By Hans Hoegh-Guldberg, Economic Strategies, Australia.
A few months ago on this blog I reviewed the current alarming state of climate change denial pushed by big business interests, which scientists need to debate vigorously beyond uttering the evident truth that climate change is real. The Australian government, supported by the Greens and independent members, has “committed” itself to a carbon tax, or what Treasurer Wayne Swan now calls an interim price on carbon as a step towards a future emissions trading scheme. Scientists need to help support, explain and strengthen this initiative.
The proposal is good news but there is still a long way to go, with the opposition promising to fight “the great big tax on everything” all the way. The Coalition fails to mention that the proposed price on carbon will be combined with measures to support lower-income groups, small businesses, and renewable energy. Voters need to understand that structural change in the taxation and subsidy system is part and parcel of what must happen. Estimates of a $300 electricity price hike, petrol costs rising by 6.5 cents a litre, and $150 increases in the annual gas bill that have been canvassed by Coalition members such as Greg Hunt are premature when nothing has yet been decided on the carbon price, or the associated reforms. An extensive consultative process will follow, in which scientists have an evident role.
Further scientific advocacy can be based on the failure of GDP statistics to capture real well-being. It is increasingly recognized that genuine progress is not well related to the conventional measure of economic growth. Nobel Prize-winning economists Joe Stiglitz and Amartya Sen, with Jean-Paul Fitoussi, reported to President Sarkozy in 2009 on the inadequate measurement of economic performance and social progress. The economics of climate change was a prominent component.
ABC’s Four Corners on 21 February featured the burgeoning development of hydraulic fracturing (“fracking”) in Queensland and other parts of Australia, to make coal seam gas flow more easily. Quite apart from contamination by a range of at least 36 different toxic chemicals, one worrying consequence was reported to be a significant lowering of the Great Artesian Basin (see map). The Basin is clearly a major environmental and ecological asset to be depleted at our peril, as well as providing an essential resource in arid and semi-arid areas for Indigenous people, pastoral and agricultural activities, small mining enterprises, and tourism.
The Great Artesian Basin contains enough water to fill Sydney Harbour 130,000 times, water that is up to 2 million years old. But it is not inexhaustible. The information collected in the Four Corners report is disturbing enough to warrant a thorough study, in parallel with current plans of the United States EPA. As usual, powerful corporate interests are involved, notably the Queensland Gas Company (QGC), a subsidiary of the multinational BG Group.
The jury may still be out on “fracking”. As in the case of mineral extraction, the issue of paying for the depletion of ancient and irreplaceable resources is becoming increasingly relevant. The Australian government motivated its attempt last year to introduce a super-profits tax as follows: “Increasing the tax on high profit resource projects will allow us to redistribute the benefits of extracting Australian resources across the whole community. These are resources that belong to the community and can only be extracted once.”
The proposal was made at a time when the terms of trade (ratio of export to import prices) were at an all-time high, due to mineral exports – a situation that still applies. This multinational industry is in an excellent position to carry a super-profits tax in Australia, to be distributed to renewable energy developers, and to consumers and small businesses to help them cope with the changes.
This still doesn’t tell all. As Stiglitz and his colleagues discuss at length, the conventional GDP indicator does not allow for depletion of non-renewable resources. It is a gross, not a net, measure which fails to account for the cost of lost resources. Water is treated as a free resource, just like the atmosphere is, at least until an adequate carbon price or cap-and-trade scheme is introduced. GDP exaggerates the rate of real economic growth which benefits short-term interests, but Nicholas Stern’s reference to climate change as the greatest market failure ever remains true. Development of renewable energy is penalized when hydrocarbon prices are kept artificially low, and income distributions are skewed by the power of big corporations. Reaching “peak oil” will help increase these prices to the eventual benefit of renewables, but how quickly when competition is also emerging from other hydrocarbons? The need to strive for better economic, social and environmental data remains important for all our communities.
Coal seam gas is a case in point, judging from the evidence to date. No payment is envisaged for depleting Australia’s greatest water resource, which will benefit natural gas at the expense of pastoral, tourism, and small mining ventures, and Aboriginal communities – that is, potentially massive market failure.
Scientists should do more to address the issue of market failure advocating better data on industries like coal seam gas extraction, and a thorough review of the inadequacies of conventional economic statistics, taxes and subsidies, and general impact on the economic well-being of our communities.
Hans Hoegh-Guldberg is Managing Director of Economic Strategies Pty Ltd, which specialises in applied cultural and ecological economics with a focus on the economics of climate change. He is the author of of major socioeconomic study for NOAA, Climate Change and the Florida Keys (2010) and a major contributor to climate change related studies in the Pacific (2000), Great Barrier Reef (2004), and the Coral Triangle (2009).
Thank-you Hans for this post – I agree that scientists and especially ecologists have a much larger role to play in advocating for alternative measures of ‘progress’, and also the broader discussion over how a low-carbon economy could be structured with the primary purpose of increasing multiple aspects of human wellbeing and ensuring environmental sustainability.
It seems to me that the flaws of using GDP to measure progress has been well known to economists for decades, yet it continues to be used, with the usual reason cited being it is “too hard” to create a “true” measure of progress such as the GPI – given the difficulties in measuring the various externalities such as species extinctions , contaminated bore water or an unsafe climate. I can’t help but be a bit cynical when the “too hard” argument is raised as justification for continually relying on GDP. If it suddenly became possible to account for all of the negative externalities associated with polluting industries, then it’s likely that many of the things currently considered profitable would soon be considered uneconomic. So I guess there are issues beyond getting better data to enable a transition to a low-carbon economy.
I wonder if you have any suggestions about how this greater integration of scientific/environmental and economic thinking could come about – in addition to scientists becoming more literate in economics.
Hi Megan. Your comment is greatly appreciated. The ‘too hard’ excuse for using GDP and ignoring alternatives is only one factor; more powerfully, it is an integral part of the hard economic model governing the economy.
The inadequacies of GDP are well-known, as you point out. They are exacerbated by the link with the problem of valuing ecosystem services, as in the attempt in 2009 to measure the impact of coral bleaching on the Great Barrier Reef by establishing a total economic value. This goes far beyond the current capabilities of GDP but the link is still relevant. In my ‘socioeconomic’ report for NOAA on (http://sanctuaries.noaa.gov/science/socioeconomic/floridakeys/climate_change/welcome.html) climate change and the Florida Keys, I had to go far beyond the local Keys scene because of the aggravated threat from global climate change since the 1990s, as evidenced in four background papers to the report. Chapter 6.5 of the main Keys report deals specifically with the problem of valuing ecosystem services, which as you say is difficult, but the last section (6.5.4) suggests a possible approach.
Where there is a will, there is a way. But GDP is so entrenched because it is inextricably connected with economic policy. Economic growth became a fetish in the 1950s (when incidentally I studied economics in Copenhagen before moving to Sydney in 1959) and has consolidated its position since. Furthermore people like Paul Samuelson (who was a hero of my fellow students and myself 50+ years ago) put everything into a mathematical model, including our ‘bible’, Keynes’ General Theory. The ‘irrational’ or ‘animal spirit’ element in investment and other speculative behavior, which Keynes also acknowledged, got lost. It has only recently been resurrected as the shocking impact of the current global financial crisis became recognized.
While many of us now recognize the severe shortcomings of GDP, it is really only since Nicholas Stern identified climate change as the greatest market failure ever (in the sense that the whole of mankind and the biosphere pay the price for a small number of polluters contaminating the atmosphere virtually without charge) that this has been partially recognized. And unfortunately it is still up against the prevailing short-term economic model that if GDP is affected for whatever reason, we all suffer through higher unemployment, higher prices and so on. So denouncing a price of carbon as a ‘great big tax on everyone’ and similar claims become parts of scare campaigns which threaten to sink the positive political forces in the United States, Australia, and elsewhere. It is that serious.
I remain an advocate of scientists publicizing as many effective arguments for positive action on climate change as can possibly be found. Hence my contributions to this blog. The global background papers for my project on the Florida Keys (one of the most threatened parts of North America) were also driven by the urge that scientists engage positively and constructively in the debate, rather than just claiming that climate change is a serious threat. A lot of others argue that this is not so, as you well know.
In one of my background papers to the Florida Keys report I saw some hope that economic theory is learning. The very existence of a new economics of climate change (epitomized by the Stern report in 2006) is one thing. The impact of the Stiglitz/Sen/Fitoussi report to President Sarkozy in 2009 is another, with its demonstration of a wide range of social and environmental inadequacies in the GDP concept. A third example is the development of complexity theory within the Santa Fe Institute, including complexity economics with what appears to be a more realistic behavioral model than economics has provided in the past. The anonymous contributor showing this comparison between traditional and complexity economics deserves high praise. I refer particularly to the comparison between traditional economics as ‘physics-based’ and the new economics as ‘biology-based’. As we keep learning from each other, it should make the strategic conversation between economists and environmentally orientated scientists easier.
But we still have to pull all the economists working in traditional roles with us, and this ain’t going to be easy.
Scientists need to arm themselves with the answers to the common talk points that deniers trot out so often.
Here is right wing shock jock Michael Smith getting Tim Flannery in a twist with the old “your sucking at the tax payers teat.” & “you have been wrong before”.
I agree with Phil M. John Cook’s Scientific Guide to Climate Change Skepticism covers a lot of ground in a few attractively illustrated pages. There would be a case for a parallel publication marshaling the main points of denial and what scientists could do to meet the arguments. You will get plenty of items from climate change denialists just reading comments like those in the Michael Smith piece quoted by Phil, pieces that are unfortunately all too common.
One of the things I hear so often from the deniers is the public funds line e.g. Scientists are just trying to keep themselves employed and so perpetuate the AGW myth, to keep the cash flowing.
What many people fail to understand is, that governments are not businesses. They are not private sector, they are not a private company. If they were motivated entirely by profit, cost benefit analysis, business cases etc. We would never get roads, town water, nurses, doctors, teachers, firemen, ambulancemen, libraries, sewers, parklands etc etc, without public funds. A private company would not build a highway from cairns to melbourne and charge nothing for it. Or a vast parkland where there is no admission charge.
Governments are interested in keeping their populations happy, productive and paying taxes. That means they have to strike a balance between what the private sector wants and needs to do business and what the rest of the population wants and needs to live productive lives.
So it’s no surprise that governments all around the world spend money, often large amounts, on what could very well turn out to be a threat to revenues and GDP. Why would a country who is supposed to have it’s current and future populations welfare in mind, not examine the threat of climate change and what it could mean for it’s people? Struggles for resources, potential for wars, increasing costs of insurance and living and the potential cost of severe weather events governments are very interested in so they can plan.
Why shouldn’t we learn about our planet and why shouldn’t we strive to understand our climate systems?
Who will pay for all of that? The private sector? Where is the profit in it?
People who whinge about government funded scientists are basically just echoing misinformation from the private sector companies who will be affected by any carbon legislation. These companies are not interested in the welfare of the people, they are interested in the welfare of their profits at the expense of the people who protect them and everyone elses too.