So how did I vote …

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The headlines are clear – Economists back carbon tax package and Economists slam Abbott’s carbon plans. So how did I vote after Hal Varian’s lecture at the annual Economics Society conference?

Maybe I am a curmudgeon, but I voted ‘disagree’ for “Is the government’s carbon tax plan good policy” and ‘strongly disagree’ with “Is the opposition’s direct action plan good policy”. Put simply, I think they are both bad policy.

Direct action is an expensive way to reduce carbon emissions. The Productivity Commission’s report provides a good background on this. So there goes the opposition’s policy. But the government’s carbon tax includes $10b in ‘picking winners’ direct action. This may have been a buy-off to the Greens, but it is bad policy.

However, the big problem with the carbon tax is that I still do not know the objective. No – I am not denying climate change. I trust the vast majority of experts in the field know what they are talking about. But it is clear that our unilateral carbon tax will have little real effect on global climate change. So this is not simply a case of correcting a price distortion associated with a negative externality. The policy must have another objective, because as a policy to reduce global warming it doesn’t work.

Maybe the government knows the true objective and simply isn’t telling us. Or maybe it is simply playing politics in a hung parliament. But without knowing the objective, I can only say that I think it is bad policy. Tell me the objective and I might change my mind.

 

42 Responses to "So how did I vote …"
  1. The objective’s mostly political, if global climate change is the problem being addressed.

    Diplomatically, Australian action on climate change may not be sufficient to persuade other nations to follow suit, but it seems to me that it’s necessary – or at least, action by most OECD nations is a necessary condition for countries like China and India to come to the party.

    If the political argument is strong here that “because big polluting countries aren’t acting, we shouldn’t” it will be stronger in countries with much lower wealth per capita and a lower quality of life.

    Hypothetically, in the event that the world does progress to a future in which carbon emissions technology is obsoleted, Australia may suffer a trading penalty if it continues to export emissions intensive goods.  So perhaps there’s some incentive to try to kick the carbon fuel habit now.

  2. I generally agree with what Tom says. We’re not the US or China but that doesn’t mean we can’t do our part in influencing other countries including the US and China towards more action on climate change by credible commitment. The argument that we won’t make a difference through our actions presupposes that other countries will act independent of what we do which I think is wrong. Climate change is a common resource problem or n player prisoner’s dilemma, according to John Quiggin in a recent post on his blog Australia now makes up 2% of global emissions. 2% of 7 billion is 140 million. Any amount we reduce by will be equivalent to 140 mil world per capita. If another 10 or so countries like Australia join in that will be countries making up about 15-20% of world emissions taking action. Don’t quote me but I think US and China combined at the moment make up 65% of total emissions. So you really only need about 12-15 countries to make a real dent in this problem. Once a couple of countries take the first step (purely speculating here) I think the US and China will join in subject to domestic conditions. At the end of the day if you believe in climate change and you believe the world jointly can make a difference then I don’t think there’s anything wrong with going it alone or nearly alone because someone needs to take the first step.

  3. Just to clarify, a derivation of the ‘we won’t make a difference …’ argument in the US is that if China doesn’t do anything then no point in us doing anything and vice versa. It’s the same arguments used in every country. If 10 or so countries making up the majority of emissions excluding China and US take action then I think it would be hard for those two countries not to joing in either.

  4. The long term goal is to pressure every country in the world to adopt a carbon price, perhaps by using import tariffs. But we can’t credibly pressure other countries until we have our own carbon price.

  5. China and India and other developing economies have another  simple argument: you got your prosperity by putting all this CO2 into the atmosphere for the last 100 years – so you stop polluting FIRST while we catch up.  I think it is VERY reasonable.  I find it strange that every time people mention India and China , they “forget” to mention this fact. Remember CO2 is a very long lived gas in the system. This is just the usual mean posturing by well-off people to try and push the blame onto others just so they can enjoy their fancy cars and lattes while others scrounge for a living.

  6. Australia made a pledge following the Copenhagen meeting like most countries did and it is now trying to achieve what it pledged to do. Pretty simple I think.

  7. All the above comments suggest the objectives are political. That’s fine and probably true, but I’m getting worried about the enormous amounts of money and resources and poiitical capital that’s being spent on a political objective, which is highly speculative and likely to fail. Meanwhile the more pressing reform questions are being sidelined. I don’t think this is a very good development for Australian politics.

  8. Totaram: The reason why people don’t mention that argument is because no developed countries would unilaterally agree to take emissions to zero no matter how normatively reasonable that outcome might be.

  9. Andrew1, what do you think the long-term global consequences of unmitigated climate change are likely to be?

  10. Robert, from what I’ve read, the consequences are bad. But that is irrelevant to my argument. 

  11. No, it’s not, Andrew1.
    “Bad” doesn’t really encapsulate just how rotten the long-term consequences of unmitigated climate change will be.  Garnaut put it well in the conclusion to the 2008 review:
    “On a balance of probabilities, the failure of our generation would lead to consequences that would haunt humanity until the end of time.”
    That sounds like a pretty damn pressing problem to me.
    What are your candidates for “more pressing” problems?

  12. Stephen King has hit on perhaps the best argument against doing anything. I am a mathematician by training and I would suggest that in those terms  you could classify the carbon tax as “necessary but not sufficient” to mitigate climate change. The probability of an effective solution being found must be higher if the highest per capita producers of CO2 are actively trying to reduce theirs. We would have no moral authority negotiating with the larger emitters of CO2 if we did nothing ourselves.

    But a question for the economists here. Is having certainty in a carbon tax is better economically than having years of uncertainty regarding the pricing of CO2?

  13. Robert, for there to be ‘unmitigated climate change’ you have to also take into account the actions of the other 6 billion people on this planet, and not just Australians. That is the whole argument here, and of Stephen’s original post. The question is what contribution can Australia make to this problem. That is why your argument is irrelevant, because the consequences of unmitigated climate change is a hypothetical based on the world doing nothing, not Australia doing nothing.

  14. stephen,
     
    yes, i am with you on this one (which is ironic as I was in the position yesterday of being asked at the press conference on this stuff to explain why the vast majority of my colleages agreed with the carbon tax whereas i personaly disagree with both policy positions). I can add to your position though that the logic of the current position is that of those people who do a rain-dance in the hope that that brings on the rain: we make a sacrifice in the hope that by an unknown process this leads to the desired outcome. The commentator above who says that by ‘doing our bit’ we will convince others to do their bit is clearly a rain dancer. The idea that the minute sacrifice of one of the highest emitting countries in the world is going to lead to a change of heart by the other 200 countries in the world beggars belief.

  15. Australia’s move may not lead to a change of heart by other large polluters, but Australia’s refusal to move would be a good argument for others to refuse likewise.

    If this is so, the payoff matrix values are that if we move (at relatively minor cost), it may avoid an eventual climate human catastrophe; if we don’t, catastrophe is likely inevitable.

    Mind you, human catastrophe might actually be the best  outcome for some other species of life on this planet. 

  16. Although we are a small part of the world and relatively inconsequential, that’s no reason not to do the right thing by the rest of the world.

  17. I think we need to see the carbon tax plan as part of a broader plan that involves international engagement.
    The discussion here frames the problem as a prisoners’ dilemma in which each country has a dominant strategy to take no action. This may be a reasonable framing. However, in an environment in which interaction between countries is repeated and communication is possible, I do not see why this inevitably leads to bad outcomes. Opportunities for coordination and commitment are available to solve this problem. In fact, as David Stern notes above, Australia has already made a commitment that enjoys bipartisan political support.

  18. How about asking another question. What is the objective of not pricing carbon allowing the externalities to be passed onto to future generations? Can you objectively prove it will enhance well being?

    The state we are in is that even the low hanging fruit of energy efficiency hasn’t been picked and probably won’t until there is a serious signal that the wishy-washy do nothing stage about climate change has passed. Even if we descend to the level of mainstream economics and ask “what’s in it for me” then the answer is that with a commitment to take the matter seriously if only at the token level we will not continue to make as many bad investment decision based on the false reality that global warming is a communist plot.

    As a whole economists have proved totally ineffective at agreeing on good policy and promoting it. it is now left to politics to do what economists failed to do. It’s clear that as a profession economists now hold little if any sway with the public. So perhaps the time is for you guys to admit failure and retreat. Let the responsible adults start cleaning up the mess.

  19. Addendum to my previous comment: My statement that China+US make up 65% of world emissions is wrong. According to wikipedia it’s actually about 40%.

    Andrew1, Paul: I think you’re being overly pessimistic when you say the political objective (of getting other countries to credibly commit to emissions reduction to avert catastrophic climate change) is ‘likely to fail’. It doesn’t require 200 countries to agree to reduce emissions to avoid catastrophic climate change. It requires around the top 20-30 emitters. Also it isn’t about how much we sacrifice but how credible our commitment is. The how much more we can do question can always be answered later on. As more countries credibly commit to emissions reduction I think it will be increasingly difficult for other countries not to do the same once the domestic conditions are right. If it wasn’t for the GFC which destroyed domestic political momentum for action in a lot countries such as the US we might’ve had greater success at Copenhagen. I understand the ‘standard’ prisoner dilemmas’ reasoning behind opposing taking action even if you believe in climate science but I think that is too simplistic an analysis. Prisoners’ dilemma occurs everywhere in politics but that hasn’t stopped us and other countries from coming to multilateral agreements (formally or informally) on any range of matters. If you want to get theoretical, add reciprocal preferences and infinite many stages to the analysis then the result changes to a cooperate NE.

    The fact of the matter is taking action to reduce emission will hurt economically (in the short to medium run) and politically (in the short run) no matter when or who choose to do it, so it’s better to do it when the economic conditions (and therefore the political environment) is favourable. The economic conditions in Australia right now make it the best opportunity politically to move on reducing emissions.

    The likelihood of the world moving to reducing emissions I think is high and combined with the moral and long term economic interest at stake and the ideal economic conditions in Australia at the moment then taking action to reduce emissions right now I think is the ‘right’ thing to do. 

  20. Stephen
    Is it possible that putting in place a low-carbon tax from 2013 is a necessary condition for having any form of substantial market based abatement scheme from 2015?
    That is, if we can’t do this little bit now, and show that it won’t actually hurt that much, then there will be no acceptance of Australia doing anything more substantial in the future when other countries may have started to act.
    Unlike most other commenters, I don’t believe you have convincing the rest of the world as your objective (we just aren’t that influential), but maybe you could have convincing the majority of Australians as your objective.
     
     

  21. What if the goal is to demonstrate to other countries that pollution can be reduced at reasonable cost through a carbon price, so that they will be more likely to try to implement a similar policy themselves?

  22. Don’t the scientific community also say that even if we reduce emissions to 1990 levels, or indeed ceased all ghg emissions (above some ‘natural’ level) that there would be no change compared to the do nothing scenario for about 100 years? 

    With any type of positive discount rate that implies that doing nothing is pretty optimal.

  23. You are being cute, Stephen.  The objective is very clear: it is to promote international mitigation of climate change.  So, either you disagree with that objective, or you disagree that the policy will help to achieve that objective.  Which is it?

  24. Well, I have to say I have to disagree with both Stephen and Paul; sorry, guys. Stephen, not sure what you are reading but it is really not that difficult to find the government’s argument for carbon pricing expressed well. See, for example, this recent contribution by Andrew Leigh: “Labor’s policy on climate change is grounded on three simple facts: (1) Australia is the largest per capita polluter of carbon in the developed world; (2) climate change is real; and (3) the market mechanism is the most efficient way of dealing with dangerous climate change.” Here’s the reference: http://www.andrewleigh.com/blog/?p=1178
    And, yes, being the largest per capita polluter of carbon does entail some moral obligation (I think this is explicitly implicit in Andrew’s argument) and it is indeed smart policy. While the game being played here is to some extent a (repeated) social dilemma game, it is also a coordination game and certainly experimentally in these kind of games leadership tends to produce desirable outcomes, be it only to overcome the strategic uncertainty that afflicts these kinds of games. So, I find myself agreeing with DavidN, Totaram, and Nick De Roos.  Not sure what kind of company that is but their arguments strike me as sensible.

  25. I’m a sceptic.  Climate change is acknowledged, but I am not convinced the so-called carbon science is solid.  With a background in radio engineering IT and economics, I have some knowledge of how solar radiation affects the earth and I’ve built computer models of a range of things . . . and the first criterion of a model is that it match and explain the current situation, before attempting to predict future events given specific inputs.
    The climateers have made a big thing of claimed temperature rises.  However, for the last 10 years – around the world – the recorded temperatures (by organisations whose job it is to do so) in major locations are cooling.  Yes, cooling.  So how do the climate worriers come to the conclusion that the world temperatures are currently heating up?  Clearly their models have some base calibration errors.  A colleague recently sent a letter to the PM (copies to a range of professional others) with all that data and challenged her to explain the contradictions between data (not the science or the models, but the actual data) and the PC policies being articulated.
    The mini-ice age of the 1600’s was before the industrial cycle began, and there are convincing correlations between the sunspot cycle and that event.  Specifically, for nearly 70 years there were no sunspots – something civilisations around the world counted and recorded for religious or other reasons over thousands of years. Coincidentally, that event was the time of the largest ever drought in Oz for which there is any evidence – 30 years of it, recorded in barrier reef coral cores a marine scientist discovered not that long ago.  Over the last 100 years the met bureau data in Oz shows repeated matches between drought and flood with sunspot peaks and minimums.
    So, sceptic I am.  The climateers need to demonstrate the proof of the claims in a far more convincing manner – first that any particular model matches the recorded events, before trying to predict calamity and generate policy to fight it. Especially when the biggest single factor in our climate is our local star.

  26. Stephen’s line of argument is correct.

    The recurring delusion of Australian’s is that what we do is going to (a) have an effect on carbon levels; and (b) provide a model for other countries to follow.   Can someone tell me precisely which countries are going to follow Australia’s lead:  the US? China? India? Japan? …  Russia?  

    Enough rhetoric about “other countries” or “international”. Just who, precisely, will follow our lead, and why will they follow our lead.   

     

  27. In short, Cameron, no.
    Have a look at the Garnaut Review 2008, Chapter 4 (which summarizes material from the IPCC) , and particularly the chart in section 4.3.  The difference between “no mitigation” and “strong mitigation” is chalk and cheese.
    You may be confused by findings which suggest that even if we ceased anthropogenic emissions of greenhouse gases tomorrow, it would take a very long time, probably millennia, for the climate to return to normal.   That raises a number of interesting questions about geonengineering in the long term future, but they are  irrelevant for the purposes of this discussion. 

  28. Given the science is in and AGW is occuring it is only a matter of WHEN not IF other countries follow us.

    Stephen has adopted the silly position.

  29. @James Murray: also a mathematician, and “necessary but not sufficient” would be my formulation.

    @Desperate and Dateless: by the same logic, the incentive to act isn’t to guarantee that other nations will act (sufficiency), but to create the possibility, or the conditions under which they will (necessity)!

    To put it in your language: can someone please tell me if Australia does not act, precisely which nations will NOT follow our NON-lead?  China?  India?  Japan? … Russia? 

  30. Thats why I steal from department stores.  More fool the people who actually pay for stuff.

  31. It’s just like most things in government: it’s more important to be seen to be doing something, than actually doing something.
     
    With this in mind, I’m sure the main aim of the policy is to simply have a policy implemented, and thus claim to have been globally responsible – regardless of how effective it is at actually addressing climate change.

  32. @James Murray:  Your formulation in terms of necessary and sufficient conditions completely misses the point: Australia’s actions are neither necessary nor sufficient for action by other countries.  Rather, what Australia does is completely irrelevant to the actions of the other major nations (U.S., China, etc).   

    KRudd discovered the realities of other nations’ priorities when he went to Copenhagen.  

  33. Stephen,
    I cannot believe your stated basis for your vote is really the reason for it. The objective is clear: reduce Australia’s emissions. The argument against has to be more fundamental (it is not in our national interest to cut emissions) or nuanced (there are more effective/lower cost ways of achieving the cut in emissions).
    Personally, I think I am going to suffer for no real climate change mitigation, but I am persuaded that morally it is right to try to cut our carbon emissions and that the price mechanism is the right lever to pull to do this (while acknowledging numerous and substantial flaws in Labor’s scheme).
    In the absence of world government, I can’t see much in the way of alternatives to each country trying to do its bit – and by doing so exert moral pressure on other countries (until we reach the point at which economic and even military pressure can be applied to recalcitrants).
    Paul – this is no rain dance. We know clouds don’t (can’t) give a shit what we do. But here we are ultimately influencing perceptions and behaviour of other people. It may well be (probably will be) ineffective, but I don’t think this kills the moral case for it.
    (Having said all this, I should disclose that I think humanity will be incapable of doing what is required to reduce emissions (whatever that may be), so it is really a question of whether we will be able to adapt to climate change.)

  34. D&D: Countries don’t act independently of others. You have to assume they aren’t strategic to believe otherwise. And it’s not Australia trying to convince China and US by itself. We would be acting in concert with other nations that’ve already made or about to make credible commitments ala NZ and UK. As more of the top 20 – 30 emitters credibly commit forums, eg G 20, will come into play.

    Issues requiring multilateral action to be effectively addressed don’t get solved overnight. You’re dealing with many parties whose priorities are subject to the vagaries of domestic politics. On the rare occasion when the domestic interests are aligned ala pre-GFC poltical momentum for action was strong in many countries you might have the opportunity to resolve it with a quick conclusion. Absent the GFC Copenhagen would probably have turned out differently. Remember pre-GFC Obama/Democrats were campaigning on doing something about climate change. GFC happened they have more immediately important issues to deal with. Climate change politics is subject to the vagaries of immediate domestic social/economic conditions but those conditions change so there is no reason to believe climate change won’t come back on to the domestic agenda in the future. Abolishment of slavery comes to mind as an example of something which had domestic opposition and short term economic/social costs but opinions changed over time. I’m sure there are other examples.

    If you believe in climate science (or even if you don’t) you have to assume the scientists are telling everyone the same thing and therefore all the countries that matter know what the long term interests are at stake. Polticians will always put their immediate domestic priorities ahead (as they should) but in the long term the domestic interest due to climate change align with everyone elses so there is no reason to believe countries won’t jump on the bandwagon subject to short trem domestic conditions and due to the social dilemma nature of climate change will be even more inclined to if there are already a collection of countries credibly committed to action.

    People who believe in climate science need to accept that this will be a long process and not to expect a quick result on the global stage but shouldn’t use this as an excuse for domestic opposition to action because climate sceptics are using this for there political agenda.

  35. Just to add to my last comment. I think climate change believers who never the less oppose action because they believe the rest of the world will never take action are basing this on a false premise. All the countries have the same information about climate science and know their long term interests align wrt climate change however getting concerted global action takes time due to the vagaries economic/social conditions but I think this will occur because it’s in their long term interest to do so.

    Of course you can also take the position that we shouldn’t do anything until it’s clear everyone else does. I have two arguments for that. Game theoretically countries act strategically so credible commitment by us does have an effect in reducing strategic uncertainty, and infinitely repeated interaction means there is a cooperate solution to this social dilemma problem. Secondly, we have a moral obligation. We can always wait until everyone does the right thing or we can choose do it right now because taking action in itself is the moral thing to do. No one had to be the first one to abolish slavery or expand suffrage to women for example.

  36. Prof King
    You made the right call, both the parties have put forward a highly flawed carbon policy. One of the things that may be of interest to you is that during my studies, I actually carried a CBA on Victoria’s Renewable Energy Targets. I actually found that the scheme gets very costly very quickly. I actually caused a net reduction in welfare. If anything you are being a bit too lenient on Gillard

  37. DavidK
    This is a problem that is going to become increasingly serious as society becomes more and more dependent on science and tech.
    No one can immediately understand what is going on. We think we should be able to, especially if we have some specialised training. Sorry, the age of the polymath is over, except in a few isolated cases.
     I’m sorry that having “done some economics and IT and built some computer models” doesn’t necessarily cut it. I too have a background in physics and maths (Ph.D.) and many years of teaching  and researching computer science after building computer models of various kinds for industry and Government. I would not comment on the climate science models without spending inordinate amounts of time studying them.  I have no intention of doing that.  I leave it to the specialists.  All I can say is that it’s not just the models. There are all kinds of different areas of science pointing to the same thing – rising ocean levels, increasing acidification of the oceans, ice-core studies,  melting glaciers etc. etc. They can’t all be converging on the same thing by chance.
    We have to look at it in the context of probabilities. It’s probably worth taking out “insurance” to secure our(collective) future. My house is on a hill and the chance of getting flooded is very low, but I pay the premium for full cover anyway. What if there is 100mm of rainfall in a day? The extra premium is “small”.
     
     

  38. Sorry, I forgot to add: the sunspot argument has been addressed in any number of places and found wanting. And as for cooling in the last ten years: yes maybe. The share prices fell yesterday, so what is the long time trend? What about looking at the last twenty years? Or thirty? All these arguments have been dealt with at great length on the forums discussing climate change. Check them out if you are serious.

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