Today’s lesson is taken from Jane Clifton’s Politics column in this week’s Listener (full text on the web next week). Her take on the current fuss over the Emissions Trading Scheme perfectly illustrates how the debate around this issue is being misunderstood and misrepresented, occasionally wilfully, sometimes from ignorance. This is not Clifton’s fault. She is reflecting only a certain kind of reality – the perception of the issue that is driving press coverage and political actions. Here’s a key passage:
“… most people have gotten the drift by now: to reduce carbon emissions means to reduce activities we currently benefit from and enjoy. And we will have to pay handsomely for our lack of pleasure.”
She then considers why the government is struggling with the scheme:
“It’s the ultimate non sequitur. A government that addressed this crisis seriously would become massively unpopular and lose office. A government that didn’t would be hideously irresponsible and deserve to lose office. Hard to avoid a certain fatalism.”
If the first part of the argument were true, then her “non sequitur” would follow. Happily, her assumption is completely wrong, so it doesn’t have to. But you’d be hard-pressed to glean that from the current discussion in NZ (or indeed from Clifton’s column).
What Clifton illustrates so well is how the ETS debate has been captured by an unholy combination of the pleading of big emitters, rising petrol prices and the grubby reality of politics in an election year. “The drift” that she perceives that everyone has now got, is simply not supported by the facts. If we set aside the studies commissioned by lobby groups and big emitters and the noise they’ve made about the ETS, most credible studies on the cost of action both in NZ and internationally show that the costs are modest – of the order of 1 – 2% of foregone GDP growth over the next 30 to 40 years. By way of comparison, we spend about 1% of GDP on defence, every year. The key idea here is “foregone growth”. Not a huge reduction in economic activity, or massive cuts in all the things we like doing, but a very slight slowdown in growth. We will not “pay handsomely for our lack of pleasure”.
The projections of big costs have come from big greenhouse gas emitters and their representatives. They want to defer any costs they might face as far into the future as possible. Hence the fuss over the phase-out of free allocations, and their tendency to overstate the costs they might face. In a small economy, when a multinational mutters darkly about pulling out if it doesn’t get the deal it wants(*), people tend to sit up and pay attention. But that ignores the international reality, which is that global action on emissions reductions is more likely than not – and that even if a truly global deal proves impossible, important markets (Europe in particular) will impose carbon charges on imports to protect their manufacturers from carbon freeloaders.
The whole purpose of any ETS (or a carbon tax, for that matter) is to put a price signal into the economy, so that the market takes action to minimise its costs. In other words, once the price is in the market, people and businesses should react to the signal by doing what they can to reduce the costs they face. High petrol price? Buy a more fuel efficient car the next time you change vehicles, or even (perish the thought!) drive a bit less. Higher electricity prices? Be more efficient in using those electrons, or perhaps generate some of your own. There’s room for governments to help limit the exposure of the poorest sectors of society, and also to encourage the uptake of higher efficiency vehicles, appliances, buildings, etc and etc. In other words, you can play with the demand as well as the supply side of the equation. But the bottom line is simple. People and businesses will react to reduce the costs they face. If all you do is assume that prices rise but actions remain the same, then you’re missing the whole point, and – paradoxically for many of the people making that argument – you reject the efficacy of market-based solutions.
Ultimately, what Clifton’s framing of the issue demonstrates is that the people who shout loudest get heard over the crowd. Big emitters have been running high profile and expensive campaigns to influence policy making,. Climate cranks and ideologues have helped to prepare the ground by repeating their mantra: action is too expensive to contemplate, even if it might be necessary. The government has done itself no favours by underselling both the need for action on climate change, and the modest cost of the actions they’ve proposed.
Is there a way forward? There have been suggestions that a “grand coalition” of Labour and National might emerge, to get a watered down ETS through the legislative process, thus removing climate policy from election contention. This might be expedient for both parties, allowing them to shelve much of the hard work until next year. If the alternative is that climate policy becomes an election football, then it might be worth doing, but if the watering down simply means shelving all painful decisions it will be the tax payer who loses. I would prefer a “grand coalition” to include all parties, and reflect opinions from all sectors of the economy, from big emitters to conservationists, but it’s really too late for that now. The ETS is the only game in town.
Unless of course, you’re Fran O’Sullivan, who reads the entrails and finds that a modest carbon tax might be a better way forward than an ETS. That’s the Fran who was, it appears, sitting at the top table with Don Brash and the great communicator (Prof Bob Carter) at the Auckland Yacht Club a few weeks ago. And Roger Kerr continues to argue for the carbon tax he was keen to reject a few short years ago. Nice to know where she gets her policy and scientific advice…
Meanwhile, the Finance and Expenditure Subcommittee has released an interim report [PDF] which says nothing, but which has given National the chance to posture by delivering a minority report, which also says nothing. Ah well, such is politics.
[(*) No Right Turn has an interesting take on Comalco’s tactics here.]