boilingspot: Environment 'more vital than economy'

Tackling climate change is too crucial to be derailed by a temporary economic downturn, the OECD head has said.

By Steve Schifferes - Economics reporter BBC News, at the OECD in Paris

BBC News - 3 June 2008

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World financial markets need more regulation, Mr Gurria says

In a wide-ranging interview for BBC News, Angel Gurria said that the long-term damage that would occur if the world did nothing about greenhouse gases would far outweigh the short-term problems of the credit crunch.

Nevertheless, the OECD head acknowledged that the economic slowdown was going to be deeper and longer than anyone expected.

The problems were caused by the lack of proper regulation, he said.

He also said that sovereign wealth funds were part of the solution, and accused some rich country governments of hypocrisy in trying to block them from investing in big Western companies.

Mr Gurria was speaking as the OECD's annual ministerial conference opened in Paris, amid the most severe economic slowdown that rich countries have experienced for 30 years.

"It was a very serious problem and it is not over yet," he said. We are still going to see the consequences, he told the BBC, with growth very weak for the next two years, with 2010 being the first year when we can expect to return to normal growth.

Climate change talks

Mr Gurria is hoping to use the good offices of the OECD at a crucial time in the climate change talks, with uncertainty still unresolved over what sort of treaty will replace the Kyoto protocol, which limited greenhouse gas admissions and which expires in 2012.

In particular, the secretary general expressed optimism that he could convince China, India and other big emerging market countries - who are now observers at the OECD - to join a future agreement, provided that the US did as well.

Mr Gurria said he detected signs of progresss in both US and EU attitudes towards climate change, with positive steps.

The OECD estimates that one-third of greenhouse gases comes from the rich countries, one third from the emerging market giants, and one third from the rest of the world.

Mr Gurria argues that because saving the planet is a "public good" which will benefit all, the rich should be prepared to help poor countries pay to become more environmentally friendly.

However, Mr Gurria has been critical of the move to biofuels, which he says are not currently carbon-efficient and have been a cause of high food prices.

The OECD has strongly backed the development of worldwide carbon trading mechanisms, so that people know the real cost of the fuel they are consuming.

And it accepts that high oil prices are one means of signalling that people need to cut their consumption, Mr Gurria said.

But he added that many people in developing countries did not receive those price signals because the price of petrol was subsidised - for example, in China and India.

Getting on track

Mr Gurria said he was not surprised that people were disturbed by the pace of globalisation, and he admitted that the world financial system was not properly regulated.

"There was a problem with the banks and with the financial system as a whole, with their creativity, with their innovation, and with their aggressiveness," he said.

"This was not met quite fully by the upgrading and the updating of the regulatory framework, or by the speed at which the authorities were looking into what was happening in the financial sector."

The OECD believes that the combination of the financial turmoil and the housing slump in the housing market will continue to be felt not only in the US, but in the UK and Europe, for several years.

Mr Gurria says that the crisis shows that governments as well as the private sector play a key role in keeping the economy on track.

"Governments have to keep an eye on things - it cannot just be unchecked," he says.

But he denies that this amounts to a the rich nations repudiating their support for open markets and liberalisation.

"This is the free nations admitting that better interplay between markets and governments is necessary and also recognising that governments have an important role to play," he says.

Mr Gurria hopes that the OECD can play a crucial rule in co-ordinating the response to the crisis and helping countries design financial regulatory systems that work.

But with deep divisions among rich countries still remaining over how to regulate the world financial system, he faces a huge challenge.