Who is really fiddling while the climate burns?

A carbon tax allows a steady, predictable, ramping up of the price of carbon over time, allowing business (and, ultimately, consumers) to plan against this prospect and shift to lower emissions technology and more efficiency in energy use.

Kyoto has failed. Much of the world had not adopted ETS-type policies. Most that have will miss the emissions targets they pledged to meet (unless the “Great Recession” is really bad). They’ve adopted policies that effectively exempt large slabs of their emissions production. This situation won’t change as a result of Copenhagen, December 2009.

Why? The policy model is wrong. It’s based on emissions production. A global deal on production made sense under the model envisaged before the United Nations Framework Convention on Climate Change (UNFCCC) in 1992. Ironically, the original European vision was the harmonised introduction of a global carbon tax!

The 1997 Kyoto Protocol shattered the foundations for that model. It allowed different countries - notably developed versus developing countries - to act on climate change at different times. Suddenly, trade competitive disadvantage appeared as a corrupting virus affecting climate policy deliberations. The Kyoto Protocol contains the mutation of the UNFCCC vision responsible for its failure.

The cancer will get worse.

Countries are sliding into protectionist measures because of the global recession. Ignore pious G20 communiqués and the like. They’re all cheating (we are too) - e.g., via the multiplying “buy local” campaigns. It’s hard enough stopping countries doing the equivalent of raising tariffs on imports and adding subsidies for exports. It’s much harder to sell a policy that puts a new tax on exports and a negative tariff on imports. So it should be. It’s dumb.

That’s what the CPRS requires of Australia.

Because of these “negative tariff” effects, those supporting the Kyoto policy model will continue to fiddle, while the climate change problem they claim to be worried about continues to build.

Gittins’ claim that “most” economists are fiddling while the climate burns, at best, is a case of the pot calling the kettle black. Ross, put your climate policy bow down. Your music ain’t pretty and your fiddle’s no Stradivarius. Your support for a new market in funny bits of paper (the CPRS) after the fall-out from the global financial crisis is also puzzling.

My motivation?

I’d like to see adoption of a policy model that maximises chances of getting a global deal, as soon as possible, but starting with recognition that the real world will not deliver simultaneous adoption of climate change policy. This reality means production-based models will continue to fail. We need a new policy base.

Gittins has highlighted the carbon tax/ETS debate, but has ignored this more important debate. To accelerate prospects for a global deal on climate change, we need to shift from a national production-based policy model to a national consumption-based policy model. But that’s a topic for another article.