Sent: 01-12-2009 17:20:01
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Climate change: denier, sceptic or progressive?
Our political leaders have done a thoroughly good job muddying the main decision points in this important, complex and emotive policy debate. Their lives would probably be easier if they focussed more explicitly on the key questions that need to be addressed.
Despite attempts by the government to merge them, there are three distinctly separate questions which need to be addressed before drawing conclusions about climate change policy.
A. Does climate change exist?
B. Is climate change, if it exists, man-made?
C. What policy action should be taken as a result of the answers to A and B?
There is climate change
If you have concluded that climate change is occurring, you have to make a judgment as to whether it is man-made or part of a never-ending pattern of change over which human beings cannot exercise any practical control.
The former conclusion lines up with the views of the climate change scientists working on the Intergovernmental Panel on Climate Change, for example, and represents the consensus underpinning policy in the advanced industrial economies.
The latter conclusion (that climate change exists but is "natural") is more consistent with the (minority) views of Professor Ian Plimer, for example, expressed in his book "Heaven and Earth".
The Plimer analysis suggests that doing nothing would be a rational response because the forces contributing to climate change and its perceived effects have been going on for many centuries and are simply beyond the powers of mortal man.
For followers of the IPCC, there are two mainstream policy choices: a carbon tax or a so-called cap and trade system such as the one currently proposed by the Australian government.
Putting aside problems of measurement, levying a tax on carbon emissions is quite simple, in some respects. However, the size and incidence of its effects are difficult to anticipate.
How high does the tax have to be set, for example, before it has an impact? Might the government set the tax and find out several years later that it has been ineffective? Could the tax be set too high because the government initially underestimates the innovativeness of business and its willingness to change?
The cap and trade system, Australia's choice, is beloved by many economists as an elegant market based solution. It requires companies to limit emissions but forces them to buy rights to pollute if their emissions exceed the cap imposed by the government. In doing so, they are forced to admit the real economic costs of their economic activity.
Governments get an assured outcome. However, some fear, speculation in carbon permits trading could create uncertainty about their availability and impose potentially violent fluctuations in the costs of carbon emitting companies.
As with the carbon tax, the science of economics is simply not precise enough to know whether this is going to happen or, if it does, the extent of any potential speculation. That said, there is ample evidence in our recent economic history that the prospect of financial gains from newly crafted products will attract the most innovative brains in our financial markets.
Having chosen which of these two unfortunately flawed systems one prefers, one has to decide on an implementation timetable.
- One course is to act immediately to show how seriously committed we are and to help form a bandwagon for change.
The other choice on the decision tree is to act only if countries contributing most to the problem commit to act first.
There is no climate change
For someone who does not believe that the climate is changing, the policy response could be relatively straightforward: do nothing with a clear conscience.
However, even for the denier, there might be reasons to support action to cut carbon emissions: pollution kills. People will live longer to enjoy a better quality of life if carbon pollutants are reduced. The need to purify the air in Beijing is compelling irrespective of its effect on global climate.
The supply of fossil fuels is also limited. This is an argument for conserving our natural resource base. To limit energy waste, pricing regimes that reflect the full (direct and indirect) economic costs of the use of energy products are probably necessary.
I'm not sure
Amidst a debate based on highly technical and often ambiguous analytical evidence, even a sophisticated analyst might justifiably fail to be convinced. For this person, there are two choices.
- Do nothing because the costs of acting (in whichever form action occurs) will impose hardship for an uncertain and, perhaps, nonexistent benefit.
Conclude that the risks of delaying or avoiding a decision are too great, in the event that climate change actually does exist, and, in doing so, adopt one of the mainstream policy options (tax or cap and trade) currently being considered.
This email is general in nature only and does not constitute or convey specific or professional advice. Legislation changes may occur quickly. Formal advice should be sought before acting in any of the areas discussed. Be aware that the information in these articles may become innaccurate with time. Responsibility is disclaimed for any inaccuracies, errors or omissions. Particular investments are neither invited nor recommended and hence this publication is not "financial product advice" as defined in Section 766B of the above legislation. All expressions of opinion by contributors are published on the basis that they are not to be regarded as expressing the official opinion of any other person or entity unless expressly stated. No responsibility for the accuracy of the opinions or information contained in the contributor's articles is accepted by any other person or entity. Copyright: This publication is copyright. If you wish to reproduce this article you require a license, which can be purchased here, to do so.