The Kyoto Protocol is dead - now for the more sensible alternatives

The problem with the public debate over ratifying the Kyoto Protocol is that the media always wheels out lobbyists from either fossil fuel industries (easy to spot) or lobbyists from the renewable energy industry or finance industry (well disguised as impartial experts). Both sides make reasonable arguments and occasionally throw in emotive assertions, but the person in the street is no better informed about the issue. Most people believe that they want something done about climate change and somehow believe that the Kyoto Protocol is the way to go. What is really needed in such an important debate is a more balanced assessment of the issue - but this is not good media nor good politics. As an expert in this area, I find it hard to see how the casual observer can form an opinion on what should be done when there is more hot air than light in the public arena.

In a recent article ("The Role of Economics in Climate Change Policy" Journal of Economic Perspectives vol 16, no2), Peter Wilcoxen from the University of Texas and I survey the science and economics of climate change and make an assessment of what a good public policy response would look like.

The first point to stress is that there is a great deal of uncertainty about the consequences of climate change and about the costs or benefits of taking action. Any policy response must be directed at managing the uncertainty that lies at the heart of climate change. This implies that the view that nothing should be done is just as wrong as the view that something drastic should be done. What is required is a flexible system that enables some low-cost action to be taken now, and creates an infrastructure that enables more serious action if warranted in the future.

In particular, there are two areas in the recent debate about Australia's non-ratification of the Kyoto Protocol that need to be clarified. The first is whether action today to reduce carbon emissions would be costly. Most of the evidence in the exhaustive reports of the Intergovernmental Panel on Climate Change (IPCC) suggest that it will be costly to reduce emissions. It is curious that those who advocate ratification of the Kyoto Protocol appeal to that part of the expert opinion in the IPCC Reports that support the idea that climate change is an issue, but they dismiss that part of the body of expertise in the reports that suggest there are costs in doing something about it.

Indeed, the key point is that there is a large range of uncertainty about the estimated costs of cutting emissions. Clearly in the longer run, technology is the ultimate answer to reducing carbon emissions, but in the short run (over say 10 to 20 years) it is hard to imagine that there won't be significant costs in restructuring our energy systems. Even so, there are some who argue that there are only benefits (you can always spot a lobbyist). Perhaps this minority opinion is correct, but with so much uncertainty about costs and benefits is it really sensible to take a risk that we might be lucky and the costs might be low when the benefits are uncertain?

But suppose we concede that the optimists are right and the costs are low, is the Kyoto Protocol the correct approach? By any reasoned assessment, the Kyoto Protocol is completely the wrong approach to climate change policy. First, it targets emissions of carbon into the future without knowing what the cost will be - it might be cheap but it might be expensive (it worsens the uncertainty). Second, governments are required to give up national sovereignty in order to hit an arbitrary emissions target with uncertain benefits. Third, there is no rule of law that can make penalties for non-compliance by countries binding if some countries decide to withdraw. The negotiations in the Protocol over compliance are still a stumbling block. Fourth, a large majority of carbon emitters are not part of the system so there is unlikely to be a noticeable change in the trend of carbon emissions. Finally, the act of trading emission permits across countries implies large transfers of wealth, which is both politically unrealistic but also could destabilize the global economy. Kyoto is a very unstable system that creates more uncertainty and in reality postpones serious global action on climate change.

There are alternatives available to the Kyoto Protocol, which we identify in our survey - now is the time to consider these.

The Kyoto Protocol is a purely political compromise created by exhausted negotiators. To sign up to it because of the lobbying of vested interests and sheer ignorance of the range of implications in an uncertain world would be foolish. The Howard government has made the correct decision not to ratify the Kyoto Protocol. But that cannot be the end of the debate. Now what is needed is for the government to implement a clear alternative within Australia so that institutions can be created and incentives put in place to begin to deal with carbon emissions domestically.

The government also needs to convince other countries to adopt a more sensible approach because, as a major fossil fuel exporter, even if Australia does not participate in the entrails of the Kyoto protocol, the possible contraction in the participating economies has the potential to inflict costs on Australia. Leading world opinion by example is very much in Australia's interest when it comes to climate change policy. Now is the opportunity to implement a realistic alternative to the Kyoto Protocol and show the world how to do sensible climate policy.