Mind the free market trap
We all know the argument: Governments are inherently ineffective at guiding markets and will always screw it up when they try to. Markets, the argument goes, are inherently more efficient at picking technologies and responding to constraints, so should be left to do their thing.
People who want to resist change, for any number of reasons, latch on to this argument as another excuse to avoid action on climate. After all, even if climate is a problem, government will surely get it wrong if they try to fix it. It is this argument, along with climate scepticism and the importance attached to economic growth, which has, in various combinations, been used against climate action since the threat became clear in the late 1980’s.
Yes, that is how long this problem has been in the mainstream debate. It was back then that the pro-market, conservative British Prime Minister Margaret Thatcher argued: “The danger of global warming is as yet unseen but real enough for us to make changes and sacrifices, so that we do not live at the expense of future generations.”
However, despite their adulation of her in other areas, free market advocates ignored Thatcher’s sensible, business-like approach to climate change and instead latched onto the fear of big government.
It is true that the view of Tea Party types in the US – who genuinely believe the climate threat is a conspiracy cooked up by people with a secret, big government agenda – is not the dominant view of the corporate sector. However the general view that government can’t be trusted, that markets should be left to do their thing and that imposing limits on behaviour is inherently dangerous, is widespread and mainstream among those with their hands on the market levers.
Whatever the merits of this argument – and it is certainly true that the record of western governments in such areas is, at best, mixed and arguably poor – the effect of it being leveraged to resist change is now clear: We will now move into an era of big, interventionist government that will last for decades and will impose draconian, tight controls on market behaviour. The percentage of the economy controlled directly or indirectly by government will increase and the market will inevitably become less efficient in the process – it being true that government and central planning are generally inefficient.
Why is this so clear?
We can see, after the Copenhagen and Cancun climate conferences, that the pace of response to the climate threat is clearly not going to keep up with what the science says is needed. There is no dispute on the science – none of any consequence – that is now holding back action. Both conferences saw governments universally agreeing that 2°C is the maximum level of warming we can tolerate and the right scientific framing for policy. (Many scientists and an increasing number of countries argue it’s too high, but no one credible argues it’s too low.) So the science is clear, but the action is slower than the science demands. We can lament this, but that doesn’t change it.
How this will all unfold is not driven by politics but by science. The world is going to get ugly and the economic cost will quickly follow. We are going to have rising sea levels causing widespread population dislocation, damage to infrastructure, geopolitical instability and large refugee flows. We’re going to have food crises and resulting social and economic upheavals. We will see ocean acidification and the collapse of fisheries.
And while we won't be able to prevent all that, we will – once it really takes hold – certainly act to stop it getting worse. Guess what that means? Big government.
What do you think is going to happen when large areas of expensive coastal real estate are damaged and even larger areas collapse in value as a result? An insurance crisis, a credit crisis and economic costs – all requiring big government intervention. Guess who steps in when there’s a food crisis and asserts new controls over the market? Big government.
What’s going to happen when major infrastructure is threatened by rising seas and extreme weather? Do you think the market will be left to run its course when power supplies, airports and freight transport facilities are threatened? No, government will step in and fix it. It will be messy, ugly and inefficient but it will certainly happen.
By that stage, the need will arise for what will, by necessity, be draconian political action to cut emissions urgently; as I argued in the paper I co-authored on the One Degree War Plan. That too will require the heavy hand of big government.
Life is full of irony at the moment. WikiLeaks is inspiring right wing conservatives in the US to call for intervention by big government against freedom of speech. The centrally planned Chinese economy looks like seizing the huge market and innovation opportunity now presented by clean energy. Its recently adopted “Magic 7” strategic industries that will power China's economic development has a clear green focus, as you can see in this HSBC analysis. And soon we will see the return of big government with strong restrictions on our behaviour – because free marketeers ignored the sensible, conservative approach advocated by Margaret Thatcher over two decades ago.
So when this trend becomes clear, remember it was brought to you not by a conspiracy of left wing climate change campaigners, but by free marketeers who so detested big government they have delivered a situation where nothing else will work. Nice work guys.
Comments on this article
Free market trap
The free markets have never been terribly good at solving environmental concerns because the 'free' market resists attempts to price in the use of the global commons. If it was left to the free market DDT would still be readily available.
The market will never reflect the true cost of production until it is required to factor in the full cost of using the global commons. This should include the reservoir of a healthy population's willingness to absorb a level of physical damage without seeking compensation.
It has only been government regulation that, in recent decades, has gone someway to redressing the imbalance caused by business not having to cost in the use of the commons. A carbon price(or tax) is simply a mechanism to make the cost of production using high carbon emission energy more accurate. Once business starts paying the correct cost of production truer pricing should arise. Then the argument that the market can solve all the worlds problems through correct pricing can be put to an honest the test.
Free markets can be structured better...
Society exists to help us pool resources to solve the problems that individual action cannot solve.
However, I think the real flaw in the glass of "free market advocates" is a failure to comprehend that subsidies of various kinds need not be contrary to free choice.
When I trade in the stock market I am free to buy or sell. The institution of a free market allows me to do either. However, it prohibits various negative externalities - like insider trading that undermine the collective good.
Equally, nobody would claim that carbon polluters chose to act willfully against the common good. No. They simply chose the cheapest production options for a situation where society had no institution to share and bear both the costs - and the benefits - of alternatives.
There are simple and practical ways to do this. If it costs $60/MWh extra for one unit of marginal clean power and there are 100 units of brown alternative, then the "social burden" is $60/100 = 60 cents per MWh brown.
Allow power companies to choose... at the margin they choose to pay 60c MWh to pollute or receive $60 MWh as a subsidy. A utility can choose freely to pay or receive by new build. China can see this..the solution is easy.
More importantly, mind the AGW mantra
Bearing in mind Cameron Hoare's most appropriate comments below "The Big Lie @ 14:50" & highly relevant links (thanks Cameron - spot on), I'm not surprised to hear about the "stunning disregard" of Tony Kevin's book, presumably pressing the Alarmist AGW/CO2 cause.
Maybe there's a message there somewhere that those 'decision making elites' who Kevin berates, & we the people who they must stand before at the next election, are perhaps not so stupid after all.
The science behind the AGW/CO2 theory is by no means settled. There's no scientific consensus. On the contrary.
Persisting with the Alarmist message when global temperatures have plateaued, even declined over the past decade in spite of increasing levels of CO2 should convey a message. The UN IPCC AGW science is flawed.
People may indeed marvel in 20 years time, though not at the accuracy & detail of the AGW mantra but instead the more commonsense approach to revisit the science to ensure we're not throwing the baby out with the bathwater. Merry Christmas
'mind the free market trap'
Submitted by tony kevin on Wed, 2010-12-15 15:24.
Paul, congratulations, and we are on the same page here ( see my ''Crunch Time''). I admire your broadbrush approach.. It seems though - and your article did not address this dimension - that it is impossible for people in our decisionmaking elites to think concretely and seriously about any future more than five years out.. The stunning disregard of my book - and I suspect your one degree plan is meeting much the same indifference in elite circles.- seems to be because the clever people whom we trust to run our political and economic systems cannot practically respond to a slowbuilding existential crisis. Or like Rudd, they pretend they do but at their politicians' core don't accept the climate threat's reality. Let us hope Combet has a bigger vision after Cancun. I wonder what will be the fate of books like yours and mine, and films like 'The Age of Stupid''. People will marvel in 20 years at the accuracy and detail of these public warnings, and why they were shrugged off at the time by decisionmakers. Merry Christmas."
The big lie
To Paul Kenny, Perhaps you can peruse the two links below. One is a list of 700 peer reviewed scientific papers that do not support the hypothesis of CAGW. The other is a report to US senate energy committe with statements by 1000 leading scientists who are skeptical of the CAGW hyopthesis. It is interesting to then compare this to small number of scientists (Less than 60) who are involved in the attribution section (the only section that matters) of the 2007 IPCC report.
http://epw.senate.gov/public/index.cfm?FuseAction=Minority.Blogs&ContentRecord_id=10fe77b0-802a-23ad-4df1-fc38ed4f85e3
http://www.populartechnology.net/2009/10/peer-reviewed-papers-supporting.html
Free market it will be
You say free market Paul, but the "free market" is already regulated by various tax, legislative, safety and environmental regimes. All the various governments need to do is to agree on the user pays principle - if you burn the fuel and pump the waste it into the atmosphere you need to pay for the clean-up costs. Once a critiical mass of jurisdictions is reached then the concept of a carbon zone will arise. Anyone outside of that zone will be penalised if they don't meet the minimum carbon pricing requirements to trade with markets within the carbon zone. Examples of such treaties already exist e.g. free trade agreements, taxation treaties. Why not carbon treaties for a carbon zone? Then we will have a truly free market, not what we have now. Who would want to be undercut by Australia or the US or Canada where they may be making goods more cheaply by virtue of the fact they have no carbon price and are pumping the waste directly into the atmosphere with impunity?
The (Really) Big Lie
To quote Cameron: "There is substantial dispute on the science from 1000's of scientists..."
Actually, about 200 at most according to The Scientific American. But I guess they're in on the conspiracy too?
The Big Lie
To keep repeating a lie as in " There is no dispute on the science – none of any consequence – " does not make it true. There is substantial dispute on the science from 1000's of scientists with more coming out every day. The majority of citizens of most countries now realise this which is why the number of people who believe this big lie is in free fall. This is also why there is no real action and investment in renewable and green energy companies is collapsing. I give the rent seekers and carpet baggers a few more years before support fully collapses for this scam.
"It really is as simple as this." eh?
David Arthur says:
"It really is as simple as this."
Only a person who doesn't understand complexity would make a comment like that.
Any increase in electricity costs relative to other countries disadvantages our economy. But it will make no difference to the climate and no difference to world emissions. In fact, raising the cost of electricity in developed countries will actually slow the rate that the world cuts emissions.
For this reason, putting a price on carbon in Australia is exactly the wrong policy.
Instead, we should remove the impediments to low-cost, low-emissions electricity. That means, remove the impediments to low-cost nuclear power in Australia.
A tax on fossil carbon is the way to engage free markets
Simple: put a tax on fossil fuel use, sufficiently high to encourage a transition to alternatives but low enough to not strangle the economy.
With imposition of this fossil carbon tax, it is also necessary to decrease all other taxes, so as to not strangle the economy.
Each year thereafter, increase the rate of this carbon tax a little bit, and cut other taxes by a balancing amount.
It really is as simple as this.
Market functions
The market being a feedback loop type system can only operate if all the inputs are able to respond to changing operational conditions.
However when one major input such as energy cannot respond then the market system cannot adapt to the changing conditions.
This what is going to happen as of about now.
The IPCC in its projections has not taken into account realistic values for fossil fuel supply. Prof Kjell Alklett of Uppsala Uni's Global Energy Group has shown that the fossil fuel available is much less that the lowest values assumed by the IPCC. Their paper was published in June yet it appears that the IPCC has not produced a temperature rise projection using the more realistic values. Why ?
Alarmists blocked nuclear for 40 years
"It is this argument, along with climate scepticism and the importance attached to economic growth, which has, in various combinations, been used against climate action since the threat became clear in the late 1980’s."
Resistance to cutting GHG emissions is partly because the noisiest Alarmists who are urging us to cut GHG emisisons are the same people and groups (Greens and environmental NGOs) who blocked the least cost way to do so - nuclear. That has been the situation since the 1980's and before.
By blocking the development of nuclear in the western democracies they have caused nuclear to be more expensive than it should and could be now. They have also caused emissions to be about 20% higher than they would be now. Emissions will be 20% higher for the next 40 odd years than they would have been if these groups had not blocked nuclear.
HSBC link fixed
Thanks, Mark.
Considering the environmental
Considering the environmental disaster that was created by the centralised government of the USSR, the ultimate big government it would appear that the track record of big government is equally flawed.
Bureaucracies have enormous problems dealing with most problems that don’t fit into their neat well defined boxes.
'HSBC analysis' link doesn't work
"File not found.
This may be because the document has been recalled."
Try http://www.research.hsbc.com/midas/Res/RDV?p=pdf&key=DRpq0Zsciy&n=279532...
The 'Magic 7' new strategic industries are in Table 35.
This being China they're talking about, HSBC really should have come up with an eighth.