Queensland Economy Watch

Yesterday, the Financial Times published a blistering op-ed by its Chief Foreign Affairs Commentator Gideon Rachman: Australia is no longer the lucky country (NB pay-walled). It is one of the best summaries of Australia’s current predicament over climate change I’ve read. Rachman concluded his piece with the observation:

…Australian climate activists and their opponents are indulging in forms of wishful thinking. Conservatives argue that the facts around climate change are still contested and that nothing much needs to change. Those on the left argue that if the country summons up the will to take drastic action, it can make the future less threatening. But this Australian summer suggests that the future may already have arrived. And it looks frightening.

As Rachman notes, even if Australia shut down its coal mining industry, climate change would not be averted, as Australia’s contribution to global greenhouse gas emissions, including the contribution from Australian coal, is only 4%. But we need to show our willingness to do more than we have been doing. And we need to work hard to encourage the major economies, particular the US, China, Japan, and the EU, to enact policies that will bring about the large cuts in emissions globally that are increasingly appearing necessary to avert even worse outcomes.

The Australian Government has announced it will release a Technology Investment Roadmap as part of its revised response to climate change (see this Australian article). Australia’s Energy and Emissions Reduction Minister Angus Taylor has commented that:

The best way to deliver on and beat our international commitments is through new, productive technologies and practices that reduce emissions while maintaining or strengthening economic growth.

This may well be true, but it’s unclear why the Government needs to release a Technology Investment Roadmap, which has a whiff of central planning about it.

As Warwick McKibbin and Ken Henry note in their comments to The Australian, the most efficient, least cost way to achieve the necessary emissions reductions is through a market signal, a carbon price, whether via an emissions trading scheme or a carbon tax. Let private enterprise work out the best way to reduce emissions. On this point, have a listen to the excerpt from my interview with John Quiggin in my Economics Explained highlights episode. The Technology Investment Roadmap’s policy prescriptions could end up costing Australia more per tonne of reduced emissions than if we implemented a carbon price. We could end up heavily subsidising uneconomic Carbon Capture and Storage plants, for example.

Ross Garnaut also made an important contribution to the national discussion on bushfires and climate change yesterday. Among other points, Garnaut suggested Queensland needs to start preparing its coal-mining-dependent communities for a future in which we mine less coal as a result of the future global response to climate change (listen to Ross Garnaut’s 12-year old climate change prediction is coming true). There will have to be some rigorous thinking done on how we should best prepare for the structural change that is likely to occur in the next few decades. My Adept Economics Research Assistant Ben Scott and I recently published an article on structural change policies in which we summarise our understanding of what economic theory and evidence suggest is the best approach:

Structural adjustment policies becoming increasingly important

Also, I make some observations on climate change and structural change in my Economics Explained episode:

Big economic issues for the 2020s