Thursday, October 30, 2008

Treasury on emissions trading & the Australian economy

The Australian Treasury document Australia's Low Pollution Future is a major study of the economics of greenhouse gas emission control for Australia.  It deserves a careful reading. In the main it argues that Australia gains some 'first mover advantages' from dealing promptly with climate change on the assumption that all countries will eventually control their emissions. Thus it is optimistic about the implications of carbon leakages.

Most emphatically it endorses the use of markets to help sort out the race to secure non-polluting new energy technologies.

I approve of the Labor Party's move to proceed with an emissions trading scheme in 2010 and oppose the Coalition move to delay introduction of the ETS on the grounds of the current financial crisis.  The costs of early action in controlling greenhouse gas emissions will be low if markets come to anticipate eventual cooperative global controls.   The Treasury paper shows that the costs will be relatively minor and that there are positives in acting early.


Spiros said...

"it endorses the use of markets to help sort out the race to secure non-polluting new energy technologies."

How would this work? It's got to be hugely risky and expensive for a private company to do the R&D in these technologies. Will they then get, if they succeed, the market to themselves for 10 or 20 years, like in pharmaceuticals?

hc said...

I agree most of this work would involve joint public private ventures - a subsidy element reflecting the 'public goods' element.

But of course people are taking pure private punts on geothermal stocks.

The driver is strong possible profits with some temporary monopoly power.

jdavey said...

The only problems with subsidies is that if the govt. or scientists get it wrong (as in calculations about the carbon savings of ethanol) it distorts the market and can create a situation worse than before.

It is better to offer only small amounts of help, and primarily in research and development, to ensure flexibility and the creation of "real options" that does not lock a country into the wrong plan.