ASTRAZENECA AND THE VACCINE CONTRACT. VON DER LEYEN’S INEXCUSABLE BLUNDER

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Prima facie the contract, now published in redacted form, is pretty clear and appears to support the  Astrazeneca position. Meanwhile the Commission’s threats to intervene across a range of vaccine export arrangements not only represent the worst kind of vaccine nationalism, but also threaten the wider credibility of governments (not just in the EU) across a range of vital public policy concerns, from public health to energy and climate.

The basics are well known. Astrazeneca has hit production problems at its European plants, a common problem with new pharma products, and has had to reduce its estimated deliveries in the next few months. Most such contracts, with a new product and new facilities, necessarily include best endeavours clauses to protect the producer, and this is no exception. Interpretation of such clauses can give rise to legal disputes, but the main issue between the parties in this case appears to be whether those best endeavours can be deemed to include the diversion of supplies promised to other parties under earlier contractual obligations. Since this at the centre of the dispute, it is worth understanding the detail.

If AstraZeneca had made multiple promises which were in conflict with one another, there might be a cause for a major contractual dispute. But in this case, at least on first inspection and according to the EU, the question seems to be the slightly simpler one of whether best endeavours under the contract should oblige AstraZeneca to divert supplies already under production to satisfy its UK client, including those produced in UK plants. If AstraZeneca’s claims are correct then the EU Commission is guilty of the worst kinds of vaccine nationalism and government bullying.

Read the contract! It tells you exactly what AstraZeneca promised!

The specific obligation that is set out in the contract appears under the heading Manufacturing and Supply. It reads as follows:

5.1. Initial Europe Doses. AstraZeneca shall use its Best Reasonable Efforts (BRE) to manufacture the initial Europe doses within the EU for distribution, and to deliver to the Distribution Hubs .... following authorisation ….  [my italics]

Prima facie this is an obligation of BRE in respect of EU manufacturing plants (which do not include those of the UK). This does not appear to confer a right to access supplies ordered much earlier by the UK.

Game over. Or is it?  Two other claims have been made: first that the UK should be deemed to be part of the EU, and second that UK manufacturing plant is mentioned in the contract. Unfortunately for Von der Leyen and Kyriakides, both claims are demolished by a careful reading of a later section.

The relevant section in this case is 5.4 – Manufacturing Sites. In summary it is dealing with the question of where AstraZeneca is permitted to produce under the contract, reflecting the obvious concern that any such facilities should meet European standards. In summary it obliges AstraZeneca to make BRE to use EU or UK sites as far as possible. They may use other non-EU non-UK sites, but only after obtaining EU permission. It also states another remedy for the EU, if production is delayed. This is that the EU may present to AstraZeneca a list of firms (CMOs) with whom they can contract.  AZ is to use BRE to contract with these CMOs to boost production capacity within the EU.

This clause also defines the UK as part of the EU, but only for the purpose of this clause, 5.4. In other words the EU in 5.1 cannot be considered to include the UK. Clause 5.4 does not refer to any obligation on the delivery of the initial dose. It is solely concerned with permissions for where AstraZeneca should be allowed to manufacture, and possible steps if production is delayed.

Personally, therefore, I have found it very hard to find an interpretation of the contract that supports the Commission’s position, although no doubt other legal challenges and arguments may be made.  This contract is of course only one element in the pandemic crisis, and we all know that ultimately solutions depend on international cooperation. As it happens, the UK vaccine bets have paid off and it should soon be in a position to share some of its good fortune, whether with its EU neighbours or through the offices of the WHO, with others.

The Political Fallout is Bad News

I have long been an enthusiastic supporter of the European project, but the Commission’s inept management of the EU vaccine programme, followed by its abysmal tantrum over a not-for-profit contract with a firm that has developed one of the world’s leading vaccines, is utterly inexcusable. To assert an unsustainable interpretation of a contract makes it worse. With its clumsy and hastily reversed Article 16 intervention on the Irish border issue, it has undermined the Northern Ireland Protocol, with potentially disastrous ramifications for the Irish peace process and its own single market. It has damaged the credibility of Western democracies just at a time when they should be recovering from the twin disasters of Trump and Brexit. Fury at the Commission’s performance will not be confined to the UK, is widespread in the member states, and we need to see some high-level resignations, preferably soon.

Falling Credibility in Government and international Bodies is also a Disaster for Climate Policies

The damage cannot be confined to the immediate issue. International agreements depend on good faith, and investment in climate measures depends on the ability of governments to commit to and honour contracts. The Commission has managed to damage both these fundamental building bricks at the same time. This is bad news for the COP 26 climate conference later this year, and its longer term effects may well play out in higher than necessary costs of capital for the climate-related investments we all need to make. A climate coalition with Europe should have been the UK’s best policy. That now looks increasingly problematic.

GLOBAL BRITAIN. IS COP 26 THE GREAT OPPORTUNITY?

 

It ought to be, but our government is hamstrung by its own ideologies, its recent history, and our decision to cut adrift from Europe.

The next climate summit COP 26 is so important for our collective future that we should all hope for  a resounding success. The question will be whether the UK is up to the task of delivering on the promise, and achieving worthwhile agreements and commitments. A lot depends on the ability of the summit host to persuade and cajole. Alok Sharma, the Business Secretary has been charged to work full time on preparations for COP 26, and, encouragingly, is quoted as recognising that “the biggest challenge of our time is climate change and we need to work together to deliver a cleaner, greener world”.

On the positive side, the UK does bring some strengths. Tony Blair gave the UK a genuine world first in the 2008 Climate Change Act, targeting an 80% reduction (from 1990 levels) in emissions, the first time such a national target had been introduced into law. The UK is able to claim significant reductions in its own emissions, even if these largely reflect the special circumstances of its gas for coal transformation of the power sector and the off-shoring of emissions that resulted from the Thatcherite de-industrialisation of the 1980s and 1990s. And it has important strengths both in policy formation and in science, both vital for the future.

And growing environmental awareness provides an auspicious international backdrop for climate action. 2020 saw some of the highest global temperatures on record, alarming heat and record wildfires in the Arctic, and record tropical storms in the Atlantic. Even if these and the Australian bush fires are not all directly attributable to global warming, and other factors are indeed often at work, the impact on the public consciousness has been huge.

Even the covid pandemic plays into the wider Green agenda that our failure to protect our global environment has been a huge mistake, with the indications of connections between declining wildlife habitat and the probability of viruses jumping the species barrier.

Finally 2020 has seen the stunning electoral defeat of arch science denier and fossil fuel promoter Donald Trump. Covid-19 has proved not to be a hoax, and so has climate science. The biggest single obstacle to international progress, the intransigence of the USA on climate issues, has softened even if not wholly removed, at least for now.

But this is also where the credibility problems of the current UK government begin. It is not helped by its poor and embarrassing record in appeasing the disgraced Trump, partly in its desperation to find international, and particularly US, support for Brexit.  “… this opportunity is dependent upon Mr Trump’s presidency. Without him the US would be offering no support for Brexit and would be seeking to frustrate it.” (Rees-Mogg, 2018)

The bigger problem is that the Tory party has over a long period been the home of the most vocal climate sceptics – Lawson, Redwood and many others. Moreover “climate hoax” claims,  and more muted efforts to reject or ignore the implications of climate science, are strongly associated with the tendency to theological belief in Brexit (with Lawson fronting the Brexit campaign), an observation I made in this blog in 2016, and which many others, including The Economist, have made subsequently.

Nor is the Tory ideological commitment to low public spending and a small state easy to sustain in the face of the kind of crisis provoked by climate change (or by covid-19 for that matter). Action to reduce emissions, to promote electric vehicles and alternative heat provision, and to mitigate the effects of climate change, are all going to require huge infrastructure spending, policy interventions, and financial commitment by governments everywhere.

But the more interesting challenges for British commitment to climate goals will come in relation to its ambitions for international trade, and its fragile trading relationship with Europe. In July 2020, the EU launched a consultation on proposals for a border carbon adjustment mechanism, effectively a carbon tax imposed on imports from countries deemed to have less rigorous emissions policies than the EU. This provoked predictable outrage from Trump and much of corporate America, but the concept will also have longer lasting and more subtle effects on trade. There are powerful arguments for this kind of tax, to allow a “level playing field” in trade, and to prevent carbon and jobs “leakage” to countries that refuse to cooperate with low carbon goals.

It is very likely that a such a carbon tax, applied at borders, would impact initially only on highly energy intensive sectors such as steel, aluminium and cement. My own view is that pushing it down to other sectors may prove much more difficult in terms of measuring carbon content, with complexities that may make current issues with “rules of origin” look comparatively simple. But the effect on trade negotiations is likely to be more subtle, with pressures to imitate and endorse EU climate targets.

The consequence is that for the UK to operate successfully as the host of COP 26, this initiative is likely to push it closer to the EU position on convergence of trade policy and climate objectives. This is almost certainly in the UK’s short, medium and long term interest anyway, but may be a hard pill to swallow in the aftermath of the bitter divisions, internal and external, of the last four years. Even if the USA, under Biden, adopts a much more progressive position, major players, such as India, Brazil and others, will be much more resistant. The Brexiter reliance, at least in terms of political rhetoric, on new friends and trading partners, will make effective international  influence more difficult. But that of course is just one more negative consequence of leaving the world’s largest free trading block in the first place. A climate coalition with Europe remains the UK’s best policy.

THE ELECTRIC CAR EXPERIENCE

 

For once I can describe myself as an early adopter. I recently acquired an electric car. We are, partly from necessity, a two car family and our twenty year old petrol-driven motor finally gave up the ghost this year. We realised that the cost of keeping it roadworthy exceeded its value by a considerable multiple. It had been mainly an urban run-around, used for short journeys, and the final straw was the realisation that it would shortly cease to meet emissions standards within the M25, significantly limiting its utility.

However replacement was not the only or even the primary motive. I have long argued for electric vehicles as an important route to decarbonising the economy, so I had a strong professional interest in experiencing for myself the joys and pitfalls of ownership, and understanding what the barriers might be to their widespread acceptance as an alternative means of personal travel. Driving an electric car is a delightful experience, but purchase prices are significantly higher than conventional petrol driven vehicles, and there is currently less choice, particularly in relation to larger models.

But prices are likely to come down, choice to improve, and the other barriers are probably more important. The key questions are the connected matters of range and the adequacy of charging infrastructure. These may determine whether most motorists will be willing to have an EV as their only car. Will it actually meet their needs if they are travelling on holiday or to visit distant family?

So this is what I set out to test with a recent 240 mile journey to West Wales. This is just beyond the nominal range of my car, as claimed by the manufacturer, so after allowing for the effects of cold weather (which slightly reduces battery performance) and the need for a safety margin, it was clear that I would need a significant recharge at some point in the journey.

This is where understanding the options becomes important. Stopping on a four hour plus journey makes sense anyway, but that means that ideally one wants to be able to do a significant recharge in an hour. This where understanding the units of battery energy becomes important. My car has a total energy capacity of 52 kWh.  I can recharge it from an ordinary 3-pin plug in my drive at home at a rate of 2 kW. That means a full recharge would take about 26 hours, although I would usually be thinking of recharging when it falls to about 50%. For much of the time 2 kW on an overnight charge might be quite adequate. However that’s not good enough for recharging on a long journey, or even if I’m doing a lot of local driving with longer daily journeys.

Fortunately it is possible to get much faster charging points. I have a home charger, paid for by government grant, which charges at 7 kW. There are plenty of publicly available charging points at 7 kW, and quite a few at 22 kW. Motorway service stations typically offer 46 kW or higher, depending on the type of EV. Remarkably, at the ancestral family home in West Wales we have access to four charging points, each offering 22 kW within 300 metres of our house, in the local village car park.

So the infrastructure is starting to grow. Long journeys still require a bit of extra planning, but ranges in excess of 200 miles mean that an EV will meet the needs of virtually all the UK journeys that we ever contemplate. Long journeys though will demand a good distribution of charging points at 22 kW or above. For people who are not fortunate enough to be able to do home charging, there will need to be a large network of local points, and many of these will be at 2 kW or 3 kW, although local supermarkets are increasingly a source for recharging at higher kW levels.

The current networks of lower power “lamp post” charging points will be adequate if not ideal for EV owners provided there is a reasonable density of these in their area. The main drawback of reliance solely on public charging points will arise  if there are incentives to maintain a semi-permanent connection to the grid, as EVs could provide a valuable source of storage for the power system as a whole.

So what are the remaining issues. The first is the extent to which drivers can rely on a planned recharge. A number of charging locations, especially on motorways, provide only a single charge point for my type of vehicle. This will be a problem as EVs become more popular, and if a queue develops. The second is reliability. Too often some of the charging stations are out of order. Whether this is a simple technical fault, which ought to improve with experience and better maintenance, or whether there are local network constraints, is not clear.

The other irritation is the sheer number of different networks, each of which may demand use of their own mobile phone app, and each of which may have a slightly different tariff. This imposes a substantial cost on users in terms of time, setting up of accounts and passwords, and so on. One urgent need, therefore, is for a much simpler payment by contactless card that can operate across different networks.

But my overall positive is simply the experience of driving an electric vehicle, in terms of low noise, responsiveness (amazing acceleration), energy saving and reduced pollution. Once converted I can’t envisage returning to diesel or petrol power.