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Rudd on climate change

Kevin Rudd has further delayed the start of the emissions trading scheme to 2011 (after the next election), reduced the initial price of carbon to be charged from $20 per tonne to $10 per tonne (that is now about equivalent to a massive 2.4 cent per litre charge on unleaded petrol) and increased assistance to heavy industry (steel and aluminium previously would get 90% of their permits free – now they will get 95% of their permits free for the first 5 years – or really 1+5 years – of the scheme).  The only a bonus is agreement to cut emissions by 25% by 2020 if all other nations agree to do the same in Copenhagen this year.

It is a major backflip for a man who said, last December, in the face of the full obvious force of the financial crisis, that there was no case for delay.  But it is by no means an astonishing backflip.  I think Rudd’s mouth runs ahead of his brain most of the time but, on climate change, he simply cannot be trusted at all.

Rudd has caved into business who were faced with the prospects of tiny cost increases and their immediate response was not gratitude but – ‘not enough we want even more concessions’.  They will use the extra time not to adjust to the new scheme but to prepare a campaign to thwart any scheme (AFR, Tuesday, p.2). Rudd has also tried to play some really low level politics with Malcolm Turnbull. The stupid issue here is that Turnbull can now push for further delays in adopting any scheme to ‘fine tune’ the details.  

Kevin Rudd went into the election mee-tooing John Howard on all issues other than climate change and the prized Labor scheme to increase unemployment by abolishing WorkChoices.  He has reneged on the first distinctive policy but not on his second which should help to drive unemployment towards 9%.  His profligate fiscal policies will be largely ineffective in offsetting impacts of an external terms of trade shock that we can do little about but will leave us with mountains of debt, huge tax bills and a devalued currency.

Rudd is using the financial crisis to enact policies that will reduce the gains we have achieved in labour markets and which which will help imperil our environmental future.  Given the ambiguity of the Liberals on this issue – they should be pushing hard to achieve sensible climatic change policies – I will think seriously about voting for the idiot Greens  (woeful economics, sound environmental policies) in the next election.  It is one way I can indicate my total disgust with both major political parties in Australia because of their lack of principle on the climate change issue.

The Greens at least lack the hypocrisy of the Labor cheer squad who insist that the feeble conditional 25% increased cut more than compensates for the policy negatives.  They are hypocrites who see climate change not as an urgent policy priority but as politics.  Very unimpressed.

21 comments to Rudd on climate change

  • derrida derider

    I think Rudd’s mouth runs ahead of his brain most of the time
    A fair criticism. It’s a product of his hyperactivity rather than deliberate duplicity – he never steps back from an issue and ruminates about it. As I’ve said before, he’s all tactics (good ones too) but no strategy.

    [Business lobbies] will use the time not to adjust to the new scheme but to prepare a campaign to thwart it

    I agree again. I predict we will never see that mooted 25% reduction that the moderate greens got so enthused about – not least because the later we start moving towards it the more painful that movement will be, and hence the more easily resisted. It’s an obvious point that people like the ACF and (very surprisingly) John Quiggin have failed to grasp.

    Harry either you’re becoming more of a Progressive or I’m becoming more of a Tory – we’re agreeing too often. Can’t you post something about drugs or terrorism or Iraq that we can have a bit of a stoush about? 🙂

  • Uncle Milton

    “reduced the initial price of carbon to be charged from $20 per tonne to $10 per tonne”

    The international price of permits, thanks to the GFC, is now around $10 per tonne. No one is going to buy Australian permits for more than $10 when they acquit their obligations under the CPRS by buying international permits for $10.

    Rudd has done no more than make a virtue out of a necessity.

  • Hrgh

    “I will think about voting for the idiot Greens”

    Good to see you come around, Harry. The Greens could do with a few more economists amongst the mix.

  • Pretty much with you on this one, Harry.

    I’d add that the Rudd emissions policy makeover is an inevitable real-politik outcome, given the Liberals inability to voice any alternative other than obstruction.

    The irony is, the new policy could have been written by the Liberals, but now they’ve backed themselves into a corner and can’t support it.

    Maybe a double dissolution is what we need – shake up the Senate and get some more Greens in there! But my guess is that Turnbull will blink and Rudd will give him a token concession or two – an early election on climate change and alcopops would spell oblivion for the Libs, the GFC and huge deficit notwithstanding. The punters aren’t that concerned with the deficit for the moment – that becomes an issue in good times. For now, they just appreciate that some effort is being made to bring relief from the GFC.

  • hc

    Slim, It is not an inevitable real-politic outcome at all. It is a stupid outcome from a bunch of self-seeking, awful people. I am afraid that you still see this thing as a political issue which I think is wrong. The national leadership prize should be a reward for doing the right thing for Australians now and their dependents. There is, after all, no money in it – only ego and that is short-lived – few will attend Kevin Rudd’s funeral. The point is to get it correct not to playing some narrow pointless political game.

    I feel despondent about the lack of idealism in all branches of modern Australian politics. Labor has produced a group of well-trained dentists who have been taught to win power. The Liberals see nirvana as defeating these nitwits. Each side has its cheer-squads trying to drown out their opponents with self-righteous defensiveness.

  • I’m not disagreeing at all Harry. It is an environmental issue that has been highly politicised, largely by corporate interests. I say it is an ‘inevitible’outcome in the sense that as a consequence of free-market globalisation we now live in a world dominated by corporations and interest groups, so it’s hardly surprising that they get the biggest say in our political system. It ain’t right, but it’s how it is.

    I suspect that Rudd is being politically cautious (when was he ever not). If you’re not in power, you are completely powerless. I’d like to think that he might be more brave with a second term in office, having banked some political capital, so to speak, be more willing to spend it. I hope, but I won’t hold my breath.

    And the Libs can’t even make up their minds whether anything at all should be done. They seem to be promising a system that significantly reduces carbon emissions at no cost to anyone, but not yet, only after everyone else does. Same crap offered by Howard. The people ain’t buying it.

  • J Savage

    There is a real case here for a reform of our electoral system, to something more proportional. Say what you will about the deficiencies of European-style proportional representation systems, but at least the resulting coalitions have a couple of veto-players with spine (think of the German Greens, or the Pim Fortuyn List).

    One of the things we’d likely see in Australia from such a reform would be growth of the Greens to a Labor coalition partner. This would (hopefully) suppress the car-plant sycophants like Carr and Bracks within Labor, and push the economic reds from the Greens. (Happily, I know several Green members who are both good dinner-party guests and economic agnostics; that’s a good place to start!)

    Unfortunately, both major parties are aware they would lose power to smaller players under such a reform, so it could never happen. Moving the other way, from proportional representation to majority representation, is equally difficult: the veto-wielders in the Thai coalition, or Malaysia’s UMNO, would never submit to such a reform.

    Maybe, then, the best thing we could do is vote for the Democrats. There’s a cruel joke.

  • […] Repost placed an interesting blog post on Rudd on climate changeHere’s a brief overview…the emissions trading scheme to 2011 (after the … distinctive policy but not on his second which … policies) in the next election.  It is… […]

  • Uncle Milton

    What seems to be not understood, especially by those people who want to stop the CPRS, is that a (well designed) ETS is a way of cutting emissions at least economic cost. Without an ETS, it is always open to the government to simply dictate to industry that they must cut their emissions – end of story. This would achieve the environmental objective but would be much more costly to business than a system that cuts emissions and allows people to trade emission permits.

    The Liberal Party is the party of business and yet they do not seem to understand this. Or if they do understand it, they are playing a dangerous game with their own constituents.

  • derrida derider

    Harry, vote Green. Their annoying idiocies on other issues pale beside the importance of this one – the future of the planet. That’s the reason I’m switching to them from Labor.

    Let neither of us, of course, delude ourselves that we can change those idiocies (pace Hrgh above). We’ll just have to live with them, along with Bob Brown’s appalling self-righteousness.

  • hc

    I meet with Liberal Party people Uncle Milton. Regrettably many do not believe in climate change science. Others couldn’t care less either way but think that supporting the ETS is a ‘vote grabber’. A substantial majority do accept the science but I am sure they do not appreciate the cost-minimising character of a tradeable permits scheme.

    Derrida I think a lot of people will vote for the Greens next election. Many like me will consider doing so as a protest.

  • Uncle Milton

    Maybe we should have a carbon tax. Everybody understands that if you tax something you get less of it.

  • Sinclair Davidson

    Harry, given your beliefs I’m surprised you don’t support a tax. The literature since Weitzman (1974) shows very clearly that a price instrument would dominate a quantity instrument. (see also Hoel and Karp 2002).

    On your voting intentions – why would Rudd care? A liberal voters goes green. DD’s loss is more serious, an ALP voter going green.

  • hc

    Sinclair, Weitzman provided a case for both tax and quantity controls. I buy John Quiggin’s argument that setting quotas has an automatic stabilising role. carbon prices will drop during recessions (as Uncle Milton points out that is happening now) and rise as economies accelerate. You can also trade quotas.

    I agree national taxes have advantages – each country can set its own tax.

  • Uncle Milton

    Sinclair, the literature says nothing of the kind. You can come up with a case either way, depending on whether the benefits or costs of abatement are more uncertain. The main theoretical advantage of permits with greenhouse gases is the ability to bank and borrow, permitting gains to intertemporal efficiency. You can’t get that with taxes, but trading systems are complex and hard to understand compared to taxes.

    I agree with you on the hollowness of Harry’s threat to vote Green, unless of course he gives Labor his second preference. That really would hurt the Liberals.

  • Sinclair Davidson

    Uncle Milton from Hoel and Karp in Resource and Energy Economics(2002, pg. 379) (emphasis added)

    Even though we chose parameter values from the plausible range in such a way to make g/b large and ϕi small (thus making it more likely that quotas dominate taxes) our
    calculations indicate that taxes lead to higher welfare (g/b << ϕi ). Even if the larger (based on Reilly) estimate of g is too small by a factor of 1000, so that the actual value of
    g/b is approximately 0.02, taxes would still dominate quotas if the firm and the regulator were “reasonably flexible” (h = 1). If the estimate of g is too small by a factor of 100,
    taxes would still dominate quotas even if the firm and the regulator are inflexible (h = 10).
    Consequently, in spite of the data limitations, our results support the use of taxes rather than quantity restrictions to control greenhouse gasses.

  • Uncle Milton

    Sinclair, that’s just one paper, and in a fairly minor journal at that. The literature as a whole says it can go either way.

  • Sinclair Davidson

    Okay. How about the Journal of Public Economics?

    The resulting welfare analysis indicates that taxes are much more efficient than permits for controlling GHG emissions – by a factor of five to one ($337 billion versus $69 billion in net benefits). This derives from the relatively flat marginal benefit curve associated with emission reductions.

    Pizer, 2002, Combining price and quantity contols to mitigate global climate change, 2002, Pages 409-434.

  • Uncle Milton

    Show me a reputable survey of the post Weitzman literature that concludes that taxes dominate permits, and I’ll believe you.

  • Sinclair Davidson

    That’s a strong statement.

    The Oxford Review of Economic Policy 22(2) 2006 has a review article by Cameron Hepburn (the pdf won’t let me cut and paste from it) see especially pg 238.

  • Uncle Milton

    Sinclair, thanks for the reference, which I will read with interest.