Intellectually speaking, Australia’s climate debate has been a moving famine. Australia initially agreed to the Kyoto Protocol of 1997 but then declined to ratify it. The Howard government pointed out that Kyoto only covered 30% of global emissions and the United States had not ratified. That said, we were on track to meet our obligations when Kevin Rudd did the right thing and ratified soon after the 2007 election win.
Since then Australia has had three prime ministers (Rudd, Turnbull, and Rudd again) in favour of serious climate action, one prime minister who enacted a carbon tax (Gillard), one prime minister who was a hardcore climate denialist (Abbott), and one prime minister who looks set to preside over the beginning of long-term action (Morrison).
It has been the public policy equivalent of the docking of the Hindenburg.
We’ve gone from being a country that could have been ahead of the curve in decarbonising our economy — which is what you want, really, when adjustment gets more and more costly if action is delayed. Instead, we’ve been dragged kicking and screaming to action by global capital markets.
The politics of all of this has been pretty ungratifying. Turnbull as opposition leader was taken down by his own party for trying to do the right thing for the country. Then the same thing happened to Rudd, but as prime minister. Abbott used climate politics to divide the country and weaponise environmental action. Couldn’t he have just made do with using asylum seekers and the mining tax to do that?
Turnbull as prime minister lost his nerve on climate action, and Morrison has never had any nerve on the issue, unless one counts pandering to focus groups as leadership. And, of course, we have top fossils Matt Canavan and Barnaby Joyce, denying anthropogenic climate change and wanting government subsidies to make the problem worse, not better. They’re like less intelligent, less articulate, less charming versions of US Senator Joe Manchin.
But here’s the thing. My kids’ generation and their kids’ generation simply won’t stand for inaction on climate. For them it really is “the great moral challenge of our time”. These generations will debate how we decarbonise the economy, but not if or when we do so.
Lecturing them about power costs in Great Britain this year, or tectonic plates affecting the cable from Darwin to Singapore is, at best, met with a hearty chorus of “OK boomer”. And so it should be.
In addition to young folks, we have the (moderately) old folks running global capital markets. BlackRock’s Larry Fink may have different reasons than yet-to-be born Australian children for demanding climate action, but he wants the same outcome. And the thing about global capital is that it doesn’t tend to ask politely, or twice. To his credit, Treasurer Josh Frydenberg not only understands this, but he’s also making that fact clear to those inside and outside Parliament.
A confluence of unstoppable forces means that Australia will decarbonise, fully, by around 2050. The only remaining question is whether we want that process to be challenging or wrenching.
Say what you will about market forces and market-based solutions, they relentlessly drive the lowest-cost path to our final destination. We have a choice as a country: do we use command-and-control or market mechanisms to decarbonise?
Right now it looks like command-and-control will win the day. This will involve some ugly, inefficient, rent-seeking nonsense. Governments of all stripes will try to pick winners in a return to circa-1970s industry policy. Politicians will embrace billionaires for the camera lauding their leadership, but basically just writing them a big cheque.
This will be a mistake. Whether it’s a carbon tax or an emissions trading scheme, a carbon dividend or an asset-and-liability mechanism, we should use the magic of the market to get us to net zero.
Anyone who has taken an economics course knows that the market’s price mechanism equilibrates supply and demand. But that’s not all it does. In fact, it’s not even the most important thing the price mechanism does.
The true “magic” of the market’s price mechanism is that it communicates and aggregates dispersed information. This role — first pointed out by the left’s bête noire Friedrich von Hayek in an epoch-making 1945 paper — is why the greatest economic advances in human history have been driven by well-regulated markets, not by command-and-control.
Australia is about to reach a belated political truce on decarbonsation. But the economic battle lies ahead. We need to turn our commitments into reality. That won’t happen through government winner-picking or tilting technological windmills. It will happen through capturing the dispersed information that lies in every nook and cranny of our economy and allowing clear price signals to provide powerful incentives for innovation, adoption, and adaptation.
The “magic” of the free market is a con.
The richest businesses leverage their power to get rid of competitors and monopolise industries.
Then they write their own rules – set prices, shape regulations, break laws, avoid tax, and invent pretend competitive brands to trick the consumer that the rivers of gold end aren’t all just flowing to the same source.
The only difference between the free market and a game of Monopoly, is that once someone has won Monopoly, you get a chance to reset the board and start another game. This free market lurk is designed to go on forever.
Precisely: you cannot have a ‘market’ with 1 or 2 suppliers, or 1 or 2 buyers. Hence a steady stream of people demanding that government make rules to guarantee a ‘fair market’.
Yeah, gotta love Holden’s false binary of “market magic” versus the communistic evil of “command and control”. After 25 years of global climate policy, and 15 years of the EU ETS, there is no compelling evidence that this “magic” can reduce emissions anywhere near enough – in fact, atmospheric CO2 levels keep on climbing, to new records.
If a bridge falls down in the real world, we might say that the engineer got it wrong. If a “market” doesn’t work in the real world, you can never say that the economists got it wrong. On the contrary, the market model just needs a bit more tinkering, or maybe the real world is just being a bit slow, in catching up with far greater wisdom of the model.
What economists really want is endless growth in population and GDP, in an idealised world that has no real environmental limits. “Carbon pricing” or “net zero” is simply the economists’ latest proxy for business-as-usual.
Yes, you really have to wonder how anyone swallowed the whole “infinite growth in a finite world with finite resources” bit from the very start. And how economists and business commentators can be treated with such respect and awe, given their own segments on the telly, or even entire shows, where they talk with great gravitas about what is good and what is bad for the market, when the underpinning assumption of it all is such childish fantasy. it’s group-pretend time!
The problem with Richard’s markets-will-solve-everything by virtue of the price mechanism is that it overlooks the fact that we got into the mess based on assumptions of perfectly competitive markets – without externalities. As Professor Mark Sagoff of George Mason university has said “markets have no inherent mechanism to handle climate change because climate change presents a problem not of scarcities but of consequences”. Left to their devices, which is essentially what we have been letting happen now for decades, the fossil fuel industries will burn everything up before we have a chance to do anything substantial about it. As Sagoff says, those industries will continue to hire lobbyists before they hire engineers. In short, we are in a race against time. This will take concerted public policy action and pressure from the citizens of democracies, not the Hayekian hocus pocus that Professor Holden still (even at this point in market capitalism) continues to proselytize.
Well said
The markets also dictated policies that increased inequality, which obviously wasn’t a great concern to economists, who were on the well-paid side of society. I’m all for expert analysis, but highly suspicious of rent-seekers who are happy to prescribe a “better” world that just happens to work for them personally.
Sure Sagoff would be aware of, and reacting to, the theory behind what we have observed i.e. ‘public choice theory’ as developed by a devotee of both the Austrian and Chicago Schools, Nobel Prize winner James Buchanan of George Mason (with an interest segregation politics according to MacLean in ‘Democracy in Chains’); promoted by KochNetwork’s linked think tanks including the IPA locally, IEA in UK etc..
Personally one sees it as old dressed up theory but still deeply influenced by Calvin, Darwin, Galton, Smith et al. as a system to preserve privilege and wealth for the godly under the guise of ‘freedom & liberty’ over and above fair society and democracy.
Surely one of the biggest roles of government in a capitalist democracy is to apply uncaptured costs with broad effect to the economic model. Cigarettes are an example.
The ‘market’ will always avoid recognition of these costs without force.
The magic of a free market? LOL
Only an academic economist could write “…well-regulated markets, not by command-and-control” as if they were comparable.
The former has never existed outside of Adam Smith’s admonition to avoid cartels – “conspiracy against the public” and the latter was a political construct to drag a mediaeval feudal peasant society into the 20th century despite total opposition from those poorly regulated markets aka laissez faire capitalism, red in tooth & claw.
Each time this writer soils these pages he proves that economists’ sole function is to make astrologers seem rational & credible.
If markets were as efficient as you claim Richard we wouldn’t be where we are. The atmosphere has been used as a zero cost sink for combustion wastes. We are now facing the societal cost of those market efficient decisions. Had the carbon tax been allowed to stand then the true efficiency of the market would have found the individual business solutions. So long as it is free to discharge into the atmosphere that is the least cost market solution.