Are the politics of climate change easier or harder than the politics of economic reform?

On the Sunday programme yesterday (about 6 minutes in), Laurie Oakes asked Ross Garnaut whether it was politically possible to implement the radical reforms needed to reduce carbon emissions.

In his reply Garnaut drew an analogy with trade liberalisation – a reform in which he played a distinguished part during the Hawke government. Public opinion has been consistently protectionist, Garnaut noted, yet politicians successfully implemented Australia’s transition from a highly protected to a largely open economy. They did so without major electoral consequences.

Garnaut argues that, politically speaking, we are starting well ahead of where we were with trade reform, since large majorities accept the need for change. Garnaut acknowledges the difficulties in moving from this generalised support for action to specific measures, but thinks it can be done.

The two issue starting points are, contrary to what Garnaut suggests, quite similar. The basic goal of the economic reform process – essentially to restore Australia’s economic prosperity – was a point of near-consensus, just as the need to do something about climate change is now. It was the means of getting there that generated controversy. Protection was a means, not an end, and we should not compare opinion on that with views on the goal of slowing or stopping climate change. In each reform case, we have a popular aim, but no easy way of getting there.

My series of posts on the real greenhouse denialists showed how people can accept greenhouse theory but reject the practical consequences of their beliefs. They reject those practical consequences even in response to hypothetical poll questions, despite all the pressure to give consistent and socially acceptable answers that surveys create. What will happen when we all start having to pay significantly more for energy and energy-intensive goods?

The case for saying that climate change is a harder political issue than economic reform rests on the balance of winners and losers. For all the complaints we’ve heard over the last 25 years, the winners from economic reform greatly outnumbered the losers – producers in inefficient or fading industries. As consumers, the vast majority of people benefited from the changes. By putting a price on emissions, everyone will lose as consumers, and many people will also lose as producers in high emissions industries. As with economic reform, there will be winners in new industries, but with the cause and effect often far from obvious.

The case for saying that climate change will be an easier issue than economic reform rests on the a belief that people will set aside their self-interest. With climate change, there will be a feelgood ‘save the planet’ element that there wasn’t for the economic reform process. And perhaps the sense that we are all in this together will avoid the feelings of unfairness surrounding economic reform, in which the pain was unevenly spread. Certainly, in the surveys I have cited there are large numbers of people saying that they are willing to pay more for energy, though in the more detailed polling it is only small amounts extra.

In each case, the political class did/will put the issue in the TINA (there is no alternative) category, and press ahead with reform regardless of what the polls say. Economic reform does create a precedent for major change being successfully managed. Whether Rudd and Wong will be able to pull off what Hawke, Keating, and to a lesser extent Howard did, I am not sure.

20 thoughts on “Are the politics of climate change easier or harder than the politics of economic reform?

  1. Don’t forget there will be billions of dollars in revenue available to reduce the number of losers. Depending on how targeted the distribution of this money is, the government could choose to make the majority of consumers better off as a net result of emissions trading, even before taking into account the environmental benefits of action.


  2. A better analogy is the GST.

    It was a major reform, subject to a scurrilous scare campaign (“everything will go up by 10%”, “massive costs for the poor” – sound familiar?); there were winners and losers, so it required a big program of compensation; and it needed a healthy dose of political leadership (Howard) and pragmatism (Lees) to finally happen.

    What the GST didn’t require was bipartisanship. The Labor Party opposed it through the Parliament and into the next election. But they came round eventually when they saw that there were no more votes in opposing it. If the Liberals and Nationals oppose the ETS, so be it. Rudd doesn’t need them to get the enabling legislation through the parliament, so stuff ’em.

    Ditto, ETS. Rudd has to display both backbone and salesmanship to win the political fight against the populists and the backwoodsmen.


  3. Having a $20b budget surplus to cushion the blow might help. The Government will be hoping for a ‘soft landing’ to the current high-inflation environment to help ensure their surplus is retained. When tariffs was lowered by Hawke and Keating, Australia was entering or in recession and there was less cash splashing around.


  4. The biggest difference between economic reform and emmission reduction is that economic reform did two things: (1) it achieved the stated objective of improving economic performance and (2) it generated more winners than losers.

    In contrast, Australian strategies for emmision control will (1) achieve nothing that is detectable in the global picture of emmision control and (2) will generate a vast number of losers and a very small number of winners.

    Where are all the billions coming from to bail out the losers?

    The campaign is driven by the theological sense of sin, rendered in secular form, as noted on Insiders and its has tapped the same kind of sentiments that enabled the communists to recruit some of the best of people and some of the worst.


  5. Another difference: in 80s economic reform the advocates genuinely believed that reform would bring benefits even if the rest of the world did not follow suit (though in reality some matching moves- “reciporocal concessions”- were needed to oil the political process); unilateral action on climate change won’t (though I would be interested to see arguments that we would long-term be better off having a non-carbon economy even in a still largely carbon world).


  6. “Australian strategies for emmision control will (1) achieve nothing that is detectable in the global picture of emmision control”

    I disagree with this — my position is that rich countries should act first, and that once they do and we find out that it isn’t nearly as expensive as the scare-mongering goes, other countries with far more to lose will follow suit. Evidence for this is that I don’t see Germans or Californians complaining — in fact both have capitalized on the situation.

    “will generate a vast number of losers and a very small number of winners”.

    Says who Rafe (excluding scare-mongering people with no economic analysis) ?


  7. In other words, the whole case for ‘doing something’ on climate change is predicated on the ‘follow-the-leader’ hypothesis. It is an act of faith. This approach hasn’t worked elsewhere, such as in the case of nuclear non-proliferation.


  8. “This approach hasn’t worked elsewhere, such as in the case of nuclear non-proliferation”
    Big deal if it doesn’t work every time. It works for many things — people are always copying each other when they think there is some benefit to be had if the price is small, and so are governments (e.g., smoking, seat belts, trade liberalization, the ozone layer, innumerate treaties, etc. ). Also, apart from a few states, it has worked well. Most countries don’t have nuclear weapons, including those that could make them easily (e.g., Australia, Japan, most European countries without them etc.). In addition, stopping climate change and having nuclear weapons are not analogous — they’re completely different situations.


  9. “Where are all the billions coming from to bail out the losers?”

    From the emission permit auctions.

    Rafe, you really should try to keep up.


  10. A comparison with defence policy may be illuminating.

    The cost proposed for the cap and trade system is about $20B a year, which is about what Australia spends on defence. Australia spends about two point something percent of GDP on defence. The US spends four point something percent of GDP on defence. In other words, the cost of a this sort of scheme is about the difference in defence spending between the US and the rest of the developed world. Thus it is unlikely to wreck the economy as some claim. It is amusing to watch Andrew Bolt say how climate change will wreck the economy after having advocated a disastrous war that has cost the US economy about a trillion dollars.

    Defence spending is a huge industrial subsidy for the US. It’s fun to watch Americans get excited about Airbus’s government subsidies while their own aerospace industry is funded from the US taxpayer’s pocket.

    US high tech also owes a lot to the military. Silicon Valley started as a defence technology zone. Similarly research that led to new power source could also stimulate the economy. In answer to John’s question, in the long term finding a solution to declining oil supplies and harnessing solar power would be beneficial, it would mean that the current use of energy would be indefinitely sustainable.

    The method of getting this funding and keeping it out of the public eye is also similar. For defence scare campaigns are run about terrorism, Islam and the rise of China. For global warming stories are run in newspapers that almost without fail talk about the extreme predictions of scientists rather than say, comparing Hansen’s 1988 or the IPCC 1991 predictions with what has actually happened.

    People may also answer survey questions similarly in regard to the issues. Presumably people think terrorism is a problem and would pay some more, but not a lot more to alleviate it just as they would with global warming.

    It’s interesting that there are so few skeptics to both these fears. Pat Buchanan and the Paleocons being about the only ones.


  11. Spiros, where do the billions come from to buy the permits?

    Conrad, how much have the Germans and Californians reduced their emmissions?


  12. Rafe, from people who buy stuff with carbon in it, such as petrol. Here’s how it works. Let’s say you buy 3000 litres of petrol a year. The price of petrol will probably be 10c a litre higher. So indirectly you’re paying $300 per year for the emissions permits. But you get a cut in your income taxes of $300, so it’s swings and roundabouts, just like with the GST. Of course with petrol, the government will probably cut the excise by 10c, so it’s swings and swings.


  13. Rafe, from people who buy stuff with carbon in it, such as petrol.

    Spiros everything we buy these days- even services has an element of embedded carbon.


  14. Yes JC, but some things are more carbon intensive than others. While it’s true that the local hairdresser’s electricity bills will go up, it won’t be a big deal.

    This is the GST all over again. We managed then. We can manage now.


  15. Conrad, it is most likely that Germany has cut back on emmissions as a result of using less coal, a process that has been in train since the 1950s. How do you think they managed that? Maybe nuclear power had something to do with it, and if we had 50 years of lead time to get up some nucler power plants we could phase out coal in a relatively painless manner as well.

    Beware of the biofuel movement, that has raised world food prices by a wide margin.

    That is catastrophic for the Third World and it is presumably killing people already. Just one of the downsides of climate panic. The costs of clmate panic may be paid in places that are invisihle to us.


  16. “Maybe nuclear power had something to do with it”
    That’s good — I have nothing against nuclear power (I think it has many advantages, not least of which you don’t have to buy it from countries you rather wouldn’t want to). I think it should fairly evaluated along with everything else.


  17. What about just a straight out tax on carbon-intensive products, with equal drops in say, income tax (not that that would happen)? I don’t understand why it was decided years ago, no argument, that a cap-and-trade system would be the best system for Australia to ‘tackle’ global warming. It can’t just be because it has the word “tax” in it, or that a cap-and-trade system provides leftists with another body that tries to control the economy. Or maybe it is just that.

    Conrad, it’s doubtful that nuclear power will be “fairly” evaluated, or mainly, that there will be any serious attempt on the part of the major parties to try and change the opinion of the majority of Australians.


  18. The analogy with economic reform is not a good one. Economic reform created or released–and continues to do so–large amounts of economic value. Things just work better and, after a while, that became obvious. Hence the long boom, low inflation, low unemployment, budget surplus, etc.

    Emission control is, at best, a form of prevention. It is a way of raising costs of a basic element in the economy so we use (and therefore emit) it much less. It shrinks the available resources–that is the point of it.

    Technological change may, eventually, compensate. But emission control remains a process which produces net economic losses and is intended to do so. That makes its politics very different from selling economic reforms with great great net economic gains.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s