Will falling commodity prices bring down Malaysian growth as well?

Author: Nurhisham Hussein, Malaysia

World oil prices are falling precipitously. For an oil exporter like Malaysia, that’s definitely bad news. Unless the country can diversify its economy, it may find it difficult to navigate its way through the economic challenges it faces on its way to higher income status.

Storm clouds gather over the Patronas Towers in Kuala Lumpur, Malaysia. The recent drop in world oil prices will hurt the exporter. (Photo: AAP).

Of course, the drop in the world price of crude oil, as much as it has hogged the headlines, is just the most visible manifestation of a larger movement. Many commodity prices have been hit over the last six months. While the price of a barrel of Brent Crude has dropped 45 per cent since June 2014, both soybean and iron ore prices have dropped over 25 per cent. Taken from the beginning of the year, the drop in iron ore, at 49 per cent, has actually been steeper than crude oil, at 43 per cent. This is in some portion a reflection of the stronger US dollar, but only partly explains the commodity price collapse. In truth, it could be said that the high commodity prices over the last decade or so was an exceptional break in a longer term trend of declining commodity prices.

It’s well established that commodity prices tend to decline over the long run relative to the prices of manufactured goods. This fact has formed one of the foundations of economic development strategy: to achieve stable, higher incomes, emerging economies need to actively foster the development of secondary and tertiary sectors.

That piece of wisdom has now been underscored with a vengeance. While oil-producing economies have hit the headlines, the impact is being felt across a swath of commodity producers, from Australia (iron ore) to Brazil (soybeans) to Chile (copper). Demand for commodities tends to be inelastic — an increase in supply will lead to large falls in price rather than large increases in volume, meaning lower revenues. For commodity producing economies, changes in the world prices of the commodities they export have immediate consequences for trade balances, GDP growth, and government finances.

Malaysia’s position as a net exporter of oil and gas is a case in point. Malaysia’s exposure to global primary commodity prices remains uncomfortably high, although it is well down from the very high exposure of the 1980s, when agriculture and mining accounted for over a quarter of the Malaysian economy. Efforts to diversify the economy away from the primary sector have been for the most part successful but incomplete.

To take one example, despite a quarter of a century of extracting crude oil, Malaysia still lacks the capacity to refine all the oil it extracts. Malaysia’s palm oil industry, another major export earner, is similarly stuck in mostly upstream production. The relative failure to move downstream into higher value added production, a problem masked by the high prices prevailing over the last decade, leaves Malaysia vulnerable to global price swings in the notoriously volatile commodity markets.

The immediate consideration for Malaysia going into 2015 in this environment is in sustaining growth and maintaining macroeconomic stability. The impact on the oil and gas industry is probably manageable, except for those involved in marginal field production. Given the long gestation period for these kinds of projects, oil companies are understandably conservative in their investment decisions.

A secondary consideration would be the impact on fiscal sustainability. The oil and gas sector directly contributed a third of the government’s revenue in 2013, and an even higher proportion indirectly through corporate taxes on downstream production of commodities like liquefied natural gas (LNG). A decline in oil and gas revenues would also have secondary effects on other sectors, such as transportation and finance.

Under threat is the Malaysian government’s target of cutting the 2015 budget deficit to 3 per cent of GDP, and of maintaining the soft cap on government debt at 55 per cent of GDP. Falling commodity prices could also damage Malaysia’s prospects of achieving high income status by 2020, because of a decline in the growth rate of nominal GDP as well as the depreciation of the ringgit.

There exist longer term threats to Malaysia’s external and internal balance. The LNG market is of far greater importance than crude oil to Malaysia, and here two developments do not augur well: Japan is slowly reviving its nuclear industry (Malaysia currently supplies a fifth of Japan’s LNG demand) and the export potential of US shale gas (natural gas prices in the US are half the equivalent Asian prices). If either or both of these come to pass, it would undercut Malaysia’s export revenues.

Malaysia needs to accelerate the diversification of its economy, either by moving further into downstream production or by fostering a swifter expansion of the manufacturing and services sectors. Another priority must be reducing the dependence on oil and gas revenue in the budget. If Malaysia doesn’t take action to limit its vulnerability to lower commodity prices, it may find 2015 marks the start of a much more difficult economic story.

Nurhisham Hussein is a Malaysian economist.

This article is part of an EAF special feature series on 2014 in review and the year ahead.

Aceh’s unfinished recovery

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Clean up, check. Recovery? Not quite (File photo, Meulaboh, West Aceh, 2004)

BANDA ACEH, 26 December 2014 (IRIN) –

Guest post by Lilianne Fan 

The Indian Ocean tsunami, triggered by a massive earthquake just off the coast of the province of Aceh on tip the Indonesian island of Sumatra, released the energy of 23,000 Hiroshima-type atomic bombs and devastated coastal towns and communities. The impact was global in scale – an estimated 270,000 people killed or missing across 14 countries, with casualties in 46 nations.

But while the tsunami’s destruction was felt around the world, Aceh was by far the region most devastated by the disaster, bearing almost half of the total damage and losses worldwide.

Today, 10 years on, Aceh is widely regarded as a success story in disaster reconstruction. This is not entirely surprising -over the four year mandate of the government-led recovery process, Aceh saw a remarkable amount of construction. With the help of hundreds of aid agencies and donors, under the coordination of the government of Indonesia, more than 140,000 new homes were built, along with around 4,000km of roads, 2,000 schools, 1,000 health facilities, 23 seaports, and 13 airports and landing strips. One of the most prominent symbols of Aceh’s reconstruction is the 242km-long highway from provincial capital Banda Aceh to Meulaboh along the province’s formerly devastated west coast, built with the vision of stimulating economic activity and supporting Aceh’s long-term development.

But while Aceh’s physical reconstruction is impressive and the Indonesian government’s Rehabilitation and Reconstruction Agency for Aceh and Nias (BRR) has rightly been praised as a model of post-crisis governance and leadership, these achievements obscure deeper problems that have made long-term recovery for many Acehnese difficult and elusive. The hard truth is that for most Acehnese, their “recovery” still remains an unfinished journey, as many continue to struggle to make ends meet.

Even after receiving more than US$7.7 billion in aid, from both international and national sources, Aceh remains one of the poorest provinces in Indonesia with 18 percent of the population living below the country’s poverty line (significantly higher than the national average of 11 percent). Today, in spite of much optimism that the province would undergo an economic renaissance on the back of the reconstruction bubble, Aceh’s economy is stagnant and unemployment is high.

And while tsunami aid could not possibly have been expected to lift all Acehnese out of poverty, some critical questions ought to be asked about whether that aid struck the right balance. Was the prioritization on physical rebuilding along Aceh’s west coast appropriate in a province that suffered from not only a tsunami but also a 30-year conflict and decades of isolation and underdevelopment? Should more aid have been spent on supporting sustainable livelihoods and less on physical infrastructure? Could more effort have been made to shift excessive tsunami aid to poor conflict areas?

Ghost villages, empty highway

All along the west coast of Aceh are houses built with aid money – once sturdy buildings, now abandoned and decayed, forming ghost villages, such as in the villages of Lhok Kruet, Nusa and Babah Dua in the district of Aceh Jaya. Without regular income, many Acehnese simply cannot afford to maintain their new houses, nor to pay for infrastructure and utility connections, and have found alternative shelter, including sharing rented accommodation with relatives.

Many tsunami survivors, including children and youth who became heads of households and breadwinners in the aftermath of the disaster, feel they have few options but to migrate, often illegally, to seek work. Moving to big cities in Indonesia and Malaysia in search of work, many have also abandoned their aid-built houses in pursuit of livelihood security. Such economic pressures have a direct negative impact on children’s education – Aceh’s school drop-out rate of 26 percent is one of the highest in the country, and orphans from poor backgrounds are the single largest group among drop-outs. In addition, in 2013-2014, Aceh had the highest number of secondary students who failed the national exams. They also have an impact on women, who are left to take care of children and the elderly, a role which they played during the years of conflict when many men were forced to flee.

In all fairness, tsunami aid cannot be blamed for Aceh’s continuing problems. Indeed, Aceh had multiple problems before the tsunami, first among them the 30-year conflict between the Free Aceh Movement (Gerakan Aceh Merdeka, or GAM) and the Indonesian government that killed an estimated 30,000 people, left over 300,000 seriously injured, and displaced an estimated 600,000 people.

The conflict also devastated the social and economic fabric of the province, and weakened its institutions. During the years of fighting, human rights violations against rebels and civilians alike were rampant, homes and schools became regular targets of arson attacks. The social development costs of the conflict were alarming. In 2002, just two years before the tsunami, the poverty rate stood at 30 percent, more than half the population had no access to running water and one in three children under the age of five was under-nourished. Farmers were too afraid to attend to their fields, while illicit businesses, including in logging, arms, drugs, and extortion, thrived.

Many hoped that the peace agreement, accelerated by the tsunami, would allow Aceh’s conflict-affected communities to also benefit from the large volume of aid in the province. But while damage and loss from the conflict is estimated to be more than $10 billion, conflict aid to Aceh reached only around $800 million, or one-seventh the total of tsunami aid. Today, many rural households continue to struggle to make ends meet: Aceh’s anticipated “peace dividend” has yet to become a reality.

Kuntoro Mangkusubroto, director of BRR, admitted in 2008 that “the rural economy on the coastline that was hit by the tsunami is back, I can say that with full confidence. The rural economy in the hinterland that was affected by the conflict is not back.” Recent psychosocial research by the Mulia Hati Foundation, a local NGO, along Aceh’s west coast revealed that many Acehnese experience poverty as a “third wave of trauma”, on top of the trauma of the tsunami and that of the conflict. Indeed, Aceh’s conflict-era political economy hasn’t disappeared since the tsunami or the signing of the peace agreement; it has, on the contrary, adapted and persisted, creating new inequalities and putting control of the economy into the hands of a new political elite.

Blind aid

But while the international community cannot be held responsible for Aceh’s deep structural and political problems, decisions made about how tsunami aid was spent and short time-frames for aid programmes have had a significant impact on Aceh’s continued lack of social and economic development and the persistence of predatory politics and poor governance in the province.

First, international donor funding went from billions to virtually nothing in the space of a few years, making it difficult for most agencies to develop long-term community programmes. Second, aid was dramatically uneven, with the bulk focused on rebuilding housing and infrastructure and only a small portion allocated to livelihood recovery. Third, even when aid was allocated to livelihoods initiatives, these were too often unsustainable, with many agencies involved in “supply-driven” short-term assistance, such as distributing fishing boats and large cash grants which distorted the market, without also addressing the root causes of poverty. Fourth, tsunami aid was conflict-blind, creating new inequalities and exclusions, with an enormous amount of tsunami aid creating a “gold coast”, while the conflict-affected areas received barely any assistance after the signing of the peace agreement in Helsinki in August 2005. At the same time, housing construction also created some opportunities for Aceh’s new GAM elite, some of whom transformed successfully into contractors, deepening perceptions among Aceh’s conflict affected communities that they had simply been forgotten by the international community as well as their own leaders alike.

Part of the problem was one of volume. As Craig Thorburn of Monash University, who led a multi-year research project on community recovery in Aceh, observed: “the sheer volume of this aid -in combination with the ambitious deadlines set for the recovery process -inevitably resulted in serious overlaps and redundancies, mistargeting and hastily planned and implemented programs.” Poor use of aid funds were also due to the intense pressure on aid agencies – from donors, the public and media – to spend funds quickly, rather than to invest it in ways that might support more thoughtful and sustainable recovery and transition processes. At the same time, in their enthusiasm to help, many actors were simply blind to the realities of power in Aceh, including the impact of 30 years of armed conflict. 

A key lesson for the aid community from the 2004 tsunami and the Aceh reconstruction process is the need to think more critically about what will actually help people the most in a given political context in the long-run, not just what we want to do to help them.

While this seems straightforward, such common sense continues to elude the aid community over and over again today, including in the 2010 Haiti earthquake response and the recent Typhoon Haiyan response, both cases where local government, civil society and private sector felt by-passed by international aid actors who created parallel systems and overlapping initiatives.

A more sustainable approach must start with a deeper understanding of the root causes of vulnerability as well as the relationships of power that keep people vulnerable. Even if international aid cannot solve all problems within crises-affected societies, at the very least aid actors should ensure that they are not blind to them. At the same time, international aid donors and agencies must work harder to overcome institutional and financial barriers that prevent them from implementing responses that put the realities of vulnerable people at the centre.

The tenth anniversary of the tsunami is a time for remembrance and reflection; it also offers us an opportunity to recommit our efforts to help Aceh and other tsunami-affected communities complete their unfinished recovery. So much has already been invested in rebuilding these societies. What is now needed is renewed momentum to complete the last mile so that the response to the tsunami can be a proud legacy for us all.

Lilianne Fan is a Research Fellow at the Overseas Development Institute’s Humanitarian Policy Group in London. She has worked on Aceh since 1999, including four years in tsunami recovery operations.

Press Releases: Remarks on Climate Change at COP-20

SECRETARY KERRY: Todd, thank you very, very much. Thank you all for being here. Thank you very much, and it’s a privilege for me to be able to share a few words here on what is, by necessity, a quick trip, and I apologize for that, and I am grateful for your steadfast efforts to get us over the finish line.

Todd and I have worked together for a long time now, going all the way back to my time in the Senate, and I appreciate, Todd, all the work that you and the entire delegation have been doing. I just had a chance to meet with them. And I thank you not just for your work here in Lima, but for your work all around the world.

I also want to thank a few other people who are here today, if I may – our terrific Ambassador in Peru, Brian Nichols; the Executive Secretary of the UNFCCC, Christiana Figueres; Environment Minister of Peru, Manuel Pulgar-Vidal; and all of the other diplomats, scientists, experts, activists, all of you concerned citizens who are hard at work in order to make sure that we get this right.

I’m also delighted to say that because of all that hard work, I understand we now have enough pledges from the international community to meet and exceed the initial Climate Green Fund target of 10 billion. And the United States is very proud to be contributing 3 billion, and we are grateful for the announcement of countries like Australia, Belgium, Colombia, and Peru that they have made in recent days to help get us over the hurdle. All of this will help to ensure that this fund can succeed in helping the most overburdened nations of the world to do more to be able to respond to climate change. And finally, I want to thank Peru for hosting the COP-20, a critical stepping stone to the agreement that we must reach in Paris next year.

Now for Peru, climate change is personal. It will determine whether future generations will know Peru as we know it today, as we have known it, or whether today’s treasures are confined to history. Think about it: Peru is home to 70 percent of the world’s tropical glaciers, to nearly all of the world’s major ecosystems, and to more fish species than any other country on earth. But already, almost half the volume of many glaciers has melted away just in the last 30 years or so. Ecosystems are visibly being destroyed before our eyes. And fisheries are threatened. So this is not just a fight by Peru; it is a fight for Peru.

And this is not just another policy issue. Measured against the array of global threats that we face today – and there are many – terrorism, extremism, epidemics, poverty, nuclear proliferation – all challenges that know no borders – climate change absolutely ranks up there equal with all of them. And I challenge anyone who has thought about the science or listened – actually listened carefully to national security experts tell us that these dangers are real – I challenge them to tell us otherwise and to show us otherwise. I might add that we have, as Todd mentioned, the distinguished former Vice President of the United States and Nobel Prize winner who was the leader with all of us on this issue, but the first among equals, believe me, in his passion and commitment to this. And I’ve often heard him reciting the numbers of studies and the amazing amount of evidence that has been tallied up versus the paucity of a few usually industry-paid-for false analyses that try to suggest otherwise. And while no one here believes that a global climate agreement is going to be the silver bullet that eliminates this threat, I think everybody here can agree that we certainly won’t eliminate it without an agreement.

Now I know that everybody in this room is committed, all of us, but I think when you’re among the committed, you have a responsibility to be particularly candid. It seems that every time I speak at an event about climate change, someone introducing me, as Todd did today, said, “John Kerry’s been to every major gathering since Rio,” and it’s true. But I’ll tell you something, that’s kind of troubling. Because it was in Rio, as far back as 1992, when I heard the secretary-general, as Al did when we were there, declare, “Every bit of evidence I’ve seen persuades me that we are on a course leading to tragedy.”

That was 1992. This morning, I woke up in Washington to the television news of a super-storm rainfall in California and Washington State – torrential, record-breaking rain in record-breaking short time. It’s become commonplace now to hear of record-breaking climate events. But this is 2014, 22 years later, and we’re still on a course leading to tragedy. So this is an issue that’s personal for me, just as it is for you, absolutely.

I did spend those years working on climate change during my time in the U.S. Senate, and I’m not surprised at all that Al Gore is still here, a veteran of Lima and a veteran of every other meeting, and a veteran of writing and speaking and leading on this in an effort to try to make a change. We were working on this since the 1980s, and both of us can remember 1988, the first hearing we held in the United States Senate on this issue, when Jim Hansen told us then that climate change was real, it is here, and it is happening now. That’s 1988.

I appreciate the remarkable leadership that Al has provided on this issue for all that time, but this year, I’m not at this meeting, nor is he, just because of our personal histories here with climate change. I can tell you I’m not here in that role. I’m privileged to be here as President Obama’s lead international advocate that this issue should be personal for absolutely everybody – man, woman, child, businessperson, student, grandparent. Wherever we live, whatever our calling, whatever our personal background might be, this issue affects every human on the planet, and if any challenge requires global cooperation and effective diplomacy, this is it.

Now I know it’s human nature at times to believe that mankind can somehow defy Mother Nature. But I think it is the plight of humanity that, in fact, we cannot. And whether we’re able to promptly and effectively address climate change is as big a test of global leadership, of the international order – such as we call it – it’s the biggest test of that that you’ll find. Every nation – and I repeat this as we hear the debates going back and forth here – every nation has a responsibility to do its part if we’re going to pass this test. And only those nations who step up and respond to this threat can legitimately lay claim to any mantle of leadership and global responsibility. And yes, if you’re a big, developed nation and you’re not helping to lead, then you are part of the problem.

Rest assured, if we fail, future generations will not and should not forgive those who ignore this moment, no matter their reasoning. Future generations will judge our effort not just as a policy failure, but as a massive, collective moral failure of historic consequence, particularly if we’re just bogged down in abstract debates. They will want to know how we together could possibly have been so blind, so ideological, so dysfunctional, and frankly, so stubborn that we failed to act on knowledge that was confirmed by so many scientists in so many studies over such a long period of time and documented by so much evidence.

The truth is we will have no excuse worth using. The science of climate change is science, and it is screaming at us, warning us, compelling us – hopefully – to act. Ninety-seven percent of peer- reviewed climate studies have confirmed that climate change is happening and that human activity is responsible. And I’ve been involved, as many of you have, in public policy debates for a long time. It’s pretty rare to get a simple majority or a supermajority of studies to say the same thing, but 97 percent over 20-plus years – that is a dramatic statement of fact that no one of good conscience or good faith should be able to ignore.

Now you only have to look at the most recent reports to see in all too vivid detail the stark reality that we are faced with. Scientists agree that the emission of climate pollutants like carbon dioxide, methane, soot, hydrofluorocarbons all contribute to climate change. In fact, basic science tells us that life on earth wouldn’t exist at the heretofore 57 degrees average temperature Fahrenheit which allows life to exist. Without a greenhouse effect, life wouldn’t exist, and if the greenhouse effect is good enough to provide you with life itself, obviously, logic suggests that it’s also going to act like a greenhouse if you add more gases and they’re trapped and you heat up the earth. This is pretty logical stuff, and it’s astounding to me that even in the United States Senate and elsewhere, we have people who doubt it.

People agree that energy sources that we’ve relied on for decades to fuel our cars and power our homes – things like oil and coal – are largely responsible for sending these warming gasses up into the atmosphere. And they agree that emissions coming from deforestation and from agriculture also send enormous quantities of carbon pollution into our atmosphere. And they agree that if we continue down the same path that we are on today, the world as we know it will change profoundly and it will change dramatically for the worse.

Now you don’t need a Ph.D. to be able to see for yourself that the world is already changing. You just need to pay attention. Thirteen of the warmest years on record have occurred since 2000, with this year, again, on track to be the warmest of all. We’re getting used to every next year being the warmest year of all. It seems almost every year that happens now.

In 2013, countries in Southern Africa experienced the worst droughts that they had seen in 30 years. In Brazil, they saw the first – worst drought in half a century. New Zealand really – recently experienced a drought so bad that farmers had to slaughter their dairy cattle and sheep because they didn’t have enough food and water to keep the animals alive.

And the historic droughts in some parts of the world are matched only by historic floods in other parts. In June of last year, India was hit by the worst monsoon flooding in almost a century. Nearly 6,000 people lost their lives. What’s really disturbing is that the science has been telling us loud and clear that this is coming at us, and if we continue down the current path, the impacts are expected to increase exponentially.

For example, scientists predict that by the end of the century, the sea could rise a full meter. Now, I’ve had people who say to me a meter doesn’t sound like that much to some people, but let me tell you: when it comes to a rising sea, one meter would displace hundreds of millions of people worldwide, cost hundreds of billions of dollars in economic activity. It would put countless homes and schools and parks – entire cities and even countries – at risk.

Scientists also predict that climate change could mean even longer, more unpredictable monsoon ceilings – seasons and more extreme weather events. And while we can’t tell whether one particular storm is specifically caused by climate change, scientists absolutely do predict many more of these disastrous storms are likely to occur unless we stop and reverse course.

Last year I visited Tacloban. I went to the Philippines to visit the site, the wake of the Typhoon Haiyan and I will tell you it is incomprehensible that that kind of storm – or worse – becomes the norm. Yet just this past weekend, that same region of the Philippines got slammed by yet another typhoon, with winds over 100 miles per hour and torrential downpours.

And what is particularly frustrating about the real-life damage that’s being done – and the threat of more to come – is that it doesn’t have to be inevitable. Nothing suggested this is inevitable. Human cost. There’s nothing preordained about the course that we’re on, except habits – bad habits. The challenge that we face may be immense, but I can’t underscore enough: This is not insurmountable.

Mankind is creating the problem, and mankind can solve the problem. And unlike some problems that we face, this one already has a ready-made solution provided by mankind that is staring us in the face: The solution to climate change is energy policy.

And there is still time for us to come together as a global community and make the right energy choices. We can significantly cut emissions and prevent the worst consequences of climate change from happening. And anyone who tells you otherwise is just plain wrong, period. The science shows that at this moment there still is a window. It’s shutting. It’s smaller. It’s not as big an opening. And indeed, mitigation is here with us as a result, but there is time for us to change course and avoid the worst consequences – but the window is closing quickly.

So we have to approach this global threat with the urgency that it warrants. Leaders need to lead. Countries need to step up. And that means we have to come together around an ambitious climate agreement between now and the end of next year. Let me be clear: We’re not going to solve everything at this meeting or even in Paris – I understand that. But we must take giant, measurable, clear steps forward that will set us on a new path. And that means concrete actions and ambitious commitments.

Now, as I mentioned – as Todd mentioned, too – I have been coming to these conferences for a long time. And I know the discussions can be tense and the decisions are difficult. And I know how angry some people are about the predicament they’ve been put in by big nations that have benefitted from industrialization for a long period of time. I know the debates over who should do what and how hard fought and how complex. And if it weren’t hard, this would have been solved a while ago.

But the fact is we simply don’t have time to sit around going back and forth about whose responsibility it is to act. Pretty simple, folks: It’s everyone’s responsibility, because it’s the net amount of carbon that matters, not each country’s share.

Now certainly, the biggest emitters, including the United States – and I’m proud that President Obama has accepted that responsibility – have to contribute more to the solution. But ultimately, every nation on Earth has to apply current science and make state-of-the-art energy choices if we’re going to have any hope of leaving our future to the next generation to the safe and healthy planet that they deserve.

Now I want to be very clear: President Obama and I understand the way countries feel, particularly about the major emitters. We get it. The United States and other industrial nations have contributed significantly to this problem – before, I might add, we fully understood the consequences. And we recognize the responsibility we have now to lead the global response.

But that is exactly what the United States is doing. It’s a challenge that President Obama has taken on. And today, thanks to the President’s Climate Action Plan, the United States is well on its way to meeting our international commitments to seriously cut our greenhouse gas emissions by 2020. And that’s because we’re going straight to the largest source of pollution. We’re targeting emissions from transportation and power sources, which account for roughly 60 percent of the dangerous greenhouse gases that we release. And we’re also taking – tackling smaller opportunities in every sector of the economy in order to address every greenhouse gas.

The President has put in place standards to double the fuel efficiency of cars and trucks in the American roads. We’ve also proposed regulations that will curb carbon pollution coming from new power plants, and similar regulations to limit the carbon pollution coming from power plants that are already up and running, and we’re going to take a bunch of them out of commission.

At the same time, since President Obama took office, the United States has upped our wind energy production more than threefold, and we’ve upped our solar energy production more than tenfold. We’ve also become smarter about the way we use energy in our homes and businesses. And as a result, we’re emitting less overall than we have at any time in the last 20 years.

This is by far the most ambitious set of climate change actions that the United States has ever undertaken. And it’s the reason we were able to recently announce our post-2020 goal of reducing emissions from 26 to 28 percent, from 2005 levels, by 2025. That will put us squarely on the road to a more sustainable and prosperous economy. And the upper end of this target would also enable us to cut our emissions by 83 percent by 2050 – which is what science says we need to do to meet the goal of preventing over 2 degrees of Celsius warming.

Now, we’re proud of this target, and we’re grateful that with the targets that China and the EU have also announced, we now have strong commitments from the three largest emitters in the world. Is it enough? No. But it’s the beginning, which begins to move the economy and begins to move businesses and move decisions in the direction we need to go. And we’re seeing encouraging signs already that others are prepared to follow. For example, last month Brunei, Cambodia, Indonesia, Lao, Malaysia, Burma, the Philippines, Singapore, Thailand, and Vietnam all announced at the ASEAN Summit that they would come forward with their post-2020 emission reduction contributions well in advance of Paris, the end, perhaps – possibly by the end of March next year.

Now, I emphasize again: No single country, not even the United States, can solve this problem or foot this bill alone. That’s not rhetoric. It is literally impossible.

Just think of it this way: If every single American biked to work or carpooled to school, and used only solar panels to power their homes – if we each in America planted a dozen trees – if we somehow eliminated all of our domestic greenhouse gas emissions – guess what? That still wouldn’t be enough to offset the carbon pollution coming from the rest of the world and providing the same level of damage at a different point in time than we face today. The same would be true if China or India came down to zero emissions, if either was the only country to act. It’s just not enough for one country or even a few countries to reduce emissions when other countries continue to fill the atmosphere with carbon pollution as they see fit. If even one or two major economies fail to respond to this threat, it will counteract much of the good work that the rest of the world does. And when I say we need a global solution, I mean it. And there’s simply no excuse for anything else.

Now, of course industrialized countries have to play a major role in reducing emissions, but that doesn’t mean that other nations are just free to go off and repeat the mistakes of the past and that they somehow have a free pass to go to the levels that we’ve been at where we understand the danger.

Now, I know this is difficult for developing nations. We understand that. But we have to remember that today more than half of global emissions – more than half – are coming from developing nations. So it is imperative that they act, too.

And at the end of the day, if nations do choose the energy sources of the past over the energy sources of the future, they’ll actually be missing out on the opportunity to build the kind of economy that will be the economy of the future and that will thrive and be sustainable.

Coal and oil may be cheap ways to power an economy today in the near term, but I urge nations around the world – the vast majority of whom are represented here, at this conference – look further down the road. I urge you to consider the real, actual, far-reaching costs that come along with what some think is the cheaper alternative. It’s not cheaper.

I urge you to think about the economic impacts related to agriculture and food security – and how scientists estimate that the changing climate is going to yield – is going to reduce the capacity of crops to produce the yields they do today in rice or maize or wheat, and they could fall by 2 percent every single decade. Think about what that means for millions of farmers around the world and the impact it will have on food prices on almost every corner of the world, and particularly as each decade we see the world’s population rise towards that 9 billion mark. Then factor in how that would also exacerbate the human challenges like hunger and malnutrition.

Add to that the other long-term-related problems that come from relying on 20th century energy sources and the fact that air pollution caused by the use of fossil fuel contributes to the deaths of at least 4.5 million people every year and all the attendant healthcare costs that go with it.

And for everyone thinking that you can’t afford this transition or invest in alternative or renewable energy, do the real math on the costs. Consider the sizable costs associated with rebuilding in the wake of every devastating weather event. In 2012 alone, extreme weather events cost the United States $110 billion. When Typhoon Haiyan hit the Philippines last year, the cost of responding to the damage exceeded $10 billion. Even smaller-scale disasters bear a hefty price tag, and the overall cost to businesses from the severe floods that hit parts of the United Kingdom earlier this year was an estimated 1.3 billion. You start adding up these 100 billions and 10 billions here in country after country, and think if that money had been put to helping to subsidize the transition to a better fuel, to an alternative or renewable, to cleaner, to emissions-free, to clean emissions capacity. Those are just the costs of damages. Think of the costs for healthcare due to pollution. Largest single cause of young children in America being hospitalized during our summers is environmentally air-induced asthma that those kids suffer. The agricultural and environmental degradation is palpable. So my friends, it’s time for countries to do some real cost accounting.

The bottom line is that we can’t only factor in the cost of immediate energy need or energy transition. We have to factor in the long-term cost of carbon pollution. And we have to factor in the cost of survival itself. And if we do, we will find that the cost of pursuing clean energy now is far cheaper than paying for the consequences of climate change later. Nicolas Stern showed us that in a study any number of years ago. And we still need to get all of our countries more serious about doing that accounting.

In economic terms – bottom line, in economic terms, this is not a choice between bad and worse, not at all. This is a choice between growing or shrinking your economy. And what we don’t hear enough of is the most important news of all, that climate change presents one of the greatest economic opportunities of all time on earth.

I said earlier that the solution to climate change is as clear as the problem. It’s here. The solution is energy policy. Well, let’s take a look at that.

The global energy market of the future is poised to be the largest market the world has ever known. The market which grew the United States of America during the 1990s, when we had unprecedented wealth creation – more wealth creation in America in the 1990s than in the 1920s, when we had no income tax and you’ve heard of the names of Rockefeller and Carnegie and Mellon and so forth – more was created in the 1990s. Every quintile of our income earners went up in their income. Guess what? It was a $1 trillion market with one billion users. It was the computer, high-tech mobile device.

The energy market today is a $6 trillion dollar market with 4 to 5 billion users today, and it’s going to go up to that 9 billion users. By comparison, if you looked at the differential, this is an opportunity to put millions of people to work building the infrastructure, doing the transition, and pulling us back from this brink.

Between now and 2035, investment in the energy sector is expected to reach nearly $17 trillion. And that’s without us giving some of the price signals that we ought to be giving to the marketplace to make this transition. That’s more than the entire GDP of China and India combined. Imagine the opportunities for clean energy innovation. Imagine the businesses that could be launched, the jobs that’d be created, in every corner of the globe.

The only question is are we going to do it fast enough to make the difference. The technology is out there. Make no mistake, it’s out there now. None of this is beyond our capacity. And the question – and it really is still open to question; it’s why we’re here and it’s why we’re going to Paris – is whether or not it’s beyond our collective resolve.

Ask yourself, if Al Gore and Dr. Pachauri and Jim Hansen and the people who’ve been putting the science out there for years are wrong about this and we make these choices to do the things I’m talking about, what’s the worst thing that can happen to us for making these choices? Create a whole lot of new jobs. Kick our economies into gear. Have healthier people, reduce the cost of healthcare. Live up to our environmental responsibilities. Have a world that’s more secure because we have energy that isn’t dependent on one part of the world or another. That’s the worst that can happen to us.

But what happens if the climate skeptics are wrong? Catastrophe. And we have a responsibility to put in place the precautionary principle when you’re given certain evidence and you’re a public official.

So today I call on all of you here in Lima – negotiators, diplomats, scientists, economists, and concerned citizens in Peru and around the world – to demand resolve from your leaders. Speak out. Make climate change an issue that no public official can ignore for even one more day, let alone for one more election. Make a transition towards clean energy the only policy that you’ll accept. And make it clear that an ambitious agreement in Paris is not an option, it’s an urgent necessity.

We can get there. How do I know that? And I do; I believe we can get there. Because, at the end of the day, we have no choice. And because we’re starting to see signs that, thankfully, more and more of the world is coming to the same conclusion.

You only have to look at the United States and China to understand what I’m talking about. Our two nations are the world’s largest consumers of energy, and we are the world’s largest emitters of global greenhouse gases. Together, we account for roughly 40 percent of the world’s emissions. And it’s no secret that we’ve had very different views when it comes to climate change.

I can remember discussions with Chinese 15, 10 years ago that went nowhere. But in Beijing last month I had the privilege of joining President Obama as he stood next to President Xi to jointly, side by side, announce our respective ambitious post-2020 mitigation commitments and to call on other countries to come forward with their own ambitious targets as quickly as possible, so we can conclude a strong agreement next year. The United States and China – two countries long regarded as the leaders of opposing camps in these negotiations – have now found common ground on this issue. That is a historic milestone, and it should send a clear message to all of us that the roadblocks we’ve hit for decades can be removed from our path.

I’m not suggesting it’s going to happen in one fell swoop or that it’s easy – there isn’t a person in this room who probably isn’t pretty tuned in to how hard it is – but I am confident we can rise above the debates that have dragged us down. We can find a way to summon the shared resolve that we need to tackle this shared threat. And if we do that, then we will reach an agreement and we will meet this challenge. That is our charge, and for the sake of our children, our grandchildren, and our responsibility as human beings on this earth, this is a charge we must keep. Thank you very much.

Remarks by the President at Meeting of the Export Council

The White House

Office of the Press Secretary

For Immediate Release

December 11, 2014

Eisenhower Executive Office Building

11:30 A.M. EST

THE PRESIDENT:  Well, good morning, everybody.  I just want to offer a few thoughts before you return to the meeting.  Obviously we’ve seen some significant economic progress here in the United States over the last year.  Our businesses have added almost 11 million jobs over the past 57 months.  This year our economy has already created more jobs [than] in any year since the 1990s, with still a month to go.  All told, since 2010, we’ve created more jobs here in the United States than Japan, Europe, and all advanced nations combined.

And one of the reasons that we’ve been able to create so many jobs here in the United States is because our exports have been strong.  Last year our businesses sold a record $2.3 trillion of Made in America goods and services.  And these exports support more than 11 million American jobs — typically, by the way, jobs that pay higher wages. 

And so this Council is designed to build on this progress.  It is in part a factor in the progress that we’ve made.  We’ve had some terrific suggestions from some of our leading businesses, but also some small businesses and medium-sized businesses who are starting to sell overseas.  The recommendations that have been generated by the Council have been implemented by our various agencies, and we’re here not to rest on our laurels but rather to continue to make a big push to sell even more overseas.

I’ve said before I will go anywhere around the world to go to bat for American companies and American workers.  We’re going to keep on pushing trade agreements that benefit American companies and American workers and ensure that we’ve got a fair and even playing field, particularly in the fastest-growing markets.  We’re going to work with Congress to try to renew trade promotion authority and secure approval for a very ambitious TransPacific Partnership agreement, which would create a higher standard for trade in the fastest-growing, most populous and dynamic region in the world, the Asia Pacific region. 

We’re also announcing — because manufacturing has been a real bright spot in our growing economy — some additional measures to boost manufacturing here in the United States so we can sell more manufacturing goods overseas.  We’re announcing today more than $290 million in new investments to launch two additional high-tech manufacturing hubs.  One is going to be focusing on flexible computer chips that can be woven into everything from the gears in a helicopter to the fabric in your shirt.  Another is going to focus on advance sensors that can dramatically cut energy costs for our factories.

So far, we have launched eight of these hubs, and we intend to get 16 done, so we’re more than half of the way there.  And they’re helping us to compete for the next generation of manufacturing.  One of the reasons that manufacturing has been growing faster here than the overall economy is because of real savings on the energy front, outstanding workers, but also because our companies have retooled and once again made that investment in innovation that has been the hallmark of American manufacturing for years.

I also want to thank many of the folks around this room who’ve been working with us to find ways that we can increase and improve the pipeline for skilled workers going into the companies that ultimately end up exporting goods and services overseas.  To make sure that our workers have those skills, today, my Secretary of Labor, Tom Perez, is announcing a $100 million competition to help expand apprenticeship programs across our country.  Many of the companies around this table have helped design it or are already participating in these apprenticeship programs.  They give talented, motivated young people the chance to get an outstanding career.  They get a pathway, a door open to them that allows them to succeed and secure a position in the middle class, and it helps us recruit the kind of workers that are going to keep us competitive for years to come.

Finally, we’ve got real opportunities to make some bipartisan progress this year on some areas that will make us more competitive in this global marketplace.  For example, today our companies face the highest corporate tax rate in the world on paper.  There are so many loopholes that some end up paying a much lower rate; some pay the full freight.  It distorts our allocation of capital.  It makes us less competitive relative to businesses that are headquartered overseas.  We need to fix that. And I think that there’s genuine interest on both the Democratic and Republican side in making that happen. 

And so I just want to thank everybody on the Export Council for the outstanding work that you’ve already done.  I’m looking forward to hearing about the recommendations that you have generated during the course of this meeting.  And rest assured that I will be your partner for the remainder of my time in this office, making sure that we have the strongest, most competitive companies, the best workers, the best research and development, and the highest exports that we’ve ever seen in our history.

Thank you very much. 

Thanks, pool.  Thank you, pool.

Q    Mr. President, do you agree with John Brennan that the CIA’s interrogation techniques saved lives?

THE PRESIDENT:  We’re talking about exports, Jon.  Thank you. 

Q    Mr. President, do you agree with John Brennan that the CIA’s interrogation program saved lives?

THE PRESIDENT:  We’re talking about exports, Jon.  Thank you. 

MR. McNERNEY:  Listen, thank you very much, Mr. President.  If you look historically at the PEC, there has never been a time in its history where the administration, you personally, and the people on your Cabinet have supported this group to a greater extent.  And we feel that engagement, and your presence here today once again makes that point.  It energizes us, and I think it moves the agenda along.

What we did today, we focused heavily on trade with Ambassador Froman.  I’d like to maybe come back and get your perspective on how we’re going to move that forward.  Everybody in the room is leaning forward in every kind of way to get that done. 

I think we reported out on the basis of six of our subcommittees’ recommendations we’re going to send to you, which you will get in due course.  I think the other thing we talked about was a fact-finding trip we made to Turkey and Poland, which I think gave everybody in this group an on-the-ground understanding of the impact of the leadership of Penny and Mike and others on furthering things along.

But I think if there were two things I would just sort of tee up — and I know we have limited time with you — one would be getting these things done.  We all think it’s the right time, and you’ve suggested that to us at the BRT and some other places. Any comments you’d have for us to help you get it done. 

And then the other thing that came up is China.  You’ve spent a lot of time with President Xi personally connecting.  Penny is going to take the leadership role, starting in Chicago next week, JCCT.  We’re trying to engage.  But any comments on China would be — those are sort of the themes that came out of the group this morning.

THE PRESIDENT:  Well, if you heard from Mike Froman, then you heard from —

MR. McNERNEY:  The Oracle.  (Laughter.)

THE PRESIDENT:  — the guy who’s in the trenches on these trade negotiations.  I’ll just give you a couple of quick top lines. 

First of all, I’m much more optimistic about us being able to close out an agreement with our TPP partners than I was last year.  Doesn’t mean that it’s a done deal, but I think the odds of us being able to get a strong agreement are significantly higher than 50-50, whereas last year I think it was still sort of up for grabs.

The question then becomes, assuming we are able to get the kind of agreement that is good for American workers and good for American businesses, how do we proceed in Congress.  I think that despite the fact that we had an election I did not — I wasn’t that happy with, the dynamics really don’t change in terms of the number of votes in the House and the Senate that are there to be gotten for a good trade deal.  But we have to make the case.  And I think we can make a very strong case that what we’re doing here is really setting a higher bar that will give us more access to markets, will give us greater IP protection, will make sure that U.S. companies both in goods and in services are less disadvantaged by non-tariff barriers and state support and procurement practices in these countries than they’ve been in the past.

The pushback that we’re going to get domestically derives from a couple of sources.  One is from not just labor — not just organized labor, but a public perception generally that trade has resulted in an erosion of our manufacturing base as companies moved overseas in search of lower-wage labor.  And my essential response to those arguments is not to deny that there have been some consequences to China’s ascension to the WTO and offshoring, but rather that that horse is out of the barn.  We are now in the worst of all worlds where they have access to our markets, much of that shift in search of low-wage labor has already occurred, and yet, we don’t have access to those markets that are growing and no levers to force these other countries to increase their labor standards and their environmental standards.

So instead of fighting the last war, what we need to be doing is looking forward.  And there’s no doubt that what Mike is negotiating creates higher labor standards and greater access than the status quo.  And that’s what we should be measuring against.  

I’ll give you just one very specific example, and that’s Vietnam.  Vietnam is probably the most interesting country involved in these negotiations:  A, it’s still a one-party system that provides workers very few rights, if any, and yet, in order to be part of TPP, they’re having to make some pretty radical shifts in how they treat workers.  They’re not going to suddenly have the same labor standards as Germany does, but there’s going to be an improvement.  And by us establishing a baseline for labor rights even in a country that has traditionally had no labor rights we’re improving our position not deteriorating our position. 

The same is true for the other set of critics that we may receive and that is from the environmental community, although, there’s divisions between the large environmental groups.  As I said at the BRT, I don’t know exactly what Malaysia’s environmental rules are, but I guarantee you they are lower than ours.  (Laughter.)  And for us to be able to include in a TPP agreement basic environmental standards is a win for us.  It puts us not at a disadvantage; it puts us at more of an advantage. 

The final criticism — not the final, but another criticism that we’re going to receive domestically is this issue of — what’s the term in terms of lawsuits?

Q    (Inaudible.) 

THE PRESIDENT:  Right.  And we’ve looked at the facts and, generally speaking, I think the language that’s being used allows every country to maintain its public health and safety and welfare provisions.  Really what we’re trying to get at here is making sure that foreign companies are not treated differently than domestic companies.  That’s the primary concern, is a discriminatory application of rules in ways that are arbitrary.
And I think that that’s something that all of us should agree on.

The big bugaboo that’s lifted up there is tobacco companies suing poorer countries to make sure that anti-smoking legislation is banned, or at least tying them up with so much litigation that ultimately smaller countries cave. 

Those are issues that I think can be negotiated — there are some areas of particular sensitivity or concern.  But overall, the principle that we should make sure that U.S. companies, when they invest or export to other countries, are abiding with their safety rules but that those public health and safety rules are not being discriminatorily applied or a ruse in order to keep us out.  That should be something everybody is in favor of.

So in terms of timing, how TPP happens versus TPA, I think regardless of the sequence, we’re going to have to make the sale, and it’s going to be very important for business to be out there and championthis and show that this is ultimately good for you, for your suppliers, for your workers.  And if you look at all the major exporters — you take a Boeing, presumably in every congressional district you’ve got to find a bunch of suppliers who are making the case, and their workers are making the case.  So it’s not just a bunch of CEOs calling but it’s people who understand that they’ve got a stake in it. 

So I think that’s on the labor front.  On China, all of what we’re doing with TPP has a direct application to China.  China is actually not that complicated.  They will take whatever they can get.  They will exploit every advantage that they have until they meet some resistance.  But they have a great interest in the relationship with the United States and recognize the interdependence that has evolved between our two economies.

And so the key with China I think is to continue to simply press them on those areas where trade is imbalanced, whether it’s on their currency practices, whether it’s on IP protection, whether it’s on their state-owned enterprises.  The business investment treaty that they have shown an interest in negotiating could end up being a significant piece of business.  We actually saw some movement during my last trip on issues surrounding technology.  And I think that it’s indicative of their interest in trying to get this right. 

And by the way, there’s been some suggestion that by doing TPP we’re trying to contain or disadvantage China.  We’re actually not.  What we are trying to do is make sure that rather than a race to the bottom in the region there’s a reasonable bar within which we can operate.  And we hope that then China actually joins us in not necessarily formally being a member of TPP but in adopting some of the best practices that ensure fairness in operations.

And the climate change announcement that we made was very significant.  For those of you who are impacted by the power plant rule that the EPA is initiating here, it’s good to know that one of the arguments that’s always been made about us dealing with climate change or environmental issues generally here in the United States is, well, it puts us at a disadvantage with China.  Well, we’re trying to take away that excuse by making sure that China is also abiding by higher standards and in a verifiable way.  So we’re going to be focused on that. 

MR. McNERNEY:  Do you have time for one more question?

THE PRESIDENT:  One more question.

MR. McNERNEY:  I think one of the things we talked about this morning with Vice President Biden was Russia sanctions.  And I think, by and large, the business community, while there’s some debate about exactly to what degree this, that, or the other thing, that these have been implemented very successfully and very methodically, worked well with the business community to maximize impact — or minimize the impact to us.

And so there was a pretty robust discussion that I think many of us in the room ended up saying, whether we’re in the third inning or the eighth inning, just keep moving.  And then there’s a lot of support in the business community for what you’re doing — keeping Europe lined up, which is our biggest concern.  Merkel seems to be hanging in there.  Anyway, the Vice President gave us a very robust discussion.  Any views from you  — I know you’ve talked to a lot of your peers on the subject.

THE PRESIDENT:  Joe has been very close to this, so he probably gave you a pretty sound overview.  I think you identified what’s been important in this process, and that is our ability to keep Europe in lockstep with us.  There may be some movement out of Congress for us to get out ahead of Europe further.  We have argued that that would be counterproductive. And we may need some help from the business community in making that argument to the soon-to-be Chairman of the Senate Foreign Relations Committee and others. 

Putin does not have good cards, and he actually has not played them as well as sometimes the Western press seems to give him credit for.  There’s been an improvisational quality to this whole process because the situation in Ukraine actually took Russia by surprise.  And it’s working for him politically, domestically, but profoundly damaging in terms of their economy long term, not just short term.

Where Putin will succeed is if it creates a rift in the transatlantic relationship.  If you start seeing Europe divided from the United States that would be a strategic victory.  And I’m intent on preventing that.  And the way to prevent is making sure that we are taking into account the very real economic impact on Europe from these sanctions, being measured in terms of how we apply them, and having some strategic patience.

The notion that we can simply ratchet up sanctions further and further and further, and then, ultimately, Putin changes his mind I think is a miscalculation.  What will ultimately lead to Russia making a strategic decision is if they recognize that Europe is standing with us and will be in it for the long haul and we are, in fact, patient.  And if they see that there aren’t any cracks in the coalition, then, over time, you could see them saying that the costs to their economy outweigh whatever strategic benefits that they get.

So you’ve got, I’m sure, everything about Ukraine, soup to nuts, from Joe.  I’ll just emphasize as a takeaway for the business community that we have been successful with sanctions precisely because we’ve been systematic about it and made sure there wasn’t a lot of daylight between us and the Europeans.  That should continue.  And even though sometimes it’s tempting for us to say we can go further, it won’t do us any good if it means suddenly Europe peels off and then are backfilling various things that U.S. companies are obliged to abide by.

All right? 

MR. McNERNEY:  Terrific.  Thank you very much.

THE PRESIDENT:  Thank you for the great work you’re doing.  Keep it up.  (Applause.) 

11:57 A.M. EST

Return on investment and cost-effectiveness of harm reduction program in Malaysia

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