Identifying the Global Dimension of the Systemic Nature of the Climate Change

Climate change is by nature an emblematic issue of the kind of challenge that could only be met at multilateral level, not only for being a global threat of national spillovers without multilateral power but for its deeper systemic character being exposed to the “tragedy of the commonsFootnote 1”. Although it is not the only problem to present simultaneously a global and a systemic feature, it is probably – except the case of a nuclear war – the most irreversible one since “we only have one Earth” (Dubos & Ward, 1972), giving to the CO2 the same status of “weapons of mass destruction” as nuclear bombs. The risks of catastrophic effects of global warming are the object of a resilient systemic denial that must be changed very urgently for preventing a catastrophic collapse of civilizations.

Global warming is essentially the result of human activity, and the phenomena – named only in 2000 the Anthropocene (Crutzen & Stoermer, 2000)Footnote 2 for getting catastrophic “geological proportions” – has been known for many decades, not in geological terms but as the very fact that many human-induced permanent changes to the Earth have been identified early by the oil producersFootnote 3 and the US administration.Footnote 4 In more recent years, it has become scientifically admitted that these changes are directly threatening humankind and even life on Earth.

Despite the convergence of indicators with indisputable results of many scientific observations, no effective measure has yet been taken, and the policymakers’ awareness is even lower than in 1989.Footnote 5 While the first important reaction emerged again only in 2015 with the multilateral agreement reached with the Paris Agreement, it has remained mainly on paper and discourses, with few coherent binding targets. Only the EU and the USA have recently enacted targets and tools, but the rest of the world is lagging behind or still disagrees. It is already clear now (in February 2023) that these commitments are definitively out of reach as no significant collective actions have been taken on time despite many discourses and commitments. Therefore, we are obliged to acknowledge a massive failure both of market, governance, and citizens. All actors seem to continue their collective denial refusing to see the unsustainability of the global economic system and the resulting collective suicide, even multilateral institutions (like IMF or European Commission) by showing that a net-zero emissions for 2050 could be easily reached with few economic costs.

Global warming puts radically into question the way of life and production that the overwhelming part of the world has adopted up to now. Therefore, the wait-and-see with the complicity of technological options or econometric models is used to disavow and to escape radical changes. We mean that a genuine solution requires much more than green policy measures or technological progress but rather deeper global changes in the way to measure and conceive production, consumption, and therefore global governance.

The governance failures to solve are directly visible in what we consider as the most important measure of the size of the global disease which is also an indicator of effective (no)policy changes: the underpricing of fossil energies (market failures) worsened by the direct subsidies given to their production or consumption (governance failures). If effective measures had been implemented since the Paris Agreement (or before), these systemic direct and indirect subsidies would have started to decline. According to the IMF published data,Footnote 6 these subsidies to fossil energies not only did not decline, but rather (direct and indirect subsidies) they have increased from about 5.4% of world GDP in 2015 (Paris Agreement) to 7.1% in 2022. Expressed in current dollar, these total subsidies have been increased since 2015 by a huge $2600 billion, leading to an annual waste of $7000 billion (i.e. $7 trillion), which is double the additional investment necessary each year for decarbonizing the whole planet. These figures are the sum of direct (or explicit) subsidies and implicit ones. Direct subsidies measure the difference between the price paid by the fuel users and the effective financial cost to supply fossil energies. These “cash” subsidies increased from 0.6% of GDP in 2015 to 1.3% in 2022. This amount means that $1326 billion of budgetary resources are wasted for spurring CO2 emissions, in contradiction with political discourses! Implicit subsidies measure the difference between a fuel’s full social cost and the price paid by the fuel user, exclusive of any explicit subsidy. These full social costs include local air pollution, climate change, and broader externalities and amount to 82% of total subsidies ($5710 billion in 2022). The sum of direct subsidies and indirect ones measures the costs imposed on society due to consuming fossil energies at prices lower than their real costs. Any serious economist should consider this amount as negative outputs that should be deducted from world GDP and total factor productivity. This means that each year global GDP is lower by 7%, i.e. the growth rate is in fact very negative!

In the EU, before the subsidies linked to the pandemic, the annual direct subsidies are estimated to reach a total of around $100 bn in 2018 (0.65% of GDP). The EU total subsidies should be around $470 bn or 3% of GDP (European Commission, 2020). In the LAC economies, they are estimated to be 5.1% of GDP. After Saudi Arabia, Venezuela, and Iran, Russia has the highest degree of subsidies, wasting each year around a quarter of its GDP, i.e. $3000 per capita, for damaging the planet.

This indicator is emblematic of the worrying hypocrisy of our denial, since governments that signed the Paris Agreement are behaving in the exact opposite direction to their formal commitments, worsening global warming and exposing their direct, personal, political responsibility to the judgement of history and even to not so far reactions against them.

At the world level, it is obvious that our economic system remains essentially based upon cheap fossil energies which play the role of a key production factor increasing decisively productivity. The Industrial Revolution itself emerged in Great Britain and in Walloon Belgium in the eighteenth century because, among other key factors, energy prices were significantly lower than elsewhere thanks to their abundant coal deposits. This comparative advantage became so important that economists like W. S. Jevons (1866) questioned the sustainability of the economy warning that the British prosperity was too closely dependent upon a non-permanent endowment of cheap coal. His central thesis – which remains true for our time by changing “coal” for “carbon” – was that the British competitiveness over global affairs was transitory, given the finite nature of coal as its primary energy resource. “…without it [coal] we are thrown back into the laborious poverty of early times”. He had already raised the systemic question of sustainable development, not in present terms of environment and global warming but in his lucid observation that cheap energy was a key but also the most fragile factor of temporary prosperity, as far as alternative cheap energies don’t exist. Jevons’ analysis remains valid today on some points. First, his “Jevons Paradox” saying that technological improvements that increased the efficiency of energy use led paradoxically not to reduce the energy problem but will increase consumption of this energy in a wide range of activities. He argued that, contrary to common intuition – and to present ecologist or government recommendations – attempts to reduce energy consumption by increasing energy efficiency would simply raise demand for energy in the economy. For our present situation, this raises two essential questions: the Jevons paradox shows that technological progress increases carbon consumption only in case of letting the free markets transfer productivity into lower carbon price. He didn’t conclude that the correct policy is fiscal and financial reforms (increasing the relative price of carbon issuance, imposing higher emission standards, financial risks, and financing research). Jevons recommended cleverly to dedicate part of the benefits of cheap coal to cut public debt and righting social ills by investing in collective goods for creating a more just society: “We must begin to allow that we can do today what we cannot so well do tomorrow…. reducing the burdens of future generations”. The contrary of what we do: we accumulate exponential public, social, geopolitical, environmental, and intergenerational debts.

From these basic lessons combined with the frightening picture given by IMF, we immediately can deduct that not only free markets have demonstrated their inability, by definition, to incorporate crucial negative externalities, but most economists and all the authorities of all societies in the world have been also unable to react and most of them continue to deny, either by refusing scientific reports or by believing that technologies and minor adjustment in carbon prices would get rid of the problem, without need for radical changes.

Identifying the Deepest Roots of the Governance Failure in Climate Change

On top of market failures, a democratic failure pushes governments to continue even to misallocate resources and to disincentive alternative clean energies by maintaining or increasing their direct subsidies to burn fossil energies! It means that voluntary policy decisions maintain important and growing flows of public money for selling fossil energies at a retail price which is below the energy’s supply cost for nontargeted users.Footnote 7 At the world level, these financial direct subsidies reach some $1.3 trillion per year in 2022. This way to channel stupidly scarce public resources towards the production and consumption for issuing more carbon in the atmosphere has additional economic effects very damaging. In addition to stimulating CO2 emissions and discouraging innovation in green energies, provoking misallocation of investments and subsidy cost to public finances, they imply that less alternative expenditures (i.e. social and research) could be made or more taxation on the rest of the economy, lowering the growth rate of the economy. Even more shocking, these subsidies counteract directly the few other measures adopted to fight climate change.

This “short-termism” behaviour is common in any government whatever the political or economic regime and whatever the degree of democracy or economic development. This form of denial is facilitated by the high degree of uncertainty on the future effects of carbon, for example, on the non-linearity of global warming and highly probable tipping points provoking collapse of ecological systems. It reveals a universal inability to fulfil the precaution principle and the priority mission of any government: to ensure the production of this vital public good of preserving their societies from global suicide.

Therefore, we identify the most serious issue in this universal disavowal force that seems to be a built-in flaw in human societies to such a point that even democratic order fails to overcome the short-termism bias of policymakers. This bias has probably deeper explanations.

Very recently, the USA and the EU finally showed a higher degree of awareness than elsewhere. The European Commission initiative efforts to organize a beginning of reaction with its “Green Deal” presented in December 2019 and enacted as the EU Climate law in June 2021. This ambitious plan fixed binding targets to become climate-neutral by 2050 and sets the intermediate target of reducing net greenhouse gas emissions by at least 55% by 2030, compared to 1990 levels. Even in this “best case” in terms of objectives, a dangerous degree of procrastination and denial remains present through the confidence in the used models and in the tools (subsidies and Emissions Trading System – ETS). The proposed means seem “too small too late” for facing the high irreversibility risks, particularly as regards the carbon pricing, since the ETF will cover only 40% of the CO2 emissions (Varga et al., 2022).Footnote 8 The transition is not yet recognized as an urgent need for radical changes in financial sector and relative pricesFootnote 9 with impacts on every economic agent or citizen behaviour.Footnote 10 Even the involved economists continue to apply simplistic models. The universality of this irrational procrastination induces to think that the issue is much broader than technical aspects like the underpricing of carbon or to only be due to private firms and vested interests in search for selfish short-term profits. It is the capacity itself of societies to react on time by implementing the required correction policies which is the key problem and which must be solved urgently to prevent the eradication of our societies.

We identify the roots of our unsustainability in our materialist rationality (Ghymers, 2021a),Footnote 11 generating a male predatory (Ghymers & Gonzalez Carrasco, 2016),Footnote 12 unfair attitude with nature that used to be necessary for our past survival and material development. The result is an abusive rationality of the male predator which is exposed to be eventually castigated by the self-destruction of its unnatural material results, turning the expected material benefits and rationality into negative output, i.e. showing the irrational male behaviour.

The best example is the fact that economic growth and its measure in terms of GDP have become a pathetic illusion as far as the negative output of CO2 emissions and other depletions of natural species and resources are not duly deducted from the national accounts. An indicator of the gravity of the popular illusion is given by the majority belief (56.7%) that technical and scientific progress alone would solve the energy problem.Footnote 13 Another example of this paradoxical blindness: each year of delaying resilience-enhancing policies in infrastructure sectors could also cost an additional $100 bn in avoidable disaster impacts in LDCs. Not investing in decarbonization will cost even more in the long term than acting strongly now but also because there are significant opportunities for investors, workers, and consumers. According to the World Bank research, investment of $1, on average, yields US$4 in benefits. For example, replacing the costliest 500 gigawatts of coal capacity with even cheaper solar and wind would cut annual costs by up to $23 bn per year and yield a stimulus worth $940 bn, or around 1% of global gross domestic product. A shift to low-carbon, resilient economies could create over 65 million net new jobs globally to 2030.

How to explain that rationality has led us to this collective irrational behaviour of generalized disavowal making citizens unable to see that short-term costs would prevent catastrophic costs later? The answer is probably not only a “political economy” one but, following Sébastien Bohler (2019), rather a neuron-chemical one due to the successive composition of the human brain. The rationality results from the countervailing power of our cortex over our animal striatum which is dominated neuron-chemically by our animal nature through the issuance of dopamine. The invasion of materialism combined with a lack of growth has weakened the collective ability to plan for longer term. The popular reflex of fear gives preference to the immediacy, “democratically” refusing any longer-term considerations, rejecting the elites in power viewed as necessarily guilty for the current deteriorations, and, opting for immediate advantages, condemning democracy to populism. The economic consequence of this “irrational destructive behaviour” could be translated in a global “tragedy of commons” where the essential common public goods is paradoxically depleted by individual materialism impeding to perceive the exponential costs of inaction compared to the higher benefits from short-term adaptation costs and forward-looking investments. It is an effective democracy failure which does indeed worsen the market failures as a result from populist slogans and from complex manipulations by vested interests (lobbies, financial powers, corporatist groups, and “rent-seekers”), since our political democracies are excessively biased by a lack of economic democracy. This defect is even more perverse in autocratic or centralist state control.

Identifying the Coherent Set of Global Policy Tools to Front-Load

Due to the global “dictatorship of materialism”, the only effective recipe for stopping on time the destructive mechanisms of global warming is to act on the same level as the materialism inherent in our cultures due to the disavowal led by the dominant animal part of our brain.

This “recipe” consists of correcting the most important materialist incentives for issuing CO2. Indeed, it is urgent and powerful to scrap subsidies to fossil energies and to transfer a part to lower-income households and to clean alternative energies combined to a rising floor for carbon price or carbon taxes (Schulmeister, 2021; Parry et al., 2021), up to what could be estimated as their efficient level taking on board as most as measurable their negative spillovers.Footnote 14 This could provide much more resources than necessary for a total decarbonization of the world ($7 trillion per year). Econometric models (Parry et al., 2021) show that an optimal relative price for carbon would lead automatically to a net-zero goal for 2050. We see in these models a more dangerous risk of disavowal by creating the illusion that transition would be automatic and almost costless. Most economists use “Integrated Assessment Models -IAMs” which conclude that raising moderately the price of carbon, for example, to $50 per ton (Parry et al., 2021) or/and using subsidies to alternative energies (Varga et al., 2022) would produce decarbonization, believing that market will take care of it all. The shortcoming flaws of these models are analysed in several technical papers which all indicate the high sensitiveness of their results to methodological aspectsFootnote 15 making them unreliable for facing the risks of irreversible catastrophic scenarios. Their dominant acceptance is a clear demonstration of the overwhelming disavowal illusion.

On the contrary, we sustain that the solution is not only an urgent increase in relative prices but to correct a set of related systemic dysfunctionalities of the world economy. An increase of the investment rate must be effective not only in advanced economies but in all others too. This requires huge capital flows from advanced economies to the others, i.e. a significant decrease in the consumption share in advanced economies GDP.

We sustain that this couldn’t result without correcting two other more complex price distortions which are also global and need urgent multilateral agreement:

  • First, the too high financial return with respect to real economy profitability.

  • Second, the too low yield on safe assets in the key currency, the dollar, which indicates an inadequacy of the International Monetary System (IMS) to fill the financial gap for decarbonization.

The combination of these two price distortions explains that the issuer of the key currency not only absorbs the global net saving but overall impedes to rebalance the gross capital flows towards decarbonization in the emerging and developing economies in accordance with the Paris Agreement. In fact, this is merely the manifestation of the Triffin Dilemma (TD) (Ghymers, 2022).

The other side of the coin of the TD is generally forgotten: the “built-in destabilizer” (Triffin, 1959) which shows the permanency of the Dilemma through the pro-cyclical variations in global liquidity (GL) and the impossibility for the Fed to counteract it. This means that, even more than before, the TD explains the damaging spillovers of financial instability with perverse reversible capital flows in Emerging and Developing economies (EMDEs). This impedes to fill the financial gap for their decarbonization, as far as the dollar remains the basis of the IMS because it is the determinant of the GL. The TD explains most of the difficulties to finance the decarbonization in EEs-LDCS because (i) the saving flows are biased towards US overconsumption, and (ii) mostly gross international capital flows determine LDCs investments, being in dollar and reversible, penalizing decarbonization in these economies.

Mark Carney estimates that about at least $130 trillion are needed for reaching zero emission for 2050.Footnote 16 This implies to dedicate each year at least 4% of global GDP only for energy transition investments. For the low-and-median-income LDCs (LICs and MICs), the World Bank estimates that their climate transition needs would require increasing inflows from $425 billion per year (period 2019/21) to $1.7 trillion by 2030. For all LDCs, the need for climate investment flows per year by 2030 could reach $3.4 trillion (World Bank, 2022). Based on this assessment, climate action in developing countries presents a gigantic and growing financial gap (World Bank, 2022). As shown in Fig. 1, present situation indicates this gap.

Fig. 1
A wheel diagram divided into three parts labeled U S, emerging and L D Cs, and advanced.

Total government clean energy investment support enacted since the start of the COVID-19 crisis, by region: $1215 bn. (Reproduced from IEA Government Energy Spending Tracker Government Energy Spending Tracker – Government Energy Spending Tracker – Analysis (IEA))

Full size image

Therefore, two inevitable systemic changes must go along with the carbon price corrections in order to rebalance gross financing flows towards the required real investments in green energies (4% per year of global GDP up to 2050):

  • The IMS must move to a single ultimate liquidity which is not any more the debt of an economy but is issued by a multilateral central bank acting as the Global Lender of Last Resort (GLOLR). A regulation of GL as a public good would become feasible. In fact, both do already exist by upgrading the IMF into a Global LOLR issuing the most stable reserve – the Special Drawing Right (SDR)Footnote 17 – against national reserves. With such a superior stable safe asset, the price distortions of both the safe asset yields, and the financial yields could be reduced. In other publications we explained in detail these mechanisms of the growing pro-cyclical GL (Ghymers, 2021b, 2022).

  • As recommended by the Network for Greening the Financial System,Footnote 18 the macroprudential regulation must include the nature-related and climate risks in all financial assets because they impact not only on the stability of the financial system, but their underestimation corresponds to a subside to carbon production and ecological damages. This implies the need to include these concerns in the mandate of all central banks. Indeed, all the monetary tools as collaterals, bank reserves, and other ratios should incorporate differentiation in the asset values in function of the sustainability risks. Furthermore, the financial sector plays a key role in the financing of investments in low-carbon or decarbonization activities. But this is not enough; the high uncertainties on future technologies and prices should be compensated by giving immediately guarantee of lower capital costs and higher yields to new low-carbon equipment or activities. Financial guarantees and – as proposed by M. Aglietta (Aglietta et al., 2022) – the creation of a “carbon asset” making “cash-able” or usable the social value of avoided carbon could accelerate the decarbonization of the present output structure in a modular form in each country. For example, the risk of funding would be reduced by accepting these assets in the eligible collaterals at the central bank or by their securitization in “green bonds”.

A coherent set of policies requires thus a triple correction of deep price distortions at global level that implies significant systemic changes in behaviours and governance, something which is not properly acknowledged by citizens and feared by all governments.

Box: The New Form of Triffin Dilemma (TD) Explains the Global Financial Spillovers and the Pro-cyclical Global Liquidity

Triffin dilemma (TD) is the incompatibility for a national currency to be the best international liquid standard (safe asset) because its central bank cannot simultaneously regulate domestic and international liquidity. In the two last decades, the wholesale monetary markets have essentially relied upon collaterals, most of them in dollar-safe assets. But the Fed and the US Treasury cannot supply sufficient safe assets for matching their global need. The exponential expansion of the unregulated nonbank sector, joined to the massive use of the dollar by the emerging economies, must face an insufficient supply of dollar safe assets. Therefore, the “repo markets” manufacture pseudo-safe assets (out of regulation and access to the Fed) by their own intermediation but with a higher-risk leverage, by successive securitization with “re-hypothecation” of US T-bills and with use of nondollar safe assets for making loans to riskier debtors. This is an endogenous creation of monetary basis on the repos for expanding global liquidity (GL). However, once a recession or liquidity crunch is expected, this expansion is reversible, proving the systemic incoherence of relying upon a national currency for international purposes. Since the dollar is endowed with a higher “moneyness” – a liquidity monopoly – it introduces a differentiation among the collaterals composing the liquidity basis according to their effective degree of “moneyness” (their resilient liquidity): the “external” collaterals, which are exogenous policy tools issued by authorities (central bank and Treasury, mostly from the USA), and the “internal” collaterals, which are mainly pseudo safe assets. This discrimination creates a cyclical “dash-for-cash” in dollar-safe assets, something like a “Gresham law” inside the “shadow monetary base” leading to a cut in the basis of the reverse pyramid of GL shadow monetary base, with a multiplied restrictive effect on private GL. This is the main cause of the GL pro-cyclical behaviour which provokes perverse spillovers on the capital movements to LDCs. This instability is inherent to a key currency once it is unable to issue enough liquid debt in facing the huge gross flows proportionally based upon more collaterals than before, due to the shift in liquidity sources from banks to nonbanks while the US economy is relatively in contraction with respect to the global financial needs. TD explains the cyclical scarcity of dollar-safe assets which makes instable and reversible the private global monetary base, the GL, and the capital movements, something which could disappear with a multilateral reserve currency like the SDR, which is not the debt of a national economy, does not impose neither financial nor political costs to the participants, respects policy autonomy, and makes feasible the move to a multi-polar monetary system. On the contrary, the emergence of competing key currencies (like the Chinese Yuan) without a common, single liquidity standard would create even more unstable due to the impossibility of reaching an equilibrium exchange rate between two competing dominant currencies (Kareken & Wallace, 1981). Therefore, the principle itself of key currency is functionally condemned to disappear.

The Framework of the Bi-regional Strategic Alliance for Meeting Climate Change Challenge

The General Disavowal Results from a Typical Prisoner’s Dilemma Which Inhibits Energy Transition

Redeeming the intertwined trilogy of failures – markets failures, public failures, and democracy failures – would require too deeply rooted changes in a too short time in a global context not favourable to cooperation: growing antagonisms in the geopolitical context, weakening of multilateral institutions, rise of populism, “post-truth”, and reject of scientific elites. The irreversibility of climate change and the consequent degree of high urgency require to tackle pragmatically the procrastination of policymakers that maintains the three cumulated failures. The authorities face domestically the general short-termism under national populist pressures and externally the risk of free riding and the difficult burden-sharing among nations or regions. This status quo represents a typical prisoner’s dilemma which inhibits national authorities: collective irrational losses result from opposite “rationality” between decentralized policymakers in competition when each is issuing spillovers to the others. Indeed, under uncertainty about the “real model” for climate and in the presence of mutual spillovers, the lack of trust both at national and international levels explains the common disavowal and the lack of cooperation. Domestic opposite political parties and conflicts between countries combine for impeding faster actions by lack of consensus. Furthermore, remaining in power are biased national policies towards short-term and noncooperative behaviours with other countries.

What Are the Basic Principles for Getting Out of This Prisoner’s Dilemma?

  • Building Trust Among National Policymakers at Regional/Bi-regional Levels

First, the logic for finding a concrete solution is to build mutual trust among countries by using the common threat and costs of climate change for setting up systematic exchanges among peers at regional and interregional levels, for dealing freely on the common threat, the possible options, and the common goals. This simple method to spur cooperation on energy transition consists in making more tangible the win-win game of regional/bi-regional cooperation first among national technicians and policymakers themselves and then for public opinions.

  • A Two-Tier Regional/Bi-regional Scheme

At first glance, this could appear as much about the same as what already do the policymakers. But the second principle is to proceed in a successive regional/bi-regional two-tier scheme: the basic step consists in creating a regional/bi-regional peer network (closed doors and Chatham rule) among the national technicians (civil servants and experts in energy transition) with a personal mandate for collegial monitoring of the respective national issues and strategies, while making explicit that each peer does not represent his minister, country, or region but is only mandated to freely exchange and speak on a purely technical and personal basis. These free dialogues allow for triggering a two-tier group dynamics at regional and bi-regional levels with a group momentum questioning the collective irrationality and pressure for a more cooperative approach.

The decision-making step is the conventional one which exists at ministerial or Head of State levels but is actively fed by the momentum created at the basic technical levels.

  • The Need for a Bi-regional Approach on Energy Transition

The multilateral level, theoretically the optimum one, is not presently the most practicable. Indeed, the kind of feasible coordination remains very weak, and the present geopolitical context doesn’t give much illusion of spontaneous progress in the foreseeable horizon. Therefore, the intermediate option of regional coordination makes sense not only among member states of a region but also for easing the cooperation or coordination between regional blocks which have been already working in looking for common economic interests and social goals.

We sustain the idea that the bi-regional level could be much more than a second best because it creates a deep catalytic effect on each regional cooperation for making possible to agree upon common interests when preparing the meetings for bi-regional exchanges. The idea is to use the cooperation with other regions for accelerating each own region cooperation and their specific momentum with positive effects upon public opinion awareness. No formal change and no new procedure are required and the tools do exist. Our proposal is just to bet on activating the existing endogenous win-win game first between EU and CELAC regions, the two most like-minded areas. This bi-regional dimension provides concrete steps towards a workable dynamic of energy changes inside the existing system through a priority focus on cooperative tools for energy transition. We sustain, by experiences, that the bi-regional cooperation could be – under certain conditions – an efficient way to win time and synergies in breaking the prisoner dilemma obstacles to an effective energy transition. The detailed mechanisms and method are explained in section below.

Furthermore, this proposal would permit to give an effective content to the 1999 objective of a bi-regional strategic alliance the EU and the ALC regions have been pretending to build during almost 25 years but which is still missing. The proposal is to quickly trigger a new dynamics by giving a technical content to the energy transition that both regions are condemned, anyway, to organize in the urgency and to bargain at multilateral level. The emergency aspects and the gravity of the challenges to meet in a more complex geopolitical environment should provide new pressure on actors from both regions for looking for common strategic interests in the existing bi-regional cooperation among like-minded partners. Therefore, a single key content is provided to the strategic alliance that is the legitimate purpose of the existing bi-regional summit. Both regions share the same kind of values and society; they share common interests. Both regions could win competitiveness as well as power vis-à-vis other third powers or economic blocks. Anyway, their coordination or consensus would give them a more protagonist role in global economy and in multilateral organizations. The positive results of this kind of bilateral win-win game would help to attract the interest of other regions for extending the scope of the coordination to them, easing the process towards the ideal multilateral implementation.

How Could These Principles Give Better Results?

Our proposal includes a new, specific method based upon solid experimentations and personal experiences in various contexts (EU, Eastern and Central Europe, Africa, and Latin America) (Ghymers, 2005) where all were affected by similar prisoner’s dilemmas in economic policy coordination, i.e. a domain where policies are national but with spillovers upon their partners.

The bi-regional summit would implement these principles to launch a cooperative momentum with the priority focus upon the measures to reach on time a net-zero emission in both regions and, if possible, to extend the method to third regions, becoming so multilateral. The experiments show that a bi-regional dialogue in a two-tier scheme, reproduced in two steps at regional and bi-regional levels, speeds up trust and consensus on right policies.

A Two-Tier-Two-Step Dialogue

The two-step scheme: first step among technical peers, organized as two separate regional dialogues in charge of preparing the collegial monitoring of the respective national plans for energy transition: these technical groups form only consultative regional committees for improving the quality of information and for preparing the second step of the scheme. Ministerial dialogues are the respective regional/bi-regional decision bodies on energy transition. The two-tier dialogue: first level only in each region working separately among member states successively through the two steps (technician committee first, feeding Ministerial Council); second level when both two-step schemes (technician committee first preparing Ministerial Council) meet successively at bi-regional level. This two-step-two-tier-dialogue generates a powerful game dynamic which accelerates the degree of awareness and implementation of the best policies, as a result, not only from exchanges of best practices but also from the emulation among peers combined to the pressure of a mutual scrutiny which creates some kind of permanent “check-and-balances”, issuing collegial advices/criticisms on what is feasible with respect to what is done. The technical peers benefit from a valued role in their own country which provides a strong individual incentive for contributing.

The regional cohesion is never spontaneous and does not depend so much upon institutional development, except the minimal two-tier scheme proposed which creates the accelerating momentum. Cohesion results from the gradual development of personal contacts and collaborative efforts between experts of a region’s countries, which is progressively transferred to Ministers and encourages a common culture. A basic regional consensus emerges and creates a climate of collegial trust. Since the prisoner’s dilemma is the major obstacle to regional coordination and hinges on uncertainty about other players’ behaviour, increasing technical communication among them and asking them to issue collegial opinions clearly improve their chances of finding a way out of the regional suboptimal situation of a lack of cooperation.

This dynamic process is enhanced by the effect of the bi-regional dimension, where the same momentum should appear across European and Latin experts as far as participation is ensured with some continuity by the same persons. Also, this is not theory but experiments as well as socio-psychology observation of concrete organizations.Footnote 19 The duplication of the two-step method at the bi-regional level brings an additional incentive for the participating experts who benefit from the other region exchanges, monitoring, and questioning. Furthermore, it capitalizes upon the regional dimension in each regional entity (EU and CELAC) which is stimulated by the need to “speak with one voice” in the bi-regional dialogue for identifying common interests as well as making clear the divergences to overcome together with technical as well as political incentives to reach bi-regional consensus. The experiences in observing bi-regional and interregional other negotiations both in Europe and in other regions of the world make clear that much more regional cohesion results when one block must prepare a bargaining session with an external partner or block.

The Key Role of the Technical Committees

The distinction between the expert networks (committees) and the Ministerial Council is very important for creating the group dynamics based on a bottom-up process of free exchanges stimulating personal initiatives. The committees hold a collegial scrutiny inside an effective monitoring of existing and possible policy measures but without taking any decision. On this basis more weight are given to the experts, so spurring the consensus by informing the Ministers on how to make the national policies coherent and converging to the net-zero goals.

Paradoxically, in this dynamic dialogue, the most important role belongs to this consultative, non-decisional committee. It generates reciprocal confidence among participants which permits to get genuine exchanges of information, freer critical opinions, and creative debates on the most urgent measures to propose to their own Ministers. National experts obtain some key information on the partners thinking, on alternative scenarios, and on concrete basis for proposing concrete realistic elements to their Ministers in view of the bargaining among national and regional authorities. Its fundamental role is to generate trust among national experts with good communication flowing reciprocally among them. This reciprocal confidence and the fact to be in a continuous game eradicate the cause of the prisoner dilemma, creating the conditions for deeper and faster cooperation among states and regions. By building a regional consensus in both regions, a stronger coalition EU-CELAC on priorities for energy transition could result.

The Dynamic Collegial Monitoring for Breaking the Prisoner’s Dilemma

The concrete working of this two-step-two-tier method for breaking the prisoner’s dilemma relies upon the principle of a collegial monitoring of energy transition plans among peers with quantitative objectives set in a harmonized form to be fully comparable. Peers assess reciprocally each plan and discuss the hypothesis, existing measures, and possible policies to propose at regional level before opening dialogue and reciprocal monitoring at bi-regional level. Due to the similarities between their functions, difficulties, and responsibilities, the technical peers generate a collegial spirit among them. The result is a better understanding of each national position and constraints to solve together. Group cohesion becomes an efficient tool for innovation and coordination. This bottom-up approach should create a powerful endogenous dynamics of technical cooperation, which would directly help national policymakers to identify better priorities, issues, and pragmatic solutions, while saving conflicts and resources and increasing ownership of the policies. In turn, this collective value added gives to the technicians a higher motivation, a specific role vis-à-vis their Minister and therefore a better leverage inside the national decision-making process beneficial to their country and to the region. It results a better governance and a higher awareness of the challenges to meet. Another advantage of this specific type of technical network is the longest continuity of the technical teams, if compared to the politically responsible individuals or officers directly linked to changing minister cabinets. This permits to maintain the cooperation on technical aspects whatever the political cycles and their conflicts.

Referring to the analytic figure of the prisoner’s dilemma, the challenge consists in increasing communication for making tangible the dynamic benefits that each participant expects to obtain by taking advantage of the regional monitoring and its value added for each of the partners. The basic channel to grant incentives is the process of credibility generation which allows for reaping early the full benefits of peer pressures towards sustainability. This credibility, both for the technicians and their country, can be provided from a regional monitoring on national net-zero transition policies with rules, solid control schemes, and financial incentives which must offer individual advantages to its participants. Credibility of engaging on sustainability path influences directly investments, savings, and financial assistance, with impacts on growth, by reducing the uncertainty. Mutual regional monitoring of energy policies generates also a self-gratifying mutual knowledge, a better communication, and a greater confidence among autonomous participants. This first step is necessary to reduce the uncertainty regarding both the potential benefits and the mutual confidence.

Cooperation thus becomes a directly useful instrument for national decision-makers by enhancing the credibility of their policies and directly helping them carry out their own political commitments as well as better financing modalities. Cooperation is based on self-interest tempered by the better knowledge of the partner’s interests and difficulties that could generate for them both negative and positive feedbacks. To use game-theory terminology, the probability increases that all games will have dominant strategies that coincide with the net-zero measures at regional level that fit with the social optimum. We name this a “competitive cooperation” (Ghymers, 2005) process.

In particular, the three important components for the efficiency of the monitoring scheme for energy transition are the following:

  • First, the use of numerical benchmarks with precise time schedule and procedural commitments in case of deviations, able to attract public and financial market attention and trigger political incentives especially for countries with financing gap depending upon regional or multilateral lending.

  • Second, to include a link between the degree of implantation of the package and the degree of regional or bi-regional support to get access to financial resources for their energy transition. Each region would issue first its collegial assessment based upon the expert technical reports, and then this region submits it to the other region for discussion and conclusion at the bi-regional level for obtaining more credibility.

  • Third, to bargain with multilateral and regional financial institutions for grouping the financial resources into a specific bi-regional fund for energy transition cooperation submitted to criteria assessed by the bi-regional two-tier scheme.

The experts must feed their respective Ministers before the Ministerial Council with these results which open the scope of the obstacles and feasible options to discuss in the Council. This method presents the advantage to create incentives for upgrading governance as a result of the principle that “the less credible the initial national transition policy is, the greater the net potential benefits of the collegial monitoring result” for any country participating to the monitoring game with its regional peers, and the more powerful becomes the “group dynamics” for the benefits of all. Participants compete in strengthening their respective roles, their managing capacity, and their knowledge to show the professionalism of their respective administrations in charge of energy transition. This induces to a process of competition to improve and of creative initiatives for being cooperative. This is the competitive cooperation among peers for trying to demonstrate the qualities or defects of the policies of their partners as well as for their own country, but they also learn to respect the respective national or regional peculiarities. The same dynamic scrutiny works as regards the identification of common interests, priorities, and about the strategy they recommend for making it possible to speak with a single regional voice, when they meet their partner’s colleagues from the other region. The fast improvement in mutual and personal knowledge allows for building trust among participants leading to reduce the obstacles that hamper cooperation among sovereign authorities, i.e. solving progressively the prisoner’s dilemma through intense communication.

With the use of new information, important tasks can be implemented that could not have been planned – not even at national level – if they would have to be channelled through diplomats in official mandate before being able to hold formal regional negotiations. Therefore, sharing the analysis and the information about difficulties stimulates the gradual creation of an emulative team spirit among energy, environment, and economic experts. This group identity acts as a catalyst on cooperation among participants and ministries, because the group helps participants in their daily tasks. Hence, technicians get more credibility and efficacy for preventing conflicts or big policy mistakes. The final receivers of these benefits are the authorities (Ministers) who profit from the information received as well as from the motivation of their experts, who, in turn, experience a personal growth through their role in the regional group. This leads to a dynamic process of convergence as governance in each country improves, so does regional consensus.

A tremendous improvement will be observed in the quality of the information each minister benefits before making decisions, and since this information is also reported to the other Ministers, their council meetings win efficiency and more probability to take on board common interests and spillovers.

Confidentiality, Technical Exchanges, and Democracy

The role of Ministers is to defend constitutionally the national-political positions imposed by the legitimate national sovereignty. The role of technicians and economists is to show them when and which conditions regional/bi-regional cooperation could converge with their own interests or goals. As developed, this role needs first to build trust among them. Ministers always speak as official representatives of their governments. On the contrary, in the technicians’ committee, experts speak on their own, never in the name of their hierarchy or country because they don’t decide. For creating confidence and cohesion in the committee, the exchanges must remain informal, i.e. made on personal basis; therefore some degrees of confidentiality are the inescapable rule for breaking the prisoner’s dilemma. This degree of confidentiality is the starting point of any realistic cooperative work; this is why it is applied in many other fields in democratic countries (justice, central bank, governments, political party, professional corporations, scientific experts, etc.).

As regards the democratic aspects, some criticisms could consider the “confidentiality” of the technical exchanges as a nontransparent defect. The answer is simple: without some degrees of confidentiality in the preparation of any decision, participants never would dare to speak freely knowing that their words could appear in the press, impeding any genuine dialogue, and in this case the committee would be useless policymakers would remain block in the status quo. This criticism expresses an ideological confusion between technical consultations and democratic public decisions, implicitly believing that direct democracy could decide on any field.

Furthermore, the kind of confidentiality is merely applying the “Chatham rule”Footnote 20 in the sense that the content of the debates could be communicated in a final report but not the identities of the expressed positions, except to their own respective Ministers. Therefore, the results of their exchanges and recommendations – which are not at all decisions – could be made public after the Council of Ministers and without other censorship than the technical and scientific rigour decided by the peers, as in any public democratic debate. Ideally, a public debate should be organized by the expert committee by publishing its synthetic report and its consensual recommendations as well as the eventual divergences manifested among the peers (without naming them). The public debate could be organized – at least among professional experts and specialized media – for ensuring the ownership or reactions, allowing for comparisons with what the Council enacted on the same technical basis. This would introduce the best democratic pressure on the whole process by joining technicalities to value judgments, ensuring broader scrutiny and ownership of technical policy measures. According to our personal experiences, the progress in integration in the European Union was entirely dependent upon the confidential exchanges inside the Monetary Committee (Ghymers, 2005), although this committee was only preparatory of minister councils without any decision role. The same personal experiments occurred in the CEPAL with REDIMA (Ghymers, 2005) for Latin America as well as in the two CFA African monetary unions.

Addressing the Systemic Issue of the Global Financing of the Net-Zero Strategy

The proposed method would be especially helpful for dealing with the two systemic issues blocked by the prisoner’s dilemma and its denial expressions:

  • The need to see the short-term costs of decarbonization as a highly productive investment for longer-term social and financial returns for all.

  • The enormous financing gap in LDCs is an obstacle to decarbonization. In addition, in LAC region, several countries still count on the financial receipts of their oil resources.

It would be crucial to benefit from frank exchanges at bi-regional level on the conditions for fulfilling this gap. All the more that it is not just a mere financial problem but is one key facet of the trilogy of failures mentioned (market failures, governance failures, and democratic failures) which is the result of the incoherence of the global economic system: the principle of the “tragedy of commons” (i.e. those who benefit from causing damages to public goods do not pay for it), creating a systemic divergence between private and social returns. This is clearly the case for global warming resulting from overly low relative prices of fossil energies. This is also the case for the trend towards economic stagnation resulting from global governance failure allowing for overly high relative yields for short-term financing activities with respect to real production investments (second relative price distortion). Furthermore, this is the case for the bias of savings flows towards the US overconsumption against LDCs’ investment needs through the overly high relative prices for safe assets in dollar (third distortion: too low relative yields). These three distortions in relative market prices explain dysfunctional behaviours which make mutually reinforcing the microeconomic, macroeconomic, and financial flows: they feed global warming by diverting financial flows from where they would give the highest yields for the common goods. Although these macro-financial aspects do also affect other regions, they are especially crucial for LAC economies, and the like-minded characters with the EU region should make it easier and more powerful to speak with a single voice in global forums, providing also opportunity for third regions to join.

This key issue of the link between green energy investments and the IMS cannot be solved by the EU or the LAC. Nevertheless, working at bi-regional level on possible remedies to this asymmetric IMS would ease the multilateral debates for deeper reforms. For instance, issuing an EU-CELAC joint-communiqué with consensual proposals for developing the role of SDR in conformity with IMF statuses might attract the other regions to reinforce the pressures for IMS/IMF reforms (Robert Triffin Intenrational, 2015). Anyway, without tackling the issue of the Triffin Dilemma, the Paris Agreement disposition on the necessary flows of funds towards emerging and LDCs economies could not be implemented, and financial flows would remain well below the need for net-zero emission on time.

Conclusion

In the present context of weakening multilateralism, the regional level of international politics and comparative regionalism allows for proposing to use more actively the bi-regional level between the EU and the CELAC for making decarbonization a priority for their strategic partnership. The rising gap between the urgency to cut CO2 emissions and the modest reactions manifests a worrying global governance problem due to a general disavowal in public opinion and policymakers’ procrastination. We explain this universal disavowal in modern societies, whatever the political regime and the region, as a prisoner’s dilemma which results from a combination of deep neuron-biological features biasing towards short-term views when uncertainties are worryingly increasing, with a democratic failure allowing for power manipulations by vested interests, unfair income distribution, and populist materialism. Global warming is emblematic of the unsustainability of our economic system due to a systemic divergence between private and social returns, mutually reinforcing the microeconomic, macroeconomic, and financial flaws.

The only operational solution to these combined flaws in our economic system in deteriorated geopolitical and multilateral context is to act at the same materialistic level for imposing a convergence between private and social economic returns, in priority by enacting a strong front-loaded package based upon significant increases in carbon prices with social compensatory allocations and multilateral cooperation for moving the IMS to single multilateral reserve allowing to regulate and stabilize GL, together with financial innovations and regulations for increasing the return of decarbonization. The inescapable short-term costs will be rapidly compensated by the benefits of sustainability and, overall, by reducing or preventing the gigantic costs that carbonization is about to provoke soon.

For reaching these necessary changes, our thesis is that the bi-regional cooperation framework between two like-minded regions – the EU and the CELAC – provides concrete ways to make possible effective actions. The necessary condition is to reverse the traditional method used (at regional as well as bi-regional levels) from a “top-down” (political decisions first, technical consultations after) to a “bottom-up” (technical experts free exchanges first providing proposals to policymakers). This proposed method could give the missing operational content to the bi-regional strategic alliance by creating a collegial monitoring of energy transition. Based on simple sociological mechanisms – extracted from past experiences – our method bets on the powerful group dynamics created among national civil servants and experts organized in protected networks (Chatham rule), which could spur policymakers’ awareness and ease their decisions.