“If the Fundamentals Aren’t Fixed, then Slapping Technology on the Front Will Not Solve It”

OPEC Fund Quarterly: Housing plays a big role in climate change as a major emitter of greenhouse gases. How is housing impacting the climate in developing countries? 

Oliver Harman: Buildings are responsible for 35 to 40 percent of global energy-related carbon emissions. What is interesting is that roughly threequarters of those come from operational emissions. That’s why heating, cooling, powering etc. are so important when we think about reducing emissions. For many developing countries this is an added challenge because they often are already at the kind of a spiky end of climate change: These emissions will likely only increase as the average temperature increases. The ambient temperature is one thing, but when your country or city is hit with 40°C or more then you see these huge energy spikes. 

OFQ: How big are the differences between cities in the developing world? 

OH: We must differentiate between the impact of housing with sustainable urbanization versus the impact of housing without sustainable urbanization. Our research at the International Growth Centre (IGC) shows that cities in developing countries are the most vulnerable to climate change, but also the most viable solution to its impact. 

OFQ: How is this possible? 

OH: It is the density of urban spaces that enables a much larger reduction in per capita emissions. Because pollution is generated in a concentrated way by many people in a comparatively small place, it can be targeted much more precisely and effectively than when it is caused by many small units scattered over a large territory. 

Urban density makes mitigation more effective, but there is also an adaptation side of things with access to local public goods and services. A study by the London School of Economics titled Weather, Climate and Death in India found that hot days lead to substantial increases in mortality in rural but not in urban India, where people have networks around them that allow them to mitigate this shock better. In contrast, in rural areas the consequences are larger since they cannot manage the shocks to their consumption, income and health as well as people can in urban areas. 

OFQ: Does this mean we need to rethink urbanization? Should we see it not as a problem, but rather as an opportunity? 

OH: We always also need to think the counterfactual and ask ourselves, what’s the alternative? It is a fact that urbanization is happening and attempting to inhibit this is both regressive and difficult. The question is then, how to make urbanization sustainable and how to house people in a way that limits the impact on the environment and ecological systems. And if we look at this in that way we see for a fact that density is a much more effective way of addressing the issue. 

OFQ: Does that not assume that these cities can at least provide basic services in terms of housing and water supply? Do cities in developing countries meet these kinds of minimum criteria? 

OH: I am not going to say that all cities in developing countries are green and wonderfully sustainable. But the evidence, for instance data from the Intergovernmental Panel on Climate Change (IPCC), shows that the energy use per capita in almost every world region is much lower in urban areas than it is in rural areas. The same is true of carbon emissions per capita, which are also much lower in urban areas than in rural areas. 

I think what’s often missed out of this argument is that cities are simply a much more effective way of bringing people together that allows people to use their limited funds in a much more effective way. There’s lower greenhouse gas emissions thanks to the ability for people to use public transit to get around more effectively. There’s less materials on a per capita basis needed because everyone’s sharing the same infrastructure. You can pipe water to a hundred people using one kilometer of pipe, whilst in rural areas that one kilometer is not going to reach that many. In this quite resource-constrained world that we live in cities allow us to provide people with local public goods and services that give them the resilience to withstand sharp climate changes. Otherwise, it’s going to be a lot more costly. 

OFQ: In your article Climate change: won or lost in cities or by cities? you argue that cities could do more to combat climate change but are held back by higher forces. Is that a fair summary? 

OH: My point is that there needs to be better consideration on where the kind of power to make climate decisions lies with respect to how these issues affect the environment. It was former UN Secretary-General Ban Ki-moon who said that climate change will be won or lost in cities. But no one was saying whether it was going to be won or lost by city or national governments. I think there needs to be a discussion on climate issues and where they are being dealt with, be it at city level or at national level. National governments are always reluctant to cede power to cities, but with some of the environmental challenges the urban level would be the best to deal with them. One example is air pollution, which is quite an urban problem and city leaders have an incentive to deal with this as a local public issue, while it is much less an emergency in rural areas. 

OFQ: Isn’t air pollution what most people associate with megacities? 
 
OH: This is true, but I think that a lot of the focus on megacities like Delhi, Dhaka or Cairo is actually a distortion. Instead, research should focus much more on intermediate and secondary cities to find solutions. Giving them more power is only one part of the equation. 

To use this power wisely, they also need fact-based evidence. Research by Arnulf Grubler and David Fisk in their book Energizing Sustainable Cities shows that every time a small-sized city doubles, its energy increases by a factor of six. But then if you go from a medium to a large city, if you double that in size, energy use increases by a much lower factor. So there is this returns to scale as cities grow. It is in the process of urbanization where we need to make sure that intermediate cities, where a lot of the gains can be made, are being properly supported. 

OFQ: You are calling for more emphasis on intermediary cities. Who should lead this effort? 

OH: I think it needs to be interdisciplinary. I work as an economist with the International Growth Centre, for instance, and I strongly feel that economists need to stop talking to their own tribes all the time and that we need to reach out to other disciplines. For instance, if you just throw the economics toolkit at these problems, you will miss out how to politically implement things that need to be done. This is a large part of the climate issue. 

OFQ: What role do you see for technology in climate action? Is digitalization going to solve the climate crisis for us? 

OH: I agree that there is interesting and promising technology, but it will not by itself save us. If the fundamentals aren’t fixed, then slapping technology on the front will not solve it. I think we need to understand what are the systematic problems, before we add technology to the mix. If you just put smart meters on leaky pipes you’re only going to have a better understanding of how much they’re leaking. 

We have done research on the use of technology in improving the efficiency of taxation systems and what we found is that often digitalization does not lead to the uptakes or changes that you might expect because there are issues with the fundamentals. For example, in Malawi the digitalization of tax collection was met with resistance because it was not accompanied with the creation of appropriate incentives which compensated the people for losses they incurred through a clampdown on various practices. 

OFQ: Digitalization often goes hand in hand with commercialization. This can bring heavy social costs. On the other hand no one can absorb losses forever. How do you design the process so that it serves sustainable development? 

OH: Form follows finance. If you are funding your infrastructure or local public goods and services with private finance, then there has to be some way in which the revenues from that can satisfy investors’ expectations. Private finance wants private returns. Similarly, if you are funding with public finance or some kind of blended finance, the expectations on return might be different. 

So I think it’s important to consider the financial flows very well and make sure that it is adequate to the type of project it is attached to. For example, parking meters are the perfect kind of private goods, where you can capture the revenues well and get the individual in the car to internalize the full cost of parking in a certain area, thus there is merit in financing them with private capital. This is very different from something like, for instance, drainage. This is more of a pure public good as you can’t tell citizens who can and cannot use drainage, and instead everyone benefits. That’s the kind of thing that requires public financing from the local or national government. I think it is crucial to have that distinction as to the sort of goods and services and the type of financing streams that work best. 

OFQ: Because eventually you have to pay back your investors? 

OH: Of course. There’s some stuff where the benefits are so localized that the way they’re paid back should also be localized, for instance, a local park by local land and property taxes. Clean air, on the other hand, benefits everyone in a city and thus should be something that’s funded through more city-wide revenues. Aligning the financing side, money in, and the funding side, money out, to the project are crucial. We don’t see that enough in many developed countries. 

OFQ: Isn’t the key challenge for policy-makers the need to put in place measures which will cost them their jobs? 

OH: Urban government is often closer to the people and arguably able to listen to them better than national government. My recent findings in research at the University of Oxford show that citizens in Africa think that their urban governments are of higher capacity then their central governments. Proximity to the people is helping how people perceive them and this creates some space for decision makers. Thus, citizens can be better served and lower the likelihood of dissatisfaction. 

OFQ: So you are arguing that we should revise our view on urbanization and instead of issuing warning signals sound the fanfares that we can do so much more good in densely populated areas? 

OH: Yes, that’s exactly what I think and the evidence points towards that you can deliver a lot more. When people say cities are necessarily bad they are often convoluting urbanization with income increases and development, because cities are a nexus where people’s welfare increases, where their incomes increase and where their consumption increases. Thus people end up thinking, okay, that is where all this energy use is happening, this is where all this pollution is being caused. If we pare back on that, then we are paring back on development and welfare increases. And this is a different conversation. 

OFQ: Wouldn’t that be the end of any kind of infrastructure development? 

OH: If we are building roads through beautiful savannas in order to connect small and isolated communities, then ultimately we begin to cause issues. If we start to sprawl and do our cities poorly, we invoke and encroach into areas of natural beauty. There are problems with not doing it right. Edward Glaeser, the Harvard economist, always says: “The best thing we can do for nature and the environment as humans, in terms of preserving it, is to stay the hell away from it.” I think we need to refocus on doing urbanization well and make it into something positive for the environment and the climate. In developing countries the solutions aren’t necessarily all there, but we know to a large degree what has worked and what has not in urbanization. It’s also about learning from each other, adding local context and deploying it in an adequate way. 

OFQ: Is the funding available, especially to make cities future-proof? 

OH: We need to look at this from two angles: climate and demography. Many developing countries are exposed to the effects of climate change, but at the same time are experiencing large expansions of their populations. Infrastructure decisions are being taken now, but they lock you in for generations to come, at least 60-100 years, from financial commitments to the actual built environment. Again it is a question of getting the structures right, letting the private sector do what the private sector does best, using grants in the most efficient way and mobilizing public sector funding where appropriate. The most important thing though is that we are honest with our failures, learn from our mistakes and do better as a community. 

Oliver Harman 

Oliver Harman is a spatial economist and economic geographer looking at urbanization, decentralization and internationalization. He is a Senior Policy Economist at the International Growth Centre based at the London School of Economics and Political Science (LSE), a Research Associate at the Blavatnik School of Government, University of Oxford and Visiting Researcher at the LSE’s Department of Geography and Environment. He researches Sustainable Urban Development at the University of Oxford, teaches “Using Economics in Government” at King’s College London and even finds time to publish numerous articles and advise governments.