An Affordable Truth  

Posted by Big Gav in

The NYT has an article by Paul Krugman on the cost of switching to clean energy - An Affordable Truth.

Maybe I’m naïve, but I’m feeling optimistic about the climate talks starting in Copenhagen on Monday. President Obama now plans to address the conference on its last day, which suggests that the White House expects real progress. It’s also encouraging to see developing countries — including China, the world’s largest emitter of carbon dioxide — agreeing, at least in principle, that they need to be part of the solution.

Of course, if things go well in Copenhagen, the usual suspects will go wild. We’ll hear cries that the whole notion of global warming is a hoax perpetrated by a vast scientific conspiracy, as demonstrated by stolen e-mail messages that show — well, actually all they show is that scientists are human, but never mind. We’ll also, however, hear cries that climate-change policies will destroy jobs and growth.

The truth, however, is that cutting greenhouse gas emissions is affordable as well as essential. Serious studies say that we can achieve sharp reductions in emissions with only a small impact on the economy’s growth. And the depressed economy is no reason to wait — on the contrary, an agreement in Copenhagen would probably help the economy recover.

Why should you believe that cutting emissions is affordable? First, because financial incentives work.

Action on climate, if it happens, will take the form of “cap and trade”: businesses won’t be told what to produce or how, but they will have to buy permits to cover their emissions of carbon dioxide and other greenhouse gases. So they’ll be able to increase their profits if they can burn less carbon — and there’s every reason to believe that they’ll be clever and creative about finding ways to do just that.

As a recent study by McKinsey & Company showed, there are many ways to reduce emissions at relatively low cost: improved insulation; more efficient appliances; more fuel-efficient cars and trucks; greater use of solar, wind and nuclear power; and much, much more. And you can be sure that given the right incentives, people would find many tricks the study missed.

The truth is that conservatives who predict economic doom if we try to fight climate change are betraying their own principles. They claim to believe that capitalism is infinitely adaptable, that the magic of the marketplace can deal with any problem. But for some reason they insist that cap and trade — a system specifically designed to bring the power of market incentives to bear on environmental problems — can’t work.

While a prefer a carbon tax (with matching reductions in income tax) to carbon trading, either is better than the mishmash of "options" proposed by conservatives, with new Liberal leader Tony Abbott apparently preferring a $50 billion package of regulation and subsidies to a market based mechanism - $50b bill for Abbott carbon plan.
THE shadow treasurer, Joe Hockey, has estimated the cost of Tony Abbott's climate change policy at over $50 billion.

In a tense confidential exchange in shadow cabinet two weeks ago, before Mr Abbott seized the Liberal leadership, Mr Hockey challenged his colleague's position on climate change.

According to people present during the spirited debate, Mr Hockey spoke strongly in favour of the Liberal policy at that time - pushed by the then leader, Malcolm Turnbull - to support the Government's amended emissions trading scheme.

Mr Abbott was one of six in the 20-member shadow cabinet who spoke out against the policy.

Mr Hockey challenged him by asking: "What's the alternative?"

Mr Abbott cited a list of carbon abatement measures - other than an emissions trading scheme or a carbon tax - that Mr Turnbull had mentioned in a speech on January 24.

Mr Hockey, exasperated, shot back: "That's $50 billion plus!"

This figure apparently is based on his own estimate of the cost of the measures, which are now at the core of Liberal policy since Mr Abbott took the leadership last week and dumped support for the ETS or a carbon tax.

Ross Gittins in the SMH is also ruminating about this bizarre reluctance to use a market based mechanism to tackle the problem - Abbott can't escape climate change and taxes.
Tony Abbott's stated intention to have ''a strong and effective climate change policy'' that doesn't involve either an emissions trading scheme or a carbon tax is rife with internal contradictions.

For a start, it's strange for a party of the right to reject the pro-market solution to climate change in favour of a much more intrusive, regulatory approach.

For another thing, it's strange to reject ''a big new tax'' in favour of an approach that, if it were to work, would require a huge increase in government spending on subsidies and incentives. If such an approach weren't to involve huge deficits and debt, or swingeing cuts in other government spending, it would require huge increases in old taxes.

These contradictions arise because of Kevin Rudd's success in driving a wedge between the Liberals' heartland supporters (never agree to anything proposed by evil Labor) and the wider electorate. The Herald's Nielsen poll says that even a majority of Liberal voters supports a trading scheme.

The pragmatist in Abbott knows he must go to the election with a credible-sounding plan to respond to the threat of climate change. But all the populist campaigning against ''a big new tax'' has, ironically, ruled out the most sensible approach.

But there's an even more fundamental contradiction: Abbott owes his job to the machinations of Nick Minchin and his band of climate-change deniers. If they couldn't stomach Malcolm Turnbull's compromise deal (which would have removed climate change as an election issue) why would they agree to any alternative approach proposed by Abbott?

Let's get back to basics. If you agree that global warming is a problem and something should be done to limit it, you have to accept it's a case of ''market failure'' which market forces aren't capable of correcting by themselves.

You must therefore accept the need for government intervention in the market in some form. (It's because libertarians are opposed to almost all intervention bar that needed for law, order and defence, and rarely admit the existence of market failure, that they find it so tempting to deny climate change is a problem.)

Most economic rationalists accept the need for intervention, but want to ensure it does as little as possible to disrupt the market and distort the choices made by producers and consumers. They see the problem as that the ''social cost'' of the damage done by greenhouse gas emissions isn't reflected in market prices.

So if they can find a way to get the social cost incorporated into market prices - to ''internalise the externality'' - they can leave it to market forces to do the rest.

One way to do this is impose a tax on carbon emissions, which forces up the prices of emissions-intensive goods and services, thereby reducing the demand for such items, encouraging energy efficiency, reducing any price disadvantage suffered by less-polluting energy sources and creating a monetary incentive for firms to find new technological solutions to the problem.

An emissions trading scheme is very similar. Its key role is also to raise prices, with the proceeds from sales of emissions permits going to government as a de facto tax. It creates a whole new synthetic market for the purchase and sale of permits and associated derivatives.

In theory, this makes it superior to a carbon tax. In practice, it makes it more difficult to administer and possibly opens it to greater price manipulation and uncertainty.

Dan Cass has a post at Crikey's "Rooted" blog looking at some of the pitfalls awaiting the Liberals - The top three climate pitfalls for the Opposition to avoid.
Here is my Top Three Avoidable Pitfalls for an ambitious Opposition in the era of climate change:

1. Underestimating the climate movement

Australian Prime Ministers are used to dealing with a small corps of key environmental groups and commentators: the Australian Conservation Foundation, WWF, Tim Flannery etc. It would be a grave mistake to think that these few groups or individuals are still able to award the big green publicity medals.

Every month that goes by, a new climate action group starts in Australia. This under-reported sector is reinventing the environmental movement. It wields the moral authority and is rapidly building an organisational capacity.

2. Patronising the media

PM John Howard got away with speaking ecological bunkum to the Canberra Press Gallery because so few reporters took environmental issues seriously. This changed in the wake of the Stern Report and Al Gore’s Inconvenient Truth.

Over the past two years, a corps of influential journalists have become climate experts. Young journalists coming up through the ranks are even more environmentally literate and motivated.

3. Shunning green business

New energy firms are billion dollar enterprises and old corporations are greening their production. The current air-freighted issue of Harvard Business Review has green business on the cover and says it is way out of the global recession.

The Coalition partners can retain their reputation as parties of business only if they support the interests of the emerging green economy. Already, in the USA, the Chamber of Commerce is splitting over its allegiance to fossil fuel firms at the expense of the rising green businesses.

And finally, the ABC has an article on Malcolm Turnbull's latest broadside in his blog (Time for some straight talking on climate change) against the new Liberal leadership (it must be nice knowing that after they openly defied him when he was leader, he now need have no qualms about doing the same thing to them) - Turnbull savages Abbott over climate 'bullshit'.
Former Opposition leader Malcolm Turnbull has unleashed an attack on his successor Tony Abbott, describing his climate change position as "bullshit".

In a strongly-worded blog entry posted this morning, Mr Turnbull personally attacks Mr Abbott for putting the party's integrity on the line, saying Coalition climate change policy has descended into "farce", because it does not have a policy.

He vows to cross the floor and vote for the Government's emissions trading scheme and urges his colleagues to follow him.

Mr Abbott declined to respond to the attack at a press conference in Sydney this morning, insisting his fight was with Prime Minister Kevin Rudd.

After ousting Mr Turnbull six days ago Mr Abbott withdrew Coalition support for an emissions trading scheme and said a Coalition policy would not involve any new taxes.

But in today's blog entry Mr Turnbull says emissions cannot be cut without a cost.

"While a shadow minister, Tony Abbott was never afraid of speaking bluntly in a manner that was at odds with Coalition policy," he writes.

"So as I am a humble backbencher I am sure he won't complain if I tell a few home truths about the farce that the Coalition's policy, or lack of policy, on climate change has descended into.

"To replace dirty coal fired power stations with cleaner gas fired ones, or renewables like wind let alone nuclear power or even coal fired power with carbon capture and storage is all going to cost money.

To get farmers to change the way they manage their land, or plant trees and vegetation all costs money.

"Somebody has to pay.

"So any suggestion that you can dramatically cut emissions without any cost is, to use a favourite term of Mr Abbott, 'bullshit.' Moreover he knows it.

"It is not possible to criticise the new Coalition policy on climate change because it does not exist."

Mr Turnbull goes on to describe those who backed Mr Abbott's leadership as climate change sceptics.

"As we are being blunt, the fact is that Tony and the people who put him in his job do not want to do anything about climate change. They do not believe in human caused global warming.

"As Tony observed on one occasion 'climate change is crap', or if you consider his mentor, Senator Minchin, the world is not warming, it's cooling and the climate change issue is part of a vast left wing conspiracy to deindustrialise the world.

"The Liberal Party is currently led by people whose conviction on climate change is that it is "crap" and you don't need to do anything about it. Any policy that is announced will simply be a con, an environmental figleaf to cover a determination to do nothing."

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