Jul 01 2008

Attack of the environmental fanatics!

Published by at 10:28 pm under Frame this,Politics as usual

When my good mate Roger forwarded me an article by an economist on the role of fanaticism in government climate change policy formation, I just couldn’t resist hoping up on my soapbox… my remarks are in bold…

step one: set the frame by confabulating concern about climate change with fanaticism

A FANATIC, George Santayana famously said, is someone who redoubles his effort when he has forgotten his aim. With July shaping up as climate change policy month, a good dose of fanaticism seems likely to come our way.

Nowhere is the fanatic’s touch more apparent than in the confused notion of an emissions reduction budget, the idea that there is a fixed quantum of emissions reduction we should achieve by a given date, with the result that if we reduce a bit less in one area, we will have to reduce by more elsewhere.

But there is a fixed quantum – it’s just that we can never know down to the gram what the value is. The sensible thing is to err as best we can on the high side of our estimates.

Reducing Australia’s greenhouse emissions is not a goal in its own right; it is merely a way of trying to deal with the risks of potentially harmful climate change. How much we should devote to that goal depends on the costs and benefits involved. If the costs increase relative to the benefits, only the fanatic redoubles his efforts.

Note use of  “potentially harmful” – the unstated implication is that there could “potentially” be an equal chance of it being neutral or even beneficial. This is how you build a frame; fanatics (by definition irrational and dangerous) are getting excited about something that is only potentially harmful.

The fallacy involved is manifest in the debate about how trade exposed, emissions-intensive activities should be dealt with. It has become increasingly evident that if Australia, acting unilaterally, imposes a carbon tax on these activities, global emissions will not be reduced.

Who says Australia wants to act unilaterally? He doesn’t bother to offer any specific instance. Again, the lurking implication. This time it’s the use of ‘unilateral’ to imply that this is all something dreamt up by fanatics wrongly worried about something that potentially might not even happen at all. Moreover, by using the frame of unilateralism, he can also plant the unstated inference that no one else is doing, or planning to do anything whatsoever.

Rather, they will simply shift to other countries, decreasing our welfare (as we have a comparative advantage in those activities) and welfare worldwide. As a result, without an international framework that would prevent emissions flight, putting a carbon tax on trade exposed, emissions-intensive activities serves no useful purpose.

If  there were an international framework to prevent emissions flight, he’d be right on board. So, at this point we can expect him to make an argument for a proper international framework… right?

Now, a rational person, faced with that fact, adjusts the target to reflect the greater cost of achieving it. If the target that would have been set in a world where emissions flight could not occur were to reduce emissions by, say, 20 per cent through a period of years, that person, faced with the reality of an emissions flight risk, would discount that target to some lower level.

An effective international framework being such an absurd proposition on the face of it, that he doesn’t even bother exploring or considering how we might contribute to, or work within such a set of limitations. Instead, he asks how we could unilaterally price the risk into our own unilateral climate change policy. Naturally the actor making these calculations is cast as a rational person.

In contrast the fanatic, acting as if the target had come from God, leaves the target unchanged and, if anything is conceded to the activities that could most readily move elsewhere, inflicts greater punishment on those that have the least scope to escape their clutches.

It would be nice if he offered an illustrative example about who is getting punished by fanatics using what mechanism. I’m not aware of any climate change abatement targets being set on the basis of divine direction. I guess the general concept here is that religious fanatics think a God is telling them to do things that the rest of us can see are just crazy...

This response is doubly perverse. To begin with, the economic cost of achieving any given emissions reduction target increases more than proportionately with the severity of the reduction being sought: doubling the target inflicts more than twice the cost. As a result, increasing the extent of the reduction sought from those activities that are least footloose makes the cost of any overall reduction all the greater.

Once again, he doesn’t trouble himself with any illustrative examples nor with any useful citations. Just a bland assertion about inverse proportionality. No need for him to define what exactly an economic cost is and how it is net of any environmental or social benefit that may arise from impeding climate change.

These added costs then are compounded by an increased distortion in resource allocation between the activities that are exempt and the now more heavily taxed ones that are not.

Holy-moley! What activities are we talking about. And where did exemption and taxes come from? Never mind, just go with the flow…

There is an additional, deeper reason the fanatic’s response is perverse. The problem of emissions flight merely highlights the absence of an effective and comprehensive regime for reducing greenhouse gas emissions. In the absence of such a regime, abatement in Australia, no matter how great, will have no direct impact on the risk of harmful climate change. The only reason for undertaking that abatement is the possibility that it will assist such a regime to come into place.

uh-oh, is that a new strawman called Mr Pointless Demonstration Effect I see coming to join Mr. Fanatical Unilateralist?

However, whether abatement in Australia would have a “demonstration effect” internationally, and if so to what extent, is highly uncertain. Even if such an effect did exist, there is little reason to think the effect will be much greater if we pursue abatement at home with greater intensity.

The demonstration effect probably doesn’t exist, but if it did, its efficacy would be so minimal that it wouldn’t matter if we actually made the effort or not.

As a result, a rational decision-maker would give the possibility of such an effect a low weight and one that justified an abatement effort that was, at most, modest.

Smart, rational and unfanatical sensible people know all this climate change stuff is a fruphy.

This is all the more so as increasing the extent of present abatement reduces our ability to respond should an effective international regime not come into place. In that event, if those concerned about climate change are correct, we would have to invest in ways of living that are less vulnerable to unfavourable climatic conditions. Our capacity to undertake those investments without painful reductions in consumption depends on our wealth.

Lemme see if I’ve got this… I think he’s saying that we should not waste resources on abatement efforts because we need to save up our money so we can invest in better rainfall distribution patterns for the wheat belt and cyclone-proof houses… or something… And, if we don’t save up for those investments, there could be painful reductions in consumption… But don’t we have to reduce consumption to save up? Oh, never mind, you can’t get there from here…

As a result, if there is a likelihood that harmful climate change will nonetheless occur, we should be responding not by reducing our incomes but by increasing them and accumulating precautionary savings. In that scenario, bearing greater abatement costs now will not reduce costs in the future but merely increase the future pain.

Don’t tell me Mr Fanatical Unilateralist has you believing all this climate change guff! Likelihood, paah! It’s only one of three potentialities, don’t you remember? Fortunately, according to Henry, the longer you put off abatement, the less it costs in future. Brilliant!

The desirability of focusing on raising our capacity to adjust by increasing incomes is made greater by the distribution of the costs and benefits of the various options. At best, pursuing “demonstration effects” makes the world as a whole better off if it succeeds; but if it fails, its only consequence is to make Australians poorer.

I see, if Mr Fanatical Unilateralist makes us pursue a demonstration effect policy, we either lose a little or a lot. Well, that’s an easy choice! Let’s not do either!

In contrast, increasing our wealth so as to increase our capacity to innovate and adjust, should such adjustment be needed, seems highly likely to make Australians better off regardless of the ultimate outcome.

The richer you are, the more innovative you are?  That’d be why the various high per capita income emirates are such hotbeds of innovation. I think it’s just possible that there are other, weightier factors involved. As for wealth making it easier to adjust, there are limits. It isn’t possible to get so rich that you can buy extra rainfall, fewer cane toads and new fisheries and forests.

The case for abatement beyond a very modest level, consistent with a low carbon tax, therefore seems economically untenable. Moreover, anything that makes the marginal costs of abating now higher, or the community’s willingness to bear those costs now lower, should induce us to reduce our overall abatement effort rather than sticking by some inherently arbitrary target.

Oh, I like that. “Inherently aribtrary target”. So, the implication is what? That you can’t set any target because targets are intrinsically random? Or is it just climate change targets that suffer from this fatal randomness? Here’s a thought: what if the targets are not too high, but (being arbitrary and all) are much too low? (Which sadly seems to be the case where the IPCC predictions are concerned).

Consequently, a heavy burden of proof should be placed on those who advocate ambitious fixed targets to be pursued with the ferocity of latter-day Savonarolas.

Implication 1: the burden of proof to date has not been heavy enough to justify anything beyond symbolic action.
Implication 2: people who advocate “ambitious” (whatever that means) targets are the sort of people who behave like book-burning medieval religious fanatics.

Reducing emissions is not an act in a morality play but a decision that has to be made by trading off benefits and sacrifices. Moreover, the community must be given a full opportunity to assess those benefits and sacrifices and decide whether they are worth bearing.

Very sensible advice. However, I think he and I are going to come to opposite conclusions about the answer.

As a result, whatever recommendations are made by the Garnaut review or the Government’s green paper must be backed by estimates of those recommendations’ costs (and not just dollars but in lost environmental “services” too, right Henry?), and the modelling underpinning those estimates needs to be fully disclosed. If all we get is moralising waffle, the community will legitimately conclude that this particular emperor has no clothes. Should that occur, the Government will have no one to blame but itself when its proposals run into strong and sustained opposition.

Yeah, no moralising waffle and naked emperors! We hate them as much as Mr Pointless Demonstration Effect and Mr. Fanatical Unilateralist. Bad strawmen! Bad!

Henry Ergas is chairman of Concept Economics.

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