COP21 & transparency: the page just got a whole lot bigger

What does the climate change deal signed in Paris mean for transparency in extractive industries? In the short term, relatively little. In the medium to long term however it could change everything: which natural resources are subject to transparency, how far public policy will intervene in the market, and whether we moved to a more holistic paradigm of natural resource management.

The direct crossovers between the transparency agenda and COP21 are tenuous at the moment.

There is some language in the agreement about transparency as it relates to carbon accounting and the huge fund agreed that the rich world will pay to developing countries to help them adapt to climate change. The agreement also talks openly of scaling up renewable energy in Africa, which should, logically, influence the development of new oil and gas projects on the continent.

Still. None of that translates into any change of workflow in the next few weeks or months. Dodd-Frank, the new EITI standard, and the broader agendas of contract transparency, tax justice, and anti-corruption will go forward without direct intersection with the COP21 agreement. For the moment.

In the end, all the effort we as a community put into transparency and good governance around natural resources is because of the potential of these resources to improve people’s lives. Clare Short, the outgoing chair of EITI, emphasises this in every speech she makes, and “extractives for development” is the watchword of many institutions and programs in development agencies.

But COP21 now enshrines at the level of global policy what we already knew. Production of some natural resources – oil gas and coal – has deep costs that have so far remained unaccounted for. Full-cost benefit analysis must include the alternative costs of choosing to develop hydrocarbons. The conventional approach to financial modeling of upstream projects, for example, doesn’t include calculating an internal rate of return for governments and peoples because they haven’t invested any financial capital. But in development terms, finance is only one kind of capital, and often not the most important kind to countries thinking about extractives projects as a key part of their overall economic development. Environmental, social, and above all human capital are more plentiful, more viable and more central to many societies well-being.

It’s true that we don’t currently have methodologically robust indicators for these kinds of capital. What COP21 tells us is that that answer won’t be good enough for very long.

I often think of transparency as drawing by numbers. You try to get the biggest and best number of points on the page you can and figure out which lines to draw in what order to build a picture that makes sense. With the climate change agreement, it’s as though someone just zoomed out and panned to show a full drawing which is much, much bigger. There are other clusters of dots on the page half a table away. There are huge white spaces in between, and right now we have very little idea of how to connect them up. But in the end we know we will have to if we do want natural resources, in Clare’s words, to improve people’s lives.

If you hold that image in your head, a lot of arguments about how COP21 and extractives transparency are two different things seem narrowly technical, and too short term.

For instance, the argument that if COP21 is global and extractive transparency is national, how are they linked?

I think the answer lies in the very structure of the agreement. Many long-time followers of the process say it succeeded this time, when it failed so many times before, because nation states set their own targets and defined the way they will fulfill them. There is no overarching global regulatory framework. But that’s not the same thing at all as saying each country will work on its own commitments in isolation from all its trading partners, neighbors, and other international groupings. It will just be bottom up instead of top down.

We should expect to see the EC, United Nations mechanisms, the WTO, global markets, and the whole international development agenda bent to complex trade-offs  between groups of countries: around which hydrocarbons get produced, with what financial and other development benefits, and above all how we as a global community manage the tension between the short-term reality that we continue to depend on fossil fuels for our way of life, and the fact that we have agreed that we have to act as a global community to end that. A governance agenda that cannot embrace these broader, and messier, set of considerations will become irrelevant.

And it is COP21’s structure of devolved targets and implementation which places data, and analysis of that data, front and central in what is now a global agenda. Last Saturday, transparency stopped being a set of universal values applied, Westphalian style, country-by-country. Its whole is now more than the sum of its parts.

So yes, nothing much is going to change before the winter break. But in the long term everything will change.

And how far away is that long term?

Hype is a valid concept especially in today’s world. We all slog through it  pretty much every time we open our laptops. On the other hand Amara’s law has proved consistently true since the start of the Industrial Age: as human beings we have a systematic bias to overestimate the impact of change in the short term – and underestimate it in the long term.

So it’s not as though we in the transparency world should drop everything we’re doing now. But it would be a mistake to ignore COP21 in our professional lives, and not to start thinking about what it means. Because the whole is now more than the sum of the parts.

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