Last week the Prime Minister’s Task Group [sic] on Emissions Trading released its Report. Given that even Malcom Turnbull has described climate change as "the great economic challenge of our times", the Report’s 200-plus pages are decidedly thin on substance. In particular, for a document that recommends policy actions now, it squibbed the key issues.
First the science. The Report repeated the mantra that scientific consensus supports climate change, although qualifying this with a comment about uncertainty in precise scale and consequences. There is no doubt that most climate models forecast significant warming and adverse environmental and economic impacts. The key question is: are the models of any value? This is not trivial because climate — like economies, markets and organisations — is a chaotic system and quite unpredictable.
The book Ice, published as recently as 1981 by the eminent astronomer Sir Fred Hoyle warned of an imminent ice age. It is a sobering reminder that we probably do not even know the direction of future climate change. That is not to say there are no reasons for concern over global warming. The latest issue of National Geographic magazine, for instance, contains a sobering article about melting of glaciers and other ice packs.
Just as the 'facts' of climate change are quite uncertain, so are the proper actions. The Report should have had a considered position on how we can decide what to do about such a critical issue when it is surrounded by so much uncertainty. A second key issue that is glossed over in the Report is the philosophical approach to limiting carbon emissions.
It has been consistently shown that the most effective environmental policies are controls and taxes. The car, perhaps the most environmentally damaging technology of all time has had its externalities slashed using controls and taxes. The same is true for smokestack emissions, oil spills, pollution and a dozen other environmental problems.
The Report, however, came down firmly in favour of market mechanisms, particularly trading in carbon emissions. This is surprising as one of the few conclusions that most economists share is that markets have failed to protect natural resources. Climate change, depleted fisheries, salinity and other environmental problems are all said to be due to markets’ failure to incorporate the costs of their externalities, or damaging by-products. Now, though, economists are advocating trading in emissions of carbon: markets have suddenly become the solution to