“And then there are all those useless economists, endlessly arguing the toss between pollution taxes and emissions trading schemes – whichever way you jump they’ll hanker after the other way – while the opportunity to act slips away. Thanks a bunch, guys.”

:-)

from ‘Emission impossible: unholy alliance set to sink carbon reduction plan’, Sydney Morning Herald, 2 March 2009.

What is required here is essentially an earlier transition to active reductions in emissions per tonne of coal burnt as an integral part of the calculation – fundamentally a technical monitoring and measurement issue for the industry, engineers and government regulators. This will enable regulators to separate the artificial lowering of emissions from the voluntary efforts of citizenry or for that matter, the more likely lowering of emissions output from declining energy demand associated with the global economic downturn. This is the pressure that the industry needs to drive the dollars, innovation and creativity into real reductions.

Technological innovations are more likely to bring India and China into the mix in the long haul as industry will have a vested interest in keeping transformation or conversion costs as low as possible in order to compete internationally.

One reason for a gradual tightening and a declining cap model was to allow industry the time required to adjust technologically to the new market criteria. One could however argue that the global recession has provided industry that relief for the next couple of years at the very least under the present model. However, any advantage gained would be lost if no clear expectations are projected in the interim in terms of stricter monitoring and compliance measures two years hence.

The issue of a fixed target possibly resulting in too little an effort surely is an important one. Especially because the economic downturn will do a fair bit to reduce emissions in the short term but without any changes in technology that could keep the growth trajectory down in the longer term.

Once more about the assertion that solar panels on roofs etc do not reduce emissions. Please let’s realise and acknowledge that what’s planned is NOT a closed national system, but one that is open to international trade in permits. On most of the modelling, Australia would buy offset credits from other countries to meet the 2020 target. So the Australian price will be determined by international prices. ‘Voluntary’ solar panels on Australian roofs have almost no effect in changing the permit price, and so will not change Australian industries’ actions.

More private solar panels mean less international credits purchased. So voluntary efforts leave global emissions unchanged in the short run (plus minus uncertainty around accounting for credits) but DO reduce Australia’s emissions. So it is NOT a zero sum game for Australian emissions, not even in the short term, if that is what people care about.

However, I think the goal of climate change policy should be to introduce the policy that best achieves our goals for the lowest cost, and not to meet agreements for the sake of meeting agreements.

If we meet agreements and don’t switch to alternative energy technology then we will have achieved nothing. If we don’t meet our agreements but switch to alternative energy technology (and help others to also switch) then we will have actually helped to move the world towards a low-emission economy.

As a separate point, an ETS also doesn’t guarantee that we will hit any particular target as it doesn’t cover all emissions.

But I really do think there is a problem in the framing of this discussion and the short-term emission targets are a distraction from the only real path to a low-emission economy — changing incentives towards investing in alternative energy technology.

Of course it is well known that an ETS delivers certainty about quantity but there has been very little discussion, in the academic or public debates, about the consequences of an ETS with a suboptimal target. Under such circumstances the supposed strength of an ETS (quantitative certainty) becomes a weakness.

If governments want to build political spport for such schemes then they need to come clean with their popualtions about the limitations of an ETS when the target is lower than that demanded by the community. In Australia the Climate Change Minister has gone out of her way to confuse and decieve the public into thinking that if they put soalr panels on their roofs they will be reducing Australia’s emissions. In fact, all they are actually doing is helping to meet the fixed target with the catch being that the more money they spend on soalr panels the less money big polluters have to spend on permits.

Any economist who cant see that this is a political problem that must be resolved through honest discussion with the population is mad.

I can’t for the life of me figure out why it took the Germans so so long to figure out that every time they build a wind turbine the Poles could increase their pollution (see recent piece in Der Spiegel). The problem for the government is that the cat is out of the bag. So what to do?

There is no reason that an ETS cannot be modified in order to reduce the annual target in line with any measured voluntary emission reductions. And when i say voluntary i dont just mean individual…the federal governemnt recently announced a plan to install insualtion in 2million houses but they made no mention of reducing the emissions cap accordingly. That is, they attempted to describe their investment as a win for the environment but all it meant was cheaper permits…its the deception that causes the problems.

But, as we all know, the target is a woefully inadequate political compromise. The costs of this compromise could be reduced if it was possible to pursue cuts beyond the target level through voluntary action, special government initiatives or some kind of hybrid scheme.

This could be achieved, for example, by
(i) allocating offset permits to people who undertook particular voluntary actions. Those who were motivated by environmental concerns could retire the permits, and effectively tighten the target
(ii) tightening the target when new government initiatives like the insulation subsidy are introduced
(iii) using the carbon tax to set a price floor (opposite of the McKibbin idea)