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Dec 2, 2009

Ross Garnaut: on Copenhagen, Tony Abbott and rentseeking

At a speech in Washington last night Professor Ross Garnaut ranged widely over the issues surrounding the global response to climate change. Despite everything, he remains optimistic.


These are edited excerpts from a speech given overnight by professor Ross Garnaut in Washington. Professor Garnaut’s lecture, titled International Agreement on Climate Change Mitigation After The Great Crash of 2008,  was the seventh annual Whitman Lecture, giving to the Peterson Institute for International Economics. Read the full speech here.

The mitigation of human-induced climate change as a diabolical public policy problem, harder than any other issue of high importance that has come before our polity in living memory. It is as difficult in the United States as in Australia; in both countries, past abundance and low prices of fossil fuels have encouraged exceptionally high per capita emissions of greenhouse gases, and a peculiar political history on mitigation has caused us both to be late in making a start.

Climate change policy has many demanding features, any one of which might seem to make it unlikely that the human species will be up to the challenge. For one, while the average expectation from the reputed science argues for strong and early action, there
is uncertainty around this average. Given humanity’s risk aversion in circumstances  where variations in outcomes have large consequences, analysis shows that uncertainty strengthens the case for early and strong action, but to the innocent it makes a case for delay.

Second, the costs of mitigation come early, and the benefits are long delayed, requiring unaccustomed comparisons of welfare across generations.

Third, there are complex income distribution consequences of action and inaction, both domestic and international, which greatly complicate the political economy of policy.

Fourth, the combination of complexity, uncertainty and unusual income distribution effects provides fertile ground for effective intervention by vested interests in the policy-making progress, at a time when the democratic polities are struggling to maintain a
place for the national interest in the big policy contests with vested interests. Here there are parallels with the Great Crash of 2008, and the problem is even more acute for climate change than financial regulation. Hardest of all, there can be no effective mitigation without strong contributions by all substantial economies, on an issue in which international collective action is particularly difficult.

With this background, we should be surprised less by the limited extent of progress on the path to next month’s United Nations’ meeting in Copenhagen, than by the substantial positive movement that has occurred. Not that we are headed quickly towards an international agreement that holds out good prospects for reducing the risks of dangerous climate change to levels that most informed people would judge to be acceptable; but substantial global action looks more likely now than two years or three years ago. Your country and mine, and the world’s largest emitter of greenhouse gases, China, have each changed political trajectory over the past couple of years to an extent that brings strong global outcomes within the realm of the possible.

… We have squandered the time and the headroom that we had in the early 1990s. We need to change the trajectory of global emissions urgently if high risks of dangerous climate change are to be avoided. Developing countries now account for more than40% of emissions. The calculations presented in the Garnaut Climate Change Review (Garnaut 2008) indicate that, in the absence of mitigation, developing countries would be likely to account for about 90% of the growth in emissions over the
crucial two decades ahead.

The international community’s limited progress in the dozen years since Kyoto has been strongly influenced by the failure of two developed countries — your country and mine — to ratify the agreement to which they were parties. This history increases the importance of the steps that have been taken in Australia and the United States in recent times.

… Australia has been going through a dramatic legislative process on climate change mitigation that is still incomplete, but that has divided and greatly damaged the conservative parties in opposition and seems to leave the most valuable cards with a government committed to Australia playing its proportionate part in a strong global effort.

Australian governments of both political persuasions, conservative and Labor, had been full participants in the international discussion of climate change mitigation through the 1990s, and had been supportive of effective mitigation. Australia was a
party to the Kyoto agreement in 1997, and there was no public suggestion at the time that it might not go on to ratify the treaty. This position was nevertheless contested with focused effort by Australia’s unusually large fossil fuel energy interests.

… Australian political parties are highly disciplined, so that the next developments were unusual — indeed, had no parallel in the previous half century of Australian politics. The government reached agreement with the major opposition party on November 22. On  November 23, an opposition party room discussion of the agreement broke down in rancour, leading quickly to a challenge to the party leadership. Tuesday morning December 1 — that’s today, but yesterday evening Washington time — the opposition opted by a single vote to switch leaders, from Malcolm Turnbull who supported the government’s amended legislation, to Tony Abbott, who was committed to defeating it.

It is still possible that a split in the opposition in the Senate will allow passage of the legislation. The government is in a strong position to secure its objectives after a likely victory at a new election for the House of Representatives and half of the Senate (or
the whole of the Senate if the government uses the constitutional provisions for  resolving conflict between the Senate and the House of Representatives). While the opposition drama has been playing itself out, the Prime Minister has been here in Washington talking through the approach to Copenhagen with the President and the Secretary for State.

… Optimal policies cannot be taken for granted. Shortfalls from optimality could have great costs for the economy. The current signs are not good. Governments through the developed countries are developing emissions trading systems that give back to large emitters a high proportion of the rent value of the scarcity of entitlements. In Australia, this has encouraged rentseeking investment in the political process on a proportionate scale unknown since the high tide of protection of domestic industry before the trade liberalisation of a generation ago.


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