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Transcript
The Economics of Sustainability Climate Change Outline • Basic set of questions for policy development – applied to climate change • Discussion on policies designed to address climate change • Emphasise the ‘diabolical nature’ of the climate change problem Three questions • What is the problem? • What will happen if I do nothing? • What should I do about it? What is the problem? • The potential economic, social and environmental costs of global warming from elevated concentrations of greenhouse gases in the atmosphere as a result of man-made emissions What will happen if I do nothing? • Important, because many issues will resolve themselves and policy fixes may get in the way • Unfortunately global warming is likely to continue without a policy response • The reason: MARKET FAILURE!!! Market failure • A situation in which the market system produces an allocation of resources which is not Pareto-efficient • Yawn and What? • But market failures are very important and can have very real effects • Stern: Climate change is the greatest and widest-ranging market failure ever seen What should I do about it? • Two main options • Just adapt – Evidence suggests that costs outweigh the benefits over time • Mitigate and adapt to unavoidable climate change – Mitigation will be focus of further discussion The three ‘Es’ of policy making • Effectiveness: Will they achieve the required reduction in emissions? • Efficiency: Are they the least costly way for society as a whole to reduce emissions? • Equity: Will the suite of policies deliver reductions in a way that’s considered fair? Mitigation options • Command and control regulation – May be effective but can leak – Rarely efficient – information problem – Why throw baby out with bathwater? • Market-based mechanisms – Internalise the externality Market-based mechanisms • Carbon-tax – Simple but may not be effective – still requires information – Fallacy of price stability • Emissions trading – Complex but effective if properly enforced – Efficient to a tea Will an ETS be enough? • Yes – Makes many current policies and many future policies redundant – Other mitigation policies will change the mix not the amount of reduction – Is this efficient? • And No – Other market failures exist – Some sectors are not covered by trading And what about equity? • Emissions trading will deliver effectiveness and efficiency, other policies needed to ensure equity • Households – Need to be careful not to reduce incentives – cash not subsidies • Businesses – Closed vs. trade exposed industries – Principles for compensating emitters – Systemic industries Further complications • International aspect – Have we ever solved an international issue? – Free rider problem – The Australian ETS is not an environmental policy • Intergenerational equity Further complications cont. • Uncertainty – Emission concentrations on climate – Impact of climate change policies – Costs of climate change policies – Relationship between Australian and global response • CC impacts could be large and irreversible
