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Blueprint for a flexible, sensible climate policy

By Warwick McKibbin - posted Friday, 8 June 2007


This is not as robust as the blueprint because, to minimise costs through time, we need a rising carbon price signal to give strong incentives for investment in carbon-reducing technologies. It is much better to partly tie the hands of future governments by putting the long-term target reduction in the hands of the people, to build a constituency for real carbon abatement. A safety valve takes care of any excessive short-term economic costs and there is no need to have a continuous process of medium-term permits being issued.

The second aspect of the taskforce report (coinciding with the blueprint) that is important is the idea that climate policy should be built up at the national level and co-ordinated across countries rather than agreeing to a policy at the global level and forcing countries to adopt a global framework that may not be perceived to be in their national interest. Running policy at the national level but co-ordinating across countries on key features such as the short-term global carbon price is critical.

The taskforce report is a valuable document on which to build a better approach than Kyoto. In implementing the report, the Government should act in the national interest by making a stronger longer-term commitment to the goal of emissions reduction and thereby generate less long-term price uncertainty. Households should also receive a substantial allocation of longer-term permits. The Opposition should fold the taskforce ideas around its deep-cuts policy by implementing the deep cuts through a blueprint-style long-term permit allocation with a safety valve to manage the timing of cuts.

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If both political parties followed this strategy, there would be convergence on an approach with credible deep carbon cuts but with more short-term flexibility than possible with precise timetables. We would then have bipartisan support for a sensible climate policy that would lead the world and drive the post-Kyoto debate.

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First published in The Australian on June 5, 2007.



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About the Author

Professor Warwick McKibbin director of the Centre for Applied Macroeconomic Analysis in the College of Business and Economics at ANU and a professorial fellow at the Lowy Institute for International Policy and a non-Resident Senior Fellow at The Brookings Institution. His website is Sensible Policy.

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