Recently I heard on Radio National that Finland has embraced a deep green economic model and that their economy has grown by 44 % as a result. Then, local ABC radio news reported that a half-hearted nod to green economics in OZ would see us all paying through the nose while our economy is composted. Can you tell me who’s right here? Why is what’s good for Finland bad for us? Will we “all be rooned” as Hanrahan said? Or are the smug Finns just “having a lend”? What’s the truth? Tell me, I can handle it. And I have stuff to do. — Wendy Harmer

We asked Clive Hamilton:

Economies grow because people invest in businesses that provide goods and services. With a given amount of investment each year investors go looking for the most profitable opportunities. If governments impose some restriction (such as energy efficiency standards) or inducement (like subsidies) then investment will be reshuffled a bit.

If you assume (as most orthodox economists do) that the situation before the policy change sees investment allocated as efficiently as possible (i.e. to the most profitable firms and sectors) then the policy change will mean investment is shifted a bit into slightly less profitable ventures. The overall effect on the economy depends on how much more costly it is to produce the new set of goods and services compared to the old. Usually the difference is very small.

In the case of climate change, the per unit cost of renewable energy (or low-emission energy, like gas) might be 20-50% higher than dirty energy.

But since we spend only about 5-10% of our income on energy (directly and indirectly) the effect on growth is small. This is why the Garnaut report and Treasury modelling show we can cut our greenhouse gas emissions by a lot with only a tiny effect on economic growth.

On the other hand, an economy might be able to better guess the future than its competitors and by investing in green alternatives before everyone else gee the jump on the competition so that they have trouble catching up. This is what happened in the 1970s when Germany led the world by imposing strict air and water pollution standards, leading German firms to dominate the world market for this type of equipemnt when most other countries followed suit 10-20 years later.

The lesson is, if you know where the world is headed get in early and you will make a killing. We know where the world is heading on climate change policy; only obstructionism by the fossil fuel lobby and weakness of will by government stops us doing the economically and environmentally sensible thing.

Crikey welcomes your dumb questions, and will find someone smart to answer them. Send your suggestions to [email protected] with “clarifier” in the subject field.