As an economist, it’s a pleasure to listen to Ross Garnaut. He speaks clearly, reasons well as a good economist should, and he humanises his presentation with literary and historical references. Professor Garnaut and his team have clearly done an enormous amount of work for this Draft Report, and it would be unfair to critique it without a very careful read. Garnaut’s clear presentation of the report’s key points, however, leads to what I think are three major communication and hence political challenges facing the Government as it moves to implement its climate change policies. If these challenges are not met, it will be too easy for short term political imperatives to derail the long term effectiveness of the policy.
First, the government must clearly explain why market based measures are the best approach to dealing with the climate challenge. In my view, they undoubtedly are, however there is a question as to why a standard “cap and trade” emissions trading scheme is better than a straight forward carbon tax, or indeed better than a tax-trading hybrid which takes advantage of the best features of each. A clear comparison of each presumably awaits the quantitative analysis Garnaut has flagged for his Supplementary Draft Report (next month). As a major regulatory change, the Government has a responsibility to demonstrate why its approach is better than the alternatives.
Second, Garnaut very clearly places Australia’s response within an international framework. Australia’s abatement alone will do nothing to affect climate change, all countries — particularly rapidly growing developing countries — need to be on board. Herein lies the challenge, to ensure that Australia’s response is indeed in line with what is most likely to emerge internationally and further, to explain domestically why Australia needs to feel the “pain” of abatement in advance of the ‘gain’ that can only come when all countries act.
Third, and this is a really big one, our political system needs to deal with the full immensity of the time scales that are involved for climate change policy. Even if the entire world acts immediately, climate change will not be affected for a number of decades. There will be pain in the many years before there is any gain because the inertia in the climate system means we are already committed to a large amount of climate change. The policy we implement now must be robust for many, many years to come, and it must remain robust despite the fact that the benefits are diffuse and far in the future. This makes climate policy quite unlike any other economic reform we have seen.
The big question for Rudd then becomes, with such a time lag between costs (now) and benefits (in the future), how do we construct a scheme that maintains incentives to keep it in place through the many parliaments and shades of government we will have over the next 50 years?