Foreign students keep flowing into Australia

The attacks on Indian students in Australia do not seem to have dampened the flow of students to the country. China Daily reported this week that China and India were the biggest source countries for foreign students studying in Australia. Until June 2009, Australia was hosting 146000 Chinese students (an annual increase of 16% for the past six years) and 121000 Indian students (up by 46% during the same period). Together, these students contribute 38% to Australia's international education sector worth nearly USD12 billion. But, since the numbers are only until June, next year's intake would reveal if there has been any real impact of the attacks. Education services are Australia's third largest export, so the government should be keeping a close watch on the numbers.

China doubles wind power capacity

At the end of 2008 China had an installed wind power capacity of 12.2 GW (behind the United States with 25.2 GW, Germany with 23.9 GW and Spain with 16.8 GW). Today China Daily reports that it has added another 11.8 GW of wind power capacity in the first six months of 2009, a year-on-year growth of 101% by end-June.

Meanwhile, in remote Gansu province in China's northwest construction has begun on the country's first 10 GW-sized wind power plant. The Jiuquan Municipal Development and Reform Commission projects that capacity could increase to 20 GW by 2020, making it the largest wind power station at a projected cost of $17.6 billion. If it succeeds, municipal authorities claim, it would rival the 18.2 GW Three Gorges Dam, thus fulfilling their dreams of building a 'Three Gorges on the Land'.

Rating the raters

Kevin Gallagher writes in an excellent piece in the Guardian that credit rating agencies are getting away with little more than a 'slap on the hand'. To summarise:

1. Credit rating agencies have skewed incentives because the owners of financial assets also pay the agencies to rate them

2. The agencies face little competition: three cover three-quarters of all ratings

3. They consistently fail to predict defaults and face no accountability for their lapses

4. Worse, their response in post-crises situations is more questionable, threatening to downgrade any country embarking on an expansionary fiscal or monetary policy.

In the past decade credit rating agencies have failed remarkably on at least three occassions. The question is whether new regulation to govern the financial services industry will monitor and appraise the performance of the raters as well.

G8, G17 or G192?

Last week I wrote a column about the G8 summit in L'Aquila, Italy and the climate change discussions that were held there under the Major Economies Forum umbrella (comprising 17 economies). I argued that for the climate negotiations to succeed, much greater levels of trust is needed between developed and developing countries. And in order to build such trust, I suggested that joint activities are needed more than ever - activities to develop and diffuse technologies, to collect and share satellite-based emissions information, or cooperation to reform multilateral financial institutions.

I received a range of comments, some of which focused on the need for sticks and carrots, some of linkages between climate and other regimes, others on domestic politics, and finally on the issue of trust. Let me elaborate a bit on these points.

Carrots and sticks are of course necessary. The main carrot is financing but the U.S. has yet to put something on the table, something that Obama acknowledged in L'Aquila. So, China and

India are playing a wait-and-see game. Another carrot is through access to markets, particularly in environmental goods and services (already a $500bn market). But we're not going to get a deal on that without a comprehensive conclusion of trade talks under the Doha Round.

Meanwhile, the sticks could also be employed through linkage with other regimes, particularly trade sanctions. But that would raise the threat of protectionism, in the least, and make the trade regime ungovernable, at worst. More on this in a future post.

Therefore, in addition to the carrots and sticks approach, there is a need to shift domestic politics in developing countries, a point I have been trying to push via the technology and renewable energy investments route. I am just sceptical (given India's WTO experience) whether the interests in favour of curbing emissions will line up that easily. In the WTO case, the interests that benefited from participation in the trade regime realised it post hoc, not during the Uruguay Round negotiations. Similarly, there will be interests in the new energy sectors that would benefit from a higher carbon price, stronger regulation on emissions, cap & trade, etc. But I do not yet see a strong enough lobby to shift the official position. It has not moved beyond the

North-South posturing.

Trust is not a fluffy term. In international relations, it is the basis for any agreement, no matter how we line up the incentives. The question is how we build trust. I see joint technology development (with public-funded R&D and of course private investments, like GE's investments in China on cleaner coal tech) as one of the ways forward, so that the win-win benefits become more obvious to the actors. Otherwise, the competitiveness concerns of individual economies could overwhelm the public good benefits of responding to climate change.

Ultimately, the G8 or the 'G17' cannot substitute for the G192, namely the full membership of the United Nations for a comprehensive deal on climate change. Smaller negotiating groups might deliver a bargained outcome (although they failed to do so in L'Aquila). But such an outcome will neither enjoy trust nor legitimacy in the wider international community, unless an inclusive process engages with the wide range of governance issues plaguing the climate regime, from negotiations to implementation to monitoring and enforcement.

Growth, energy and climate change - no easy reconciliation

In her speech to Parliament last week, President Patil declared that one of the top priorities for her government would be ‘energy security and environment protection’. The intention is commendable. India and other developing countries face a triple challenge of increasing income growth, building energy infrastructure and confronting climate change. Reconciling these challenges would depend on financing, regulatory and institutional reforms, and international cooperation. Continue reading my article, published today in The Financial Express, here.