The world is in the midst of a climate crisis that represents the greatest challenge humanity has faced. In response, Australia has fundamentally abdicated responsibility and needs to play a greater role in our collective effort to build a better future. This represents an opportunity to both recover from the pandemic in a robust way and become a leader in decarbonisation efforts.
The target threshold of net-zero emissions by 2050 represents the minimum effort required to avert greater devastation than we are already on track for according to the IPCC. Not only has Australia failed to formally commit to this necessary transition, but we are yet to stop increasing emissions (Figure 1). Moreover, it is ambiguous whether Australia will even achieve 2030 targets that are already below the commitments made by several countries at a comparable GDP per-capita.
The Federal Government is currently pursuing a predominantly technology-based approach to addressing climate change via a Technology Investment Roadmap. While this is commendable, the investment isn’t sufficiently large and it obscures the larger structural changes to the economy that are likely necessary to achieve net-zero emissions. Moreover, this initiative is fundamentally undermined by shifting funding from renewables in pursuit of a gas-led recovery during a time in which substantial moves away from fossil fuels are necessary. Arguments that attempt to address climate change while being in favour of natural gas typically (dubiously) view it as a supplementary transitionary energy source rather than a fundamental driver of Australia’s energy needs.
Price-based market mechanisms such as a carbon tax for reducing emissions are traditionally favoured by economists.This is because they can be integrated with a market failure framework wherein negative externalities are quantified and a price is paid that is equivalent to that cost. They are also favoured as they are theoretically a least-cost solution that minimises excess spending, while allowing for the market to efficiently find ways to minimise the social cost they are now paying for.
However, – as can be seen in Australia’s attempt – these mechanisms can be highly politically contentious. This unsurprisingly means that very few countries have actually passed a carbon tax, which arguably represents a wasted effort by economists that could have been spent on more viable solutions. Additionally, carbon tax enthusiasts often inadequately account for the free-rider problem arising from other regions not implementing their own pricing mechanisms. If you are interested, I have a previous co-written article that sought to make this kind of policy as holistic and politically viable as possible.
These considerable flaws in what is essentially the main climate change policy advocated by economists is particularly concerning. This is reflective of the lacklustre standard of environmental economics, wherein not enough research is produced, and that that research can be of poor quality with limited practical application.
The disruption of the pandemic and ensuing global recovery represents an opportunity for much-needed structural transformation and reorientation. This is often framed as an altruistic sacrifice for the benefit of future generations. However, this perspective ignores the synergies arising from co-benefits of action and the opportunity this represents for all of us to create a better vision for the future. Seen through this new lens, the economic recovery process can be a means to decarbonise, while decarbonisation itself can enable robust long-term growth.
This approach is ultimately based on the critical assumption that it is possible to decouple the positive correlation between economic growth and greenhouse gas (GHG) emissions.Thankfully countries such as the UK (Figure 2) have begun to achieve this, while even Australia (Figure 3) is trending in a positive direction. While substantially greater efforts are required, this undercuts the notion that economic growth is entirely incompatible with a sustainable planet.
One of many essential ways governments can contribute towards a structural transformation is through investment in various sustainable technologies, infrastructure, and institutions. Governments in particular are important because the uncaptured positive externalities of these investments in the form of cleaner environments, knowledge distribution, economies of scale, and more results in underinvestment from the private sector. As can be seen in figures 4 and 5, costs have gone down significantly for vital technologies, which ultimately makes a green transition more viable. These cost savings via learning curves result from greater efficiencies and knowledge gained from the act of producing these technologies at greater scale. This process can be fast-tracked through comprehensive investment from governments at the socially optimal level.
A non-exhaustive list of potential investments and actions the Australian government could make in the context of pandemic recovery has been compiled by EY (Figure 6):
While domestic action is essential, climate change is an inherently global problem that requires coordination at that scale. Australia should be striving to be a leader, creating additional credibility and global connections instead of being a lagger that needs to be cajoled into cooperation.
Global leadership can take the form of leading by example, providing resources to countries with lower capacity, and creating international mechanisms that enforce or encourage climate change action. Further details on these initiatives that Australia should consider can be found in another previous Cainz article.
In particular, carbon border tax adjustments (CBTA) are emerging among countries with market-based mechanisms for emissions mitigation. They enforce the internalisation of social costs for traded goods among countries that don’t have a carbon tax (or equivalent policy), by placing a price on trading partner’s exports that is equivalent to those social costs. The EU has actually passed a CBTA this year, which has been a source of controversial news as Australia pushes back. Being subject to a CBTA could become an increasingly serious economic threat if other countries adopt this policy. If Australia is going to be subject to increasing condemnation, tangible economic costs, and environmental devastation, they may as well undergo the necessary green transition anyway.
This article is far from an exhaustive list of approaches to achieving net-zero emissions for Australia. It’s ultimately important that we all think seriously about what pathways are available to us, what kind of world we want to create together, and how we can get there.
As such, below are a handful of other approaches and lenses outside the scope of this article through which to consider addressing climate change.
References:
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European Commission. 2021. Carbon Border Adjustment Mechanism: Questions and Answers. [online] Available at: <https://ec.europa.eu/commission/presscorner/detail/en/qanda_21_3661>.
Francis, C., Kariyawasam, A., Griffiths, B. and Hu, J., 2020. How to encourage global climate action. [online] Cainz.org. Available at: <http://52.64.142.28/8625/>.
Fujiwara, N., 2010. Sectoral Approaches to Climate Change: What can industry contribute?. [online] Aei.pitt.edu. Available at: <http://aei.pitt.edu/14567/1/Sectoral_Approaches_to_Climate_Change.pdf>
Griffiths, B., 2019. A multi-dimensional approach to climate change. [online] Melbourne Microfinance Initiative. Available at: <https://www.melbournemicrofinance.com/new-blog/2019/8/18/a-multi-dimensional-approach-to-climate-change>.
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Stojanovski, A., Suhartanto, J., Reid, S. and Wong, A., 2020. Energy policy and climate technologies: Australia’s road to recovery? | Cainz. [online] Cainz.org. Available at: <http://52.64.142.28/8879/>.
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Tiwatane, S. and Griffiths, B., 2020. An economic policy approach to healthy and sustainable eating. [online] Melbourne Microfinance Initiative. Available at: <https://www.melbournemicrofinance.com/new-blog/2020/25/10/sustainable-eating>.
Unece.org. 2016. The co-benefits of climate change mitigation. [online] Available at: <https://unece.org/DAM/Sustainable_Development_No._2__Final__Draft_OK_2.pdf>.
Unesdoc.unesco.org. 2015. Not just hot air: putting climate change education into practice. [online] Available at: <https://unesdoc.unesco.org/ark:/48223/pf0000233083>.
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Wood, T. and Dundas, G., 2021. Flame out: the future of natural gas. [online] Grattan.edu.au. Available at: <https://grattan.edu.au/report/flame-out-the-future-of-natural-gas/>.
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