Roland Turner

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Disincentivising middle-east oil use vs. disincentivising CO2 emssion

A summary of my thoughts from a recent Facebook discussion with a friend in which I explain why I don’t think pricing CO2 emission is a good idea:

I’m absolutely not advocating apathy, just that we not crucify ourselves on a path which cannot possibly achieve its objective.

Pricing carbon unambiguously will harm Australia. Our industries and wealth are strongly tied to carbon emission, if we merely “adjust the market so transformation can occur” we’ll materially reduce our GDP exactly because we’ll transform our economy into one which exports less stuff that people want. This is definitely economically harmful. That said, if that sacrifice contributed to improving the world at large, then it would be a potentially justifiable use of discretionary wealth and in scope for decision making by political processes. Sadly, it can’t possibly contribute to improving the world at large:

  • The big problem with treating CO2 emissions as just another form of polution is that atmospheric CO2 emissions rapidly spread themselves uniformly across the planet, so the “traditional” approach of cleaning up the environment within a location (e.g. country) by regulatory/legislative means is simply inapplicable: we can reduce carbon emissions until the cows come home (or stop farting, or whatever) but it will have no affect on Australia’s environment at all.
  • There is some rather irresponsible wishful thinking going on along the lines of “if we do our bit first, then everyone else will eventually follow”. This works for a whole lot of things which can be somewhat localised (bans on slavery within jurisdictions, bans on discharging toxic wastes into rivers, …) but is not workable in a situation where (a) benefits to participants only start to accrue after almost everybody has adopted (CO2 emissions from non-participants continue to affect participants) and (b) where massive growth in emissions are a foregone conclusion for very large nations (China not only declined to bind itself at Cophenhagen, it announced a tripling of emmissions over the next few decades! India can’t meaningfully bind itself as it has no capacity to enforce constraints on its population).
  • Finally, the Jevons paradox clearly applies here. Every technological change that we make in response to economic incentives to reduce carbon emission will reduce consumption in affluent countries with relatively stable economies, but those same changes will materially alter cost/benefit analyses for poorer people who are currently emitting little/no CO2 simply because of the excess of fuel cost over benefit. Develop technologies which achieve the same benefit for less carbon emission and watch 200 million poorer people thank you for your ingenuity and promptly commence consuming more fuel and, therefore, emitting in aggregate more CO2. It is an interesting coincidence that this phenomenon was first observed around the burning of coal, and measures to reduce units of coal consumption per unit of industrial output.

I’d suggest that there is a related measure that Australia should take: there is a clear strategic problem with dependence on middle-east oil, so continue to increase taxes on oil[-derivatives] from the middle-east year-on-year. Those who want to feel good about reduction in CO2 emissions (and ignorant of the above) will still get to do so because this will provide incentives to reduce oil consumption but (a) we’ll avoid strangling all CO2-emitting activities in our economy and (b) we’ll materially reduce the strategic distortions that our dependence upon middle-east oil is causing.