A sovereign wealth fund needs to be part of Australia’s response to climate change.
One of the main biases in the climate change debate here is the failure to understand that climate change is primarily out of our hands, as intense but numerically small carbon addicts. Many opponents of climate action like to point out that, at less than 3% of global emissions, there’s no point in Australia taking unilateral action ahead of the world, without accepting the corollary of that: what happens if the world doesn’t do anything, or doesn’t do enough to prevent a significant global temperature rise?
We’re currently well on track for such a rise, with the two-degree target looking increasingly problematic. Prudence suggests we start preparing now for the impacts of a significantly warmer globe. And like the costs of taking action to limit our own carbon emissions, the costs of preparation are lower if we start earlier.
This doesn’t mean abandoning the effort to halt the rise in carbon emissions. If anything, it makes the task for Australian policy makers more urgent — to convince the world’s major emitters to take serious action. Why anyone thinks we can do this while not taking action ourselves is one of the stranger parts of the climate change debate here. And Australia is a long way behind most developed economies in terms of the work needed to reduce our dependence on carbon, making the task of domestic action more urgent still.
But while we will pay the costs of climate change action ourselves, costs of climate change itself will fall on our future selves, and our children and future generations. In effect, future Australians will be paying the price for our own inability to get our policy act together sufficiently to end our carbon addiction. That’s where establishing a sovereign wealth fund designed to last for the rest of the century comes in. It would operate like a permanent national disaster fund, paying for the costs of climate change arising from more extreme weather and in effect representing an intergenerational transfer from those who caused the problem to those who are suffering from the problem. It might even pay for the implementation of mitigation strategies in anticipation of the costs of climate change.
Who would pay for it? Revenue generated by the carbon pricing scheme is the most logical alternative, but all of that will be devoted to compensating households and polluters (in fact, under the CPRS, compensation significantly exceeded revenues for several years). The most sensible alternative is the mining super profits tax, increased from its current paltry level, which has the benefit that the Australian industry contributing the most to global emissions, our coal industry, contributes its share to dealing with the future consequences of its exports.
Several business figures have recently begun talking about the benefit of a sovereign wealth fund, including Roger Corbett, who argued the original RSPT was a good idea if used to establish such a fund. Part of that is recognising that the closest thing we have to a wealth fund, the Future Fund, is pre-committed to paying public sector superannuation liabilities. For them the issue isn’t about climate change but about preparing for when the commodities boom comes to an end, but the goals are complementary. It also squares with the suggestion of a permanent disaster recovery fund to deal with future extreme weather events.
Future Funds and Sovereign Wealth Funds are based upon a false analogy between household and government spending. There is no need for wealth funds to fund future liabilities and many better things that could be done with the money.
Why not add retirement/Superannuation funds to the RSPT.
It would redress the problem that has been created by short-sightedness in the past regarding planning beyond an election cycle, and ensure protection from natural and unnatural unforeseen circumstances such as the GFC?
A little bit of sugar may make the whole process taste better.
“Why anyone thinks we can do this while not taking action ourselves is one of the stranger parts of the climate change debate here.”
Bernard, you have to understand, that despite the best efforts of Federal ministers attempting to look impressive striding the world stage, the rest of the world, especially the large greenhouse gas emitting countries, don’t give a toss for what we say or do.
Does anyone, outside of a few Greens supporters with only a nodding aquantance with reality, actually expect that anything Australia does will do anything to change China’s mind on it’s greenhouse gas emissions.
Even if we were somehow stupid enough to do something monumentally insane such as banning all coal exports to China, all we would do is send their business to Vale in Brazil, boosting Vale’s profits and ensure that Chinese companies don’t deal with us ever again.
A little reality needs to creep into the rhetoric of the climate change advocates. Until China, the US, the EU and India sign up for binding emissions target, Australia’s efforts amount to little more than a fart in a cyclone, lost in all the sound and fury.
Nothing Australia EVER does will effect the big boys over seas. Infact a carbon tax may result ineven more industries going to China/India that will just add to more unchecked pollution and the exploitation of third world resources. Hey, but so long as we all feel warm fuzzy and green I guess it is worth it…..NOT! Wow the childrens childrens childrens childrens will pay emotive line is really getting worn out. If our politicians on a global level stopped talking about the weather and focussed on the rampent peace breaking political instability and current wars they may be able to stop WW3 from breaking out. Won’t be much talk about what our childrens children will be paying for should we descend into WW3.
@ Bernard Keane
As you are a modestly numerate chap it is a pity to see that your commendable advocacy of a sovereign wealth fund is undermined by the brain softening effects of Canberra company.
Of course JamesH can produce standard elementary economics justificatons for relying simply on the Commonwealth government’s ability to pay its bills in Australian currency and would have found himself, when the Future Fund was born, in the ultra-conservative company of former Treasury Secretary and National Party Senator John Stone. That is good company but not enough to overcome the basic reason for governments putting money aside in funds like the Future Fund. It is human nature and human forgetfulness of hard lessons once learned, not least the politicians’ own human nature. In this case “Hurrah for tne Nanny state” and “Hurrah for Costello’s good Baptish background”. A bit of discipline is needed for all of us, not least when there is so much in the state’s (in the broad sense) fiscal arrangements which indulges us.
Some may remember the battle to wean states like Victoria off the PAYG pension schemes based on the assumption that politicians would be old-fashioned tight-a**es like Henry Bolte and that our population would remain forever growing, employed profitably and retiring at 65 ready to die within 6 or 7 yeasrs. Sure the Commonwealth can effectually print money and let the damage be suffered where and when it may, but that isn’t reason for making ill-discipline towards our own and our (or, more particularly for the newly unreproductive generations, other people’s) children’s futures seem acceptable.
We don’t need a special resouce tax. There is plenty coming in for years ahead from the current tax regime if only government was less profligate and generous with other people’s money in order to win votes. Economically, and, arguably, equitably, the best tax to increase to provide for the sovereign wealth fund would be the GST (a current consumption tax remember) or a carbon tax as a kind of surrogate GST increase.
Sorry to have to brand you soft-headed in some respects but, fortunately, I don’t have to add my own bit to what Michael James and LisaCrago have said well. But do tell us: do you really really think that the governments of billions of people are going to pay any attention to our words and deeds? And, while you are engaging in some serious thought, would you care to explain why doing anything to reduce our CO2 emission early is going to save us money in NPV terms? Haven’t we wasted enough already on wind farms and solar panels to warn you off fostering that fantasy?