacity of which private owners retain sole or partial ownership is in North America.

That is capacity. The ensuing shares of actual production were somewhat different. Most of the extra capacity developed since the Opec nationalisations has been by private companies. Nearly all the capacity producing private ‘equity crude’, ever since, has been fully employed. During the early 1980s some of the state-owned capacity, notably in the Soviet Union, China and Mexico, was fairly fully employed too. But by 1985 the rest, essentially in Opec, was not much more than half-employed. By the end of that decade, recovery in world demand, setbacks in some non-Opec supply, had brought Opec production back to some 85 per cent of capacity, even before the Gulf war. That was mainly due to higher output in member countries. But it was also partly due to sizeable downward revisions in Opec capacity, mainly in the Gulf, and after 1990–1 the removal of Kuwaiti and Iraqi supplies from the market.

In the early seventies, when development of the first few oilfields discovered in the North Sea had only recently begun, one was sometimes asked by friends in Middle East governments whether its production would need to be subsidised.

It was a fair question. Oil produced close to the heart of the world's largest oil-importing region would obviously enjoy a very large transport advantage over crudes usually moving some 11,000 miles around the Cape to reach north-west Europe; and at that time transport costs were representing close on a third of the landed price of Middle East crude. But against that, ‘frontier exploration’ in the North Sea and the development planned to exploit commercial discoveries had to be conducted almost beyond the limits of existing offshore technology. Every company was on a learning curve. From the Gulf, producing with operating costs of a few cents a barrel and able to add capacity for about $100–150/db of extra production, it was hard to believe such operations could be commercially worth while.

At the time a barrel of Gulf crude was being landed in Western Europe at a price of about $2.50 a barrel (after taxes and royalties of about $1.35). The largest and first British field to be developed, BP's Forties, was due to come into production by mid–1975.

It is hard to think of any business that is more international than oil. Yet in one sense, for a decade, its operations have been less international than they had been for many years, since long before the slowdown in growth began. Throughout the eighties, less than half of the oil that the world used was supplied through interregional trade. That had not happened since the early sixties. Very few people close to this business had expected this situation ever to recur. In 1973, 60 per cent of world oil consumption had moved in trade between regions. In 1990, even after the belated upturn, that trade was still less than 49 per cent of consumption (Figure 2.1). Counting in intra-trade within regions, oil movement across national frontiers probably did still supply nearly 60 per cent of world consumption at the end of the eighties. But in 1973, by that same measure, it had been as high as 84 per cent (Table 2.1).

Indeed, international trade was what slowed down most in the oil business after the early seventies. It stopped growing earlier than world production or consumption; it fell much more sharply in the early eighties; and up to the early nineties it had still not fully recovered. From 1979 to the mid-eighties, world oil consumption dropped 10 per cent and production 14 per cent. By the measure most widely used in this business – the volume of oil movement between the main regions of the world – the decline in trade between 1979 and 1985 was nearly a third.

In between the instant decisions of traders in futures markets and the long-term prognoses of geologists about ultimate oil supply, managers within the oil industry are concerned mainly with the medium run – the rest of this century, and a decade or so into the next. When looking that far forward, they are never short of learned advice.

In June 1991, an International Energy Workshop held in Vienna brought together a poll of projections regarding prospects for oil and energy in general as far as the first or second decade of next century, made by sixty governmental, business and academic organisations across the world. This was the tenth time since 1981 that similar informal workshops had compiled such samplings of what the world's oil analysts were predicting. Over a decade of surprises, their sequence of results has provided a barometric record of changing climates of opinion within or close to this business. The IEW polls have often included the two intergovernmental organisations most directly concerned with the international oil trade. In 1991 Opec did take part. IEA, as it happened, had not done so since 1988, but published its own fully detailed projections in April 1991.

The Vienna workshop of 1991 did not produce any broad consensus of oil projections for the nineties. That might perhaps be taken as fortunate for everyone concerned. As Professor Edith Penrose once put it, ‘Never…has an oil industry consensus turned out to be correct.’ For that matter, the ten-year record from earlier workshops had seldom produced anything that could really be called a consensus.

During the Opec decade, Saudi Arabia was always reluctant to admit playing the role in which outside analysts, some of its fellow member governments, and indeed the forces of market circumstance tended repeatedly to cast it. It almost always denied acting as a swing supplier to support Opec price levels. But it never took really decisive action to reject that role until it experimented with ‘netback pricing’ in 1985–6. That experiment, perhaps as much a matter of exasperation verging on fury as of fully calculated risk, effectively punctured the then inflated pretences of Opec ‘price administration’, as well as collapsing world price levels for crude. Even so, it was mainly a gesture of accommodation to changes in the oil market that were already irresistibly in train.

At a stroke, the Kingdom's oil decision-makers pulled the carpet from under the official price system for the whole of Opec. That had been founded upon the price level agreed at any time for the ‘marker crude’, Arabian Light or some surrogate for it. Prices for all other Opec crudes had been related, in theory at least, to the price of this marker by ‘differentials’ in their refining values and transport costs to key markets. (Arguments about keeping these differentials up to date went on interminably. But lip-service to the principle was there.) In July 1986, Saudi Arabia simply abolished any fixed price level for that marker crude at the time it was loaded.

In Chapter 2, present estimates of proved reserves, and their relevance to current production, were briefly discussed. Looking farther ahead, the whole concept of oil resources and reserves needs widening out. The US Geological Survey, since 1980, has defined:

The nomenclature is constantly being amended by the cognoscenti to refine its precision (although not always its clarity to laymen).

There is no scarcity of fossil fuels in the earth. Oil is not the most abundant of them: accumulations of coal are three to four times as large in energy content, and reserves of gas are probably comparable with those of oil. The oil produced today has simply been for half a century, and remains, the most readily accessible of these fossil fuels.

Earth scientists can reach professionally informed conjectures as to the amounts of oil, gas and coal that may exist ‘in place’ within certain geological strata under the earth's surface.

During and after the Suez affair in 1956, as an economic journalist, I became interested in the international oil business, and in 1962 I wrote a book about oil companies and governments. In the late 1980s, Richard Eden asked me to do the same again for Cambridge Studies in Energy and the Environment. This book is the result. The first one looked at ‘the kaleidoscopic international circumstances of an industry in course of change’. Those circumstances have been transformed, though not out of recognition. They remain no less kaleidoscopic.

In the thirty years between, moving out of journalism, I have had reason to study the business more closely, as a consultant on many facets of oil companies’ relations with governments of all kinds, advising one side or the other. That career drew me more deeply into some of the relationships involved. But one's role as a consultant continued to be outside the oil industry looking in, as distinct from the practical experience within it of company and government oilmen, many of whom became friends. So my judgement of this business has remained detached, for whatever that is worth.

Rather to my surprise, initially, closer contact with the industry did not bring me much more ‘inside’ information than a journalist could readily obtain; simply, more time to watch what went on. (This is a business remarkably well served by an expert daily and periodical press, upon which everyone in it depends.) The occasional confidences of clients remain outside the scope of this book. But those too, I hope, contributed to such understanding as I gained of what we all saw.