The pragmatic climate policy for Australia?

What should Australia do about a slowly warming world? Join a small group of European countries who have more permits to sell than their own industry can manage to use? Join hands with a coalition of the desperate in enacting one of the front-runner geo-engineering solutions, such as emitting tiny reflective particles high in the atmosphere in the hope of reflecting enough sunlight? Or just do nothing for the time being, perhaps researching this or that option and simply slowly adapting to the changes as they happen?

A world-wide Emission Trading Scheme that truly measures all the relevant forms of emissions and enforces a price high enough to truly bring back the stock of CO2 in the atmosphere to pre-industrial revolution levels is not on the cards. It would require a political commitment that lasts for decades, if not hundreds of years. It by necessity should involve all major countries, lest one would start to free-ride on the others and attract all the industry that is emission-intensive. It should stand firm globally, election after election in each of the countries. Within countries, the political will would have to be strong enough to overcome the temptation of provinces and councils to free-ride. To get the kind of reduction of carbon usage one would need, all things involving fossil fuels or equivalents in terms of emissions and uses (such as cooking oil!) would have to become prohibitively expensive: easily 100 to even 1000 dollars per litre at present estimates of demand elasticity. Imagine policing that in every home everywhere in the world!

In short, there would have to be a world-wide consensus on a level of emissions, a universal monitoring agency, and an international enforcement mechanism with enormous coercive powers. And don’t underestimate the needed coercive powers: if one is to keep 200 countries in line for thousands of election cycles, one really needs to be able to threaten with nothing less than a take-over. Whoever polices this scheme would thus need the power to invade large countries and to sanction all politicians at any level who might subvert the process for local gain.

If you reflect on this minimum package an ETS needs to have to ‘do the job’, you quickly realise it is a fantasy. An ETS on this scale only makes sense in an imaginary world where measurement and enforcement are easy, and political will indeed can be kept up at a worldwide level for generations. It is the sort of fantasy that underlay the communist project and, once again, reality will prove economists like Von Mises right: there are limits to what can be monitored and enforced. Indeed, I find it a little sad that so many economists and scientists allow themselves to be seduced by such command-and-control fantasies. I am yet to meet a senior politician who is naive enough to believe he could organise such a thing. Of course politicians play along -‘we, the population’ demand that they play along – but meanwhile they are simply building more coal-fired power stations, signing more coal export permits, and putting up import barriers against cheap Chinese solar panels.

What about geo-engineering, then? We do not yet know which forms of geo-engineering are the safest and most cost-effective. There is also no coalition of the desperate to join. Worse, one should expect other countries to heavily sanction us if we tried to geo-engineer on our own, and they would laugh us out of the room if we tried to set up such a coalition. We are simply too small to credibly start in that direction ourselves whilst the bigger players are not really worried.

Why are the bigger players not worried enough about this, you may ask, despite UN climate marketers using natural disaster that come along to preach us about the upcoming doom and gloom and how we are now paying the price for our wicked ways? Well, the world is not worried because the world as a whole is doing great. The world economy is projected to grow another 3% this year, heavily concentrated in the poorer regions of this world. This growth is accompanied by less poverty, longer life, better public services, and, yes, greater usage of fossil fuels. Humanity is slowly rising out of centuries of poverty and warfare, and part of that rise involves burning off our fossil fuel heritage as fast as we can dig it up. One might say we are un-sequestering our coal fields and shale oil/gas at an unprecedented pace!

Compared to the immediate benefits of economic growth, long-run environmental worries are always going to come second, politically speaking. Indeed, Australia’s last election was once again fought with both parties first and foremost promising more economic growth. This focus on growth-above-all shows you what politicians think we actually value most!

So if an ETS is a fantasy and there is as yet no coalition of the desperate in sight on geo-engineering, what should we do?

We should simply adapt to the changes as they emerge and meanwhile resist the temptation to join in the expensive symbolism of an ETS. We should hope that the huge incentives already in place for coming up with cheap non-carbon energy will deliver something useful (solar perhaps?). We should let the individual government departments worry about how they should adapt to a changing climate, hence allowing the town planners to worry about ensuring there is enough shade and high enough dikes, and the health planners to worry about air conditioning in old people’s homes, etc.

Meanwhile, we should join the Royal Society, the EU, the Gates Foundation, and others who are researching forms of geo-engineering so that we know what to try if we become desperate enough. The ‘something must be done about the coming apocalyse’ brigade will keep making noises but until they wake up to the fact that an ETS is just expensive symbolism leading nowhere, wise policy makers should ignore them as much as possible.

Author: paulfrijters

Professor of Wellbeing and Economics at the London School of Economics, Centre for Economic Performance

22 thoughts on “The pragmatic climate policy for Australia?”

  1. Yes international cooperation is challenging but it generally works – albeit imperfectly with backsliding and free-riding – in numerous spheres including trade, transport, intellectual property and the environment. Carbon is challenging but so too are the consequences of a lack of global cooperation. UNFCC and GATT frameworks for example will gradually converge – there will be penalties for free-riders. Geo-engineering shouldn’t be ruled out but it isn’t a substitute for action and requires even higher levels of cooperation than emissions reduction. Your comments here and last week suggest you are sceptical on the scientific basis. Is that the case?


  2. Cooking oil is not made from fossil fuels.

    You mentioned that a global ETS requires both monitoring and enforcement. Well, monitoring is straightforward – just measure CO2 levels. And enforcement could be handled via trade sanctions.


  3. What’s the possibility of any sensible new policy, with broad community support, emerging from the post-July Senate? I can’t see Melinda Gates schmoozing anyone from Govt, let alone Clive Palmer.


  4. Bruce,

    guilty as charged, though i have been rushing into this one for years!

    The post provides several links to lengthy discourses on the monitoring involved. I am not skeptical about global warming happening, indeed I never have been. I am disappointed though in how naive many ‘scientists’ are about politics and the limits to enforcement. The scale of the problems dwarfs that of the old Soviet planners who only had one country to manage and only needed to watch physical production in large factories. Matt seems to think the problem rather trivial and thinks a few trade sanctions will do the trick. Do you really, on reflection, believe that?

    that’s a question for people more versed in Australian politics than me. I am willing to say what is impossible on a time-scale of decades involving large numbers of governments, but a single parliament next year? My gut reaction is that, when push comes to shove, the libs will package the direct action bill such that the greens will vote for it rather than have no symbolic policy at all.

    Paul Foord,
    sigh…… Dont be angry at me for not touting the ‘thy doom is nigh, repent now’ line. I would tout it if I thought it would help.


  5. Hi Paul

    The comment “We should simply adapt to the changes as they emerge…” implies that we can somehow do that and carry on. This asserts that there can be no effective political solution to reducing carbon pollution, apparently on the basis that an ETS has not worked and international co-operation is very difficult.

    Clearly the politics of change on this one are diabolical and not much concrete action to reduce carbon emissions has been achieved thus far (though there has been and continues to be amazing international collaboration for scientific analysis). Human beings are notoriously short-term creatures, but they are also capable of amazing transformations too (think the attitudes to gay marriage changing 180 degrees in a decade).

    At some point, when the catastrophes become so evident that they cannot be ignored, public opinion will swing on this. We need to move that point forward however we can. New forms of engagement and understanding are required, not acceptance that we are doomed. We owe it to our children (my daughter is 7), who will definitely experience devastating impacts.

    I am not minimising the difficulties here – after all climate change is just one of the huge number of environmental issues we face.

    Giving up and relying on geo-engineering is false thinking when the future of our civilisation (and perhaps species) is at stake.



  6. Just expand on my earlier comment … on the monitoring side it’s straightforward to estimate a country’s emissions by calculating its coal, oil, and gas consumption. Imported fuels are a matter of record, and domestic production is mostly a matter of counting coal mines and refineries. If a country want to claim carbon offsets they have to prove it.

    On the enforcement side, it’s a matter of getting countries to pay for their ETS credits. This can be done with trade sanctions in the form of punitive tariffs that add up to the owed amount plus a 20% penalty. Countries will find it cheaper to comply.


  7. I think there is a middle ground between a comprehensive global ETS with a severe cap on carbon and just giving up and not doing anything (geo-engineering to reduce temperature has no effect on ocean acidity etc.). If the EU, China, Japan, US are on board to some degree then it doesn’t matter so much what other countries do. These are the countries with the ability to develop the technologies we need to address the problem – better cheaper electricity storage, cheaper solar energy, safer nuclear, fusion etc. If and when these are cost effective solutions that are competitive with fossil fuel energy they will be adopted in the remainder of countries. This is similar to the adoption of lead free petrol globally. Only a few countries design cars.

    It’s unlikely that this will reach the 2 degrees target, but it will be better than business as usual. After 2050, it’s likely that removal of carbon from the atmosphere will get more and more serious…


    1. We seem to agree on most things here, though you apparently see some advantage of a European style ETS, not in order to get huge emission reductions, but as a detour towards clean nuclear (among others). Bit of an odd detour, don’t you think?


      1. I think a relatively low and rising carbon tax makes more sense than a volatile ETS to provide an incentive for innovation – but not the only policy measure – but my key point is I don’t think the policy system needs to be absolutely watertight as long as major countries are heading in somewhat of a correct direction. It’s not as impossible therefore to get action as you think. Your approach seems to be the mirror image of the Australian Greens who sank the first version of the ETS here in Australia because it wasn’t strict enough and gave too much money to firms as compensation. Either direction doesn’t seem pragmatic to me.


      2. 1. You think the European ETS provided incentives for developing clean nuclear, not the rising prices of carbon energy? Last time i looked, the EU was deciding whether or not to put a tariff bans on Chinese solar panels, joining the US which already had such tariffs (which also tells Simon Orme about the limits to free trade agreements, due to lack of enforcement possibilities!). The reality is thus more one of subsidy-dependent industries that are anti-innovative!
        2. Sure, some action is possible, but think of the coordination needed to get the fantastic emission reductions needed to stabilize the stock of CO2 via a cap-and-trade. We are not talking a paltry 5% here (the Australian promise, which it, in terms of domestic output, is handsomly going to miss), not even a massive 50%. No, we’d be easily talking over 90% emission reductions, in the face of a rapidly growing world with an ever increasing appetite for more emissions. Good luck with that one! You don’t seem to believe that is possible either, David. Maybe that is why you are groping for other reasons to agree with the symbolic actions favoured by the circles you are in.

        I do agree with you though that there is hope in cheaper technologies that can compete with fossil. My reading of that is that they are still some way off. And the issue of acidification is of course not trivial either. And I even agree with you that coordination will be easier once burning fossil is no longer the cheapest option going round. It is simply that at this moment, emission control on a level to be useful is hopeless.

        As a program to improve incentives, a symbolic ETS is pretty useless. Offering large prizes for particular milestones looks more promising.


      3. My educated guess is that we won’t get to 80-90% emissions cuts by 2050 but I also don’t think we will be on the RCP 8.5 path… Anything is better than nothing. I also think prizes could be interesting.


  8. Whoever polices this scheme would thus need the power to invade large countries and to sanction all politicians at any level who might subvert the process for local gain.

    This is just a straw man that you proceed to knock down – as the benefits of free-riding are purely economic, there’s no reason that purely economic sticks like punitive tariffs, sanctions and embargoes wouldn’t work.

    If we can hold together an international norm banning the development of nuclear weapons with only 4 free-riders, there’s no reason something couldn’t be done on carbon emissions pricing.


  9. Let’s face it, a big chunk of the adaption costs in Australia are going to be paid by the Australian taxpayer. Frankly I don’t see why that should be come out of income tax, as opposed to an emissions tax.

    And those adaption costs are going to be very high. I have the Brisbane flood levy in mind. Sure no one event can be chalked up to global warming… but expect more flood levies, and ultimately for a fair chunk of south Brisbane to be written off.

    I agree however. Mitigation is a sideshow. Adaptation is the main event.


  10. Paul, I still want to see you as a nodding head behind whoever announces that the Government will be pumping … err … stuff… into the upper atmosphere…. forever. (what could possibly go wrong?) ?


  11. Paul, your conclusion doesn’t follow. I suggest you are downplaying the costs and risks of global warming relative to the costs of emissions reduction, and asserting that Australia can get away with avoiding the bulk of the costs from its emissions. On the first point the Garnaut reports for example make a sound case on the relative costs and risks – especially given the non-trivial risk of catastrophic climate change. Check out the World Bank Report “turn down the heat”. On the second point, if by mitigation you have in mind Australia contributing to global mitigation efforts, then, without an international carbon price, what is the transfer mechanism? Alternatively, are you confining mitigation to Australia? If so, I suggest that is pure fantasy.


    1. Simon,

      For my argument it doesn’t matter what the costs of global warming are: high or low. The issue is whether emission reduction via coordinated world-wide measurement and enforcement is politically possible.
      Do not stare blindly at the risks of warming and all the doom and gloom you can see coming. Staring blindly at the problem won’t help you calmly dissecting potential solutions. So ask yourself what can actually be done within the possibilities of our political systems.
      The logic of ‘an ETS sounds like one is doing something so lets do that’ is not a rational argument. It’s symbolism. Ask yourself how that ETS is going to get the stock of CO2 in the atmosphere down, and just how much reduction needs to happen to get there. Think of the time scales involved, all the activities that would need to be monitored, all the ways that people can cheat. Ask yourself, which none of the critics above seem to do, just how the European ETS worked politically and what the supposed emission measurement meant in actuality. It’s not rocket science. All you need is to open your eyes to what politicians can deliver and what populations vote for.

      Speaking of actions rather than words, I hear that that wider highway around Australia is coming along nicely. What do you think it’s built for? And what do you think all the new Chinese roads and airports have been built for? Push bikes?


      1. Paul, I recall these sorts of arguments being made against lowering trade barriers in the 80s – GATT will never work. We have problems with international cooperation on taxation and currency. Terrorism is another. Cooperation on all of these topics is problematic, but it doesn’t have to be perfect to be better than no cooperation.
        If your argument were valid we’d give up on domestic cooperation too. We can never perfectly monitor and enforce rules against insider trading, theft, assault…
        Game theory is relevant. In repeat games the homo economicus strategy you seem to be advocating is not a winner.
        If your point is that vested interests have the motivation and capacity to subvert democratic processes in support of global cooperation, then I agree that is a serious problem. But where is the evidence it is insuperable. There were strong vested interests opposing reduction of trade barriers.
        Yes emissions reduction is challenging, but so are the pay-offs. So there is a link between the evaluation of the threats and the likelihood of effective global action. You seem to be under-cooking the threat and over-cooking the difficulties of global cooperation.

        On the latter, have a look at chapter 4 here.


      2. 1. International trade is a good analogy as it tells you the limits of enforcement. Just ask Fillipino banana farmers how impressed they are with the ability of free trade agreements to quickly counteract the trade barriers governments put up, including the Australian one!.
        2. Domestically, we have coercive powers, ie a police and a court system. Historical and domestic analogies are indeed is the direction to look at. So just follow the links in the post for lengthy discussion on game theory and enforcement mechanisms.


  12. If you’re really looking at solutions, then an ETS/Carbon tax is really meant as a means to an end anyway. The real end game is development of technology/efficiencies that allow us to have the lifestyle at the right price without the emissions. The point of a pagovian tax after all is to encourage the market to drive that innovation.

    With that in mind, no scheme has to be overreaching or draconian or 100%. It just has to be ‘good enough’ to drive the development of technology to the point where coal isn’t necessary. It’s not like it’s the only way to make electricity. It’s just the cheapest, for now. Cars don’t have to be made of steel either, they just are, for now. If I could name two potentially transformative technologies it would be carbon fibre as a replacement for steel and grid level storage to make renewables more viable. Other possibilities would be reinvigorated nuclear power. Sure, from a theoretical point of view those innovations would be better from the free market, driven by a carbon price, but there are other ways to skin a cat.

    Besides I wouldn’t think that we’ve heard the last of pricing, even just regionally. As the adaption costs rise, somebody is going to have to pay. And those people will be pissed. The calls for compensation will be very strong, and the call for Government to ‘do something’ will also remain strong. Carbon taxes might be dirty words, but so is every other tax increase. They stand out from mere symbolism for two reasons. One, they raise revenue. Two, they push the market to find ways to avoid the tax, which is what we want anyway, isn’t it? So symbolism with teeth.

    Every decade for the rest of our lives will be warmer. It’s naive to think this issue is going away.


  13. Humpphhhh. The climate scientists claim that climate science is resolved. No, its not. Quite apart from the legion of scientists opposing all those claims, their computer models keep getting it wrong. Every 5 years its back to the drawing board, in a further attempt to make their case stick, and the predicted outcomes have steadily been reduced. From various aspects I conclude that they rarely study the actual data, unabridged and in context. Several examples cited.

    1. several years ago in the frenzy of climate warming debate I came across a listing of 20-odd large cities around the world (eg Sydney, Wellington, London, Amsterdam etc) which had steadily increasing average maximum temperatures over the preceding decade – so guess what was trumpeted; getting hotter. Looking at all the data, it was hard to avoid a conclusion to the contrary – while maximums were rising, minimums were falling, and the overall average temperatures for each of those cities was marginally dropping, not rising. And now, there’s admissions from those scientists, puzzled that the last decade of warming has halted unexpectedly ????

    2. The impact of our local star – the single and dominant contributor to our worlds weather – is rarely if ever mentioned. Sun spots are an essential element – nuclear storms so violent that they appear to be black spots on the solar surface. They put out immense quantities of radiant energy of all sorts that affect our planet. They have been tracked – counted – for thousands of years around the world – the chinese have data dating from 2000BC. if ever there was a long term record of climate data, sunspots is it. There is a nominal 11 year cycle to them – no one seems to know why and research into it is lacking – but the evidence for their effect is all around us. Before satellites and large capacity undersea cables, they determined which frequencies of radio were needed for long distance communications. For those still in that field in remoter parts, they still do.

    There is data on the Bureau of Meteorology website that links sunspot minimums to drought in Australia. Not all in one place – you have to search around to find it. For example, the years of sunspot maxima and minima (one set of data), as compared to the years of drought and flooding rains (another set of data). Match them on a time basis, and whenever the sunspot cycle breaks down – as it does generally with prolonged minima – observe the large even massive droughts within 12-18 months: the drought is a lagging result. That’s the pattern ever since records were kept here, just a measly 100+ years.

    Another item I found – stumbled over – on the bumet site was a report on coral growth. Some years ago, a reef researcher cored various parts of the barrier reef, intending to measure and assess the impact of land water runoff, primarily looking for chemical impacts eg from fertilisers. And what he found was a pattern of coral growth that matched droughts. In particular that the longest single drought in that coral record was the 30 years (30 YEARS!!) from 1640. Pre the industrial revolution, please note. The same time period of the only prolonged solar minimum on record and one that reached zero and lasted for 30 years. The same period when europe had its well documented mini-ice age.

    A bit long winded I daresay, but the climate changers have forgotten or never even considered that the last ice age was geologically only yesterday. To be claiming a principal human cause for warming it is really really pushing it. They just haven’t made their case.



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