I’m sure we can argue of the details of Goodall’s calculations and make sure we don’t come to a resolution as to whether walking should be banned or not. But to an economist, this whole issue encapsulates why we should have an environmental trading scheme (ETS) like the Government’s proposed Carbon Pollution Reduction Scheme (CPRS).

In discussions of the economic costs of climate change policy, there is a great deal of guesswork. For instance, there have been forecasts of how such policies will impact on the price of food or the cost of energy.

This usually rings all manner of alarm bells about the overall economic impact of the CPRS.

But, each and every one of these makes assumptions not only about how people’s behaviour might change when faced with higher costs but also how a price on carbon would percolate through the production chain and drive the prices consumers pay.

For example, an increase in electricity prices is going to impact more on businesses that use lots of electricity.

For instance, canned goods would be impacted upon in the making of the can itself, the mining and processing of minerals to make the metal in the can, the processing plant that puts the food in the can and then on the conditions in the supermarket that distributes it to consumers.

Will the price of such goods go up by the full price increase in electricity? It is unlikely.

For starters, canned goods require less energy at the supermarket end than fresh food that impacts on climate in the supermarket itself.

But even along the way, the choices food providers made as to how they processed food and constructed cans were based on an electricity price without carbon. Add that carbon price and they may well change their practices.

The point is that it is impossible to tell how all of this will work its way through and sort itself out in terms of prices to consumers.

To be sure, it could be a disaster in that businesses and people have limited choices to move away from high carbon consumption ways.

But every shred of experience with economic impacts of this kind tells us that choices are much wider than what we had previously thought.

When faced with a higher expense, people find no end of ways of avoiding that expense. And each time they do, they soften the economic impact of the CPRS.

The only thing we know for certain is that unless we set a carbon price (or the means of getting one), we will not find out precisely what can be done. It will take time.

But again, that is the point. We need to get started right away.
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Joshua Gans is an economics professor at Melbourne Business School. He writes on these issues at http://www.economics.com.au