After a week of speculation about where Australia’s Paris Agreement emissions reduction target would be set, on Thursday it settled on a range: 62–70% on 2005 levels by 2035.
According to Prime Minister Albanese:
“It is the right target to protect our environment, to protect and advance our economy and jobs and to ensure that we act in our national interest and in the interest of future generations.”
Statements like that are a pet peeve of mine, as not a single part of it is true. An emission reduction target in Australia:
- will not protect the environment;
- will not protect and advance our economy;
- will do nothing for jobs; and
- is not in the interest of future generations.
How can I say all of that? Because Australia is a relatively small emitter of global emissions (around 1%), and reducing those emissions in the way the Albanese government intends to do so, i.e., emission targets and centralised command-and-control subsidies and mandates, is often counter-productive.
The environment#
If you want to protect the environment then use environmental policy, not climate policy. Worried about running out of water? Price it properly. Endangered species going extinct? Consider property rights or communal tenure. Concerned about the rising risk of bush fires? Spend money on fire prevention and forest management.
You’re almost always better off targetting such issues with direct policy measures, rather than with what those in the US call the ’everything bagel’: policy that tries to do too much, and therefore doesn’t do much at all.
Advancing our economy#
In life, there are no true free lunches. If you want to reduce carbon emissions, you must make a sacrifice. If using fewer emissions was the most efficient and productive use of our scarce resources, then people would already be doing it.
For example, when people switched from horses to cars, or whale oil to petroleum, they didn’t need a manure or whale tax to incentivise them. In the case of renewables, they’re either the lowest cost form of power, or they’re inefficient and don’t pass the market test and need subsidies. That may be worthwhile, but they can’t be both cheap and in need of subsidies.
(Yes, I’m aware that pollution and emissions are in effect unpriced externalities and so we’re burning more dirty stuff more than we otherwise would be. But then we should put a price on that, rather than set an emissions target, which can have high marginal abatement costs and may do more harm than good. But more on that later.)
The fact remains that using fewer emissions is costly, i.e., doing so would cause the economy to slow down. But the costs and benefits won’t be evenly distributed. For example, switching from coal to renewables means coal miners and producers will lose, as will anyone who uses energy as it will be more expensive. As a share of incomes, poorer people will be hit harder than richer people, and those in the regions are more likely to face job losses than those in cities. But then everyone will enjoy cleaner air, which is a benefit that also must be included in any calculation.
Still, cutting emissions will neither protect nor advance our economy. To the extent we value cleaner air and the other benefits it might still be a worthwhile endeavour, but don’t pretend that there won’t be plenty of losers.
Creating jobs#
As with the environment, if you’re worried about jobs then you should focus on removing any obstacles to the market’s matching process, i.e. hiring and firing. That means protecting workers, not jobs.
If the policy objective is to reduce emissions, then creating “green jobs” is irrelevant. In fact, seeking to reduce emissions while also creating such jobs is essentially boasting that these new industries will have high labour costs, leading to higher prices for consumers and undermining the entire endeavour.
Take a simple thought experiment. If Albanese could flick a switch that would cause coal and gas to disappear and all of Australia’s energy needs to come from fully automated, zero-emission renewables producing energy at prices below today’s, would he do it? Even though the energy industry as a whole would lose a significant number of jobs?
Of course he should!
Using climate policy as a job-creation mechanism conflates two completely separate issues, and will result in sub-par outcomes for both the climate and jobs.
Future generations#
Climate change is estimated to shave around 1–3% off of global GDP by 2100. It could be higher in Australia, or it could be lower (climate change has negative and positive effects). But let’s take the top-end estimate in the literature, which is 23% of GDP by 2100 (Burke et al. 2018).
With a 2% annual GDP growth rate, Australians living in the year 2100 will be nearly four and a half times wealthier than today’s Australians. With a 3% growth rate, they’ll be more than nine times wealthier. If climate change continues unabated and takes 23% off the level of GDP in 2100, they’ll only be three and a half or seven times wealthier using the 2 or 3% annual growth rate assumptions—and they’ll have plenty of time to adapt to a changing climate.
Basically, if you truly care about future generations then you should be doing whatever you can to maximise their adaptive capacity through wealth creation today. Small amounts of annual growth compound to large level changes over time, making it much easier to deal with slow-moving problems like climate change in the future.
Wrapping up#
Even if reducing Australia’s emissions could have an impact on global emissions (which is what really matters), the Albanese government’s approach is the wrong one. According to William Nordhaus (Nobel winner in 2018), quantitative targets with subsidies and industrial policy (e.g. a “Future Made in Australia”) can be counterproductive, and if you want to reduce emissions efficiently, the best thing to use is a price:
“Subsidies pose a more general problem in this context. They attempt to discourage carbon-intensive activities by making other activities more attractive. One difficulty with subsidies is identifying the eligible low-carbon activities. Why subsidise hybrid cars (which we do) and not biking (which we do not)? Is the answer to subsidise all low carbon activities? Of course, that is impossible because there are just too many low-carbon activities, and it would prove astronomically expensive. Another problem is that subsidies are so uneven in their impact. A recent study by the National Academy of Sciences looked at the impact of several subsidies on GHG emissions. It found a vast difference in their effectiveness in terms of CO2 removed per dollar of subsidy. None of the subsidies were efficient; some were horribly inefficient; and others such as the ethanol subsidy were perverse and actually increased GHG emissions. The net effect of all the subsidies taken together was effectively zero!
So in the end, it is much more effective to penalise carbon emissions than to subsidize everything else.”
If Albanese was as serious as he claims to be about the environment, the economy, and future generations, then he should start communicating why a carbon price is the only effective way to achieve those goals.
I get that it’s a political hot potato. Former Prime Minister Julia Gillard did the country no favours by introducing a carbon price after lying to the electorate about it, which ultimately led to its repeal by the Tony Abbott government. More generally, carbon prices have been poorly communicated to electorates around the world: even Canada, where around 80% of the population were made better off by its carbon price due to rebates, recently repealed it.
Still, the Liberal Party looks to be unelectable in its current state and the Albanese government desperately wants to do tax reform. A broad, technology‑neutral carbon price price, communicated to the electorate and in agreeance with the states, that replaces many other much more economically destructive taxes, ticks all the boxes.
If Albanese doesn’t even hint at the idea then he’s just not as serious about the issues as he claims to be, and climate change is probably being used as a smokescreen for his real agenda: picking winners and creating “good, green jobs” for his union buddies.
Prove me wrong, Albo. Prove me wrong.