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What’s the cost of waiting?

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How costly is it to wait and see what the rest of the world does? I don’t know.

What I can see from the CPRS modelling is that it is costly to move ahead of the rest of the world.

You can see quite clearly from the above charts that wages are higher in the case that there is medium strength or ambitious global action. So, if we go it alone, we are worse off.

Why is that? because if we move with the rest of the world, we are at less of a competitive disadvantage to foreign firms, and there is less of an incentive for Australian firms to move offshore. As a result, there will be more investment in Australia – so the capital stock will be higher, and thus the real wage will be higher.

I hear a lot of talk about the cost of inaction, but this Treasury modelling clearly shows that there is a cost to being  ahead of the game as well.

Given that variations in Australian emissions will have almost no impact on Australian environmental conditions (GLOBAL warming, is a GLOBAL problem), the argument for moving ahead of the rest of the world must be based on an idea that adjustment is less costly the more gradual it is.

That’s pretty much what they find. The Treasury report states that “depending on countries’ emission reduction targets and the ability to source permits from other countries, a 3-year delay of mitigation action results in higher mitigation costs of 2 to 10 per cent in 2050”.

I find this is disingenuous.

So what? It costs more to hit a given target in less time –  that’s not what proper cost benefit analysis is about.

The relevant comparison is difference between the gains from inaction and the cost of inaction. The gain is higher income (higher wages etc) and the cost is additional environmental deterioration.

What if the rest of the world doesn’t do anything? then we have lower investment, and lower real wages, and no environmental benefit.

30 comments

    1. someone’s got to point this stuff out. i can’t think of a single economic reform where modelling showed a 10bps per year pickup in real wage growth — and those were micro economic reforms where we were pretty sure that they were good for the economy, and that the costs were smaller than the benefits.

      in contrast, this is a policy that’s going to take about 1/12th of real per capita income growth for the next 50yrs, and we don’t even know how much environmental gain it will purchase.

  2. I can’t be bothered looking at the modelling but I have a few thoughts about carbon tax and incentives.

    Any domestic production that it pushes offshore will be doubly bad for global emissions. Firstly the processes in the cheaper country will probably be more polluting, and secondly the pollution caused shipping the goods (and quite likely raw materials from Australia to China) to Australia.

    Secondly, the amount of oil refined in the world will be dictated by the supply, and demand exceeds this supply by such a margin that all oil supplied will be consumed. If carbon pricing slightly reduces the inelastic demand for oil in developed economies, then slightly more of this oil will be burned by engines with lower emission standards in developing economies.

    Carbon pricing will probably lead to more wood being burned which will have similar effects.

    I can’t see enough good in the idea to bother looking into it.

    1. It’s not because its going to do anything for the climate. As Ricardo pointed out above, its going to do jack about all for global temperatures, storms, whatever. This is about massive *global* wealth redistribution. This isn’t some kookee conspiracy. This was in the leaked Copenhagen agreement which never took hold (partly because of the leak). Abbott’s spot on: it’s socialism all over again – taxing the rich (in the West) to pay for the poor (in the Rest). Global warming is just the front which is being used to peddle this nonsense. Then add all the rent-seeking, bottom-feeding rabble that are pushing this along: many scientists, most banks, all of the big four accounting / green auditor firms etc.

      1. What utter nonsense.

        If you were a credible mainstream climate scientist, would you do better financially living from grant application to grant application, or taking a big bucket of money from the fossil fuels lobby to declare that you were wrong all along and just making things up.

  3. How on Earth do we move with the rest of the world? Some have moved already (Europe, UK, NZ), some will move soon (Japan, China), some are mired in political gridlock and will delay indefinitely (the US). Absent a binding global treaty (which clearly isn’t going to happen in the short term) countries are not going to move together.

    Its a non-argument, a pointless point, and I’m sick to death of denialists raising it. If Australia does nothing, it increases the chance that the rest of the world will do nothing. If Australia acts, it increases the chance the rest of the world will do something as well.

    Yes is a GLOBAL problem, and we are part of the GLOBE.

    Doing nothing only makes sense if you deny the science. Its entirely possible the world will do nothing substantial this decade or next, but if the science is correct the problem doesn’t go away, the consequences only get more catastrophic and expensive.

    1. Lorax — please post work that quantifies the increase in the marginal probability of global action due to action on Australia’s part … this should be calculable, as Australia acting decreases the cost of action on someone else’s part. Also i’d be interested in work that shows the cost of environmental repair, or adaption versus the cost of abatement.

      1. You don’t adapt to Venus.

        You don’t repair mass extinctions.

        If the science is correct, there is no adaption vs abatement debate. The consequences of inaction are so catastrophic as to be beyond measurement, and so far, every metric it tracking the worst-case scenario.

        Your only option is denial.

        1. Well, think the probability of meaningful global action is basically zero, and my data set is the tarrif debate — where it was clearly in everyone’s interest to go it alone. So i guess we just save up and try and save a few from Venus.

          Sent from my iPad

    2. @Lorax: You clearly have no understanding about how the academic grants process works or similarly how submitting papers to peer reviewed journals work. By and large, science now functions by sifting work according to a sieve of consensus: you buck consensus, you get banished to the hinterlands; you produce work supporting consensus, you get access to the Promised Land of Grant Money and Tenureship. This isn’t just in climate science: it’s in biology, psychology, the humanities etc. And it is worrying some scientists: http://goo.gl/7hdCd

      As for mass extinction: what drugs are you on? Not even the UN’s IPCC is arguing that is going to occur! The Earth has been able to support human population and other forms of organic life quite well in periods quite hotter than those predicted by the IPCC. And that was before air conditioning and modern technology. Get a grip.

    3. MannyC: Any comment that begins with “You clearly have no understanding of…” really smacks of arrogance.

      What you are saying is that science is broken. That’s a pretty big call. I choose to believe that science is working but the politics is broken, because what the science is saying is massively inconvenient to how we run our society today.

      IMO denialsm is incredibly intellectually lazy. We’ve hit a really tough problem so rather than deal with it, you attack the scientists, you question their credibility, and criticise the entire scientific process.

      Pathetic.

      1. @Lorax: “Any comment that begins with “You clearly have no understanding of…” really smacks of arrogance. What you are saying is that science is broken.”

        I’ll wear your first criticism. I will not wear your second. No I am not saying anything. What the New Yorker, a left wing leaning publication is claiming, and what I affirm, is that the scientific process is broken. Prof Jim Franklin of UNSW Maths makes the point that science finds it difficult to explain the very small, the very old, the very large and the very complex. He isn’t a “denier”, but he admit the complexities in sciences and affirms some problems with scientific process. http://www.maths.unsw.edu.au/~jim/alr.pdf

        Being ambivalent or questioning the veracity of a mainstream scientific theory isn’t intellectually lazy: quite the opposite. It leaves you open to considering and trying to provide justification for a position which doesn’t have the reams of support the mainstream can provide. That is hard work. Definitely harder than: ” I choose to believe that science is working”. You should try it sometime. You might find yourself pleasantly surprised by the result.

      2. As I posted below, it seems vanishingly unlikely that the scientific process is broken. If there were glaring errors in the consensus science, why have they not been exposed during the peer review process? Why have they not been unearthed during the past 20-odd years of climate science controversy?

        I’m not sure what you are suggesting. Is it incompetence on a monumental scale or some kind of giant conspiracy? Is it “groupthink”? Is it fear of losing funding?

        All of these suggestions seem laughable to me, but apparently many take them seriously. I don’t know why.

        I’m sorry, I can’t take Jim Franklin seriously after reading what he’s published and where he’s published.

        I’m not sure why saying “I choose to believe the science is not working” is harder than saying “I choose to believe the science is working”. Seems to me the latter is vastly more likely seeing as science has delivered us several centuries of progress.

        FWIW, I went through the process of questioning the science five years ago reading Steve McIntyre’s Climate Audit. It was apparent then as it is now that so called “skeptics” were running an agenda to discredit the science.

        1. You have heard about the sokal hoax i presume? Well there was also a reverse sokal hoax, with a phd in physics awarded (string theory) to a load of deliberate nonsense.

          Sometimes things slip through. It happens more than most like to admit.

          Sent from my iPad

      3. Sokal was published in a journal that didn’t practice peer review. Can I respectfully suggest that AGW has been the subject of a fair bit of scrutiny over the past 20 years!

  4. I agree with you that the probability of meaningful global action is basically zero, but I also accept the consensus science, so where does that leave me? Scanning the real estate pages for doomsteads!

    The debate isn’t helped by the likes of Abbott running around scaring the bejesus out of people over a relatively timid carbon tax. The debate also isn’t helped by economists presenting this as an easy abatement vs adaption choice, where we choose the least expensive option and party on.

    Adaption is only an option if the science is very wrong, and/or climate change effects are at the low end of the range. Despite what you might read in the denial-o-sphere that’s looking pretty bloody unlikely.

    1. Adaption is the only option, as what we do will not change the global outcome, and we agree that the probability of meaningful global action is almost zero – and falling!

      I am not saying that it is the optimal solution, I am just saying that it seems like the most probable outcome.

      Sent from my iPad

      1. Adaption is the only option

        That’s like saying “Venus is the only option”. It only makes sense if you harbour strong doubts about the science. I don’t. Business-as-usual will in all likelihood deliver a catastrophic outcome, so any policy initiative, however futile has got to be better than doing nothing.

        To me its self-evident that Australia introducing a price on carbon increases the possibility that other countries will do likewise. No I can’t quantify that, nor can I tell you whether the cost of abatement is more or less than the cost of environmental repair, because I don’t believe it can be repaired.

        Ultimately we don’t live in an economy. We live on a ball of rock that through a staggering series of coincidences just happens to sustain life. We can’t afford a non-zero chance of fucking that up. The only rational alternative position is 100% certainty the science is wrong.

        1. I just don’t buy the doomsday story. I suppose that is where we part. I think reasonable people can disagree about this question.

          Sent from my iPad

      2. I just don’t buy the doomsday story.

        Fair enough, but its not my doomsday story. Its not a doomsday story invented by the radical Green fringe either. Its the mainstream consensus science.

        Given that you and I are not climate scientists, we can only make a judgement on what is the most credible story by looking at who is saying what. On one hand we pretty much every national scientific institute and thousands of peer reviewed papers in mainstream scientific journals saying this is an existential threat to civilisation, and on the other we have nutters like Monckton.

        Seriously, who are you gonna believe?

        You know how science works. Fellow scientists would like nothing better than to tear shreds off someone else’s work. The evidence has to be absolutely bullet-proof to get through the peer review process.

        So if you want to call it a “story” fine. Do you think evolution is a story as well? What about general relativity, quantum mechanics or the standard model? In my view these aren’t stories, they’re theories that best explain observation, and have been tested and reviewed countless times.

        Again, if there’s a non-zero chance the “doomsday” science is right, adaptation is not an option. This isn’t like a tariff debate, where if you get it wrong Australia’s economic growth is sub-optimal. If we get this wrong we lose our one and only habitable planet.

        1. My friend who is a Dr of mathematical physics tells me that the maths is totally incoherent – the things that are analogous to taylor series expansions don’t converge for example, so they just take the first few terms. Anyhow, the point is that even our best theories have big problems. It doesn’t have to be right to be useful.

          Sent from my iPad

      3. If the maths is totally incoherent, how did it get past peer review? Not only are you saying the science is wrong, you are saying the scientific process is broken.

        That’s a big call.

        Who am I to believe? The CSIRO, NASA, The Royal Society, or some anonymous blogger who says he has a friend who is a Dr of mathematical physics who says its dodgy.

        Are you seriously suggesting that dozens of PhDs from all kinds of fields haven’t gone through this with a fine toothed comb looking for flaws? If the flaws are so obvious (as in “totally incoherent”) why hasn’t Science or Nature published a single dissenting paper?

        Again, it seems to me you are suggesting incompetence on a monumental scale or some kind of giant conspiracy, both of which seem vanishingly unlikely.

        1. That is not what I am saying at all. I am saying the theory predicts wonderfully, but that there is a fudge to make the maths work. Feynman said as much himself.

          I will talk to the Doc and post something on this.

          Sent from my iPad

        2. I think you totally missed my point — QED is a wonderfully accurate theory that has a few fudges in it. It works, and it is unrealistic but it is easy to fix (just take only the first few terms in the expansion).

          The point was that some useful theories are also wrong. I was actually trying, half heartedly, to support your argument that there might be something to this climate stuff.

          There are problems, sure, but even the most accurate theories have fudges in them / problems.

          Sent from my iPad

      4. Sorry, I thought you were claiming the maths of climate science was totally incoherent.

        As for quantum mechanics, the standard model etc. Yes its great theory, and has stood up to decades of scrutiny, but there are still huge holes like, ummm, gravity.

        Yes, there are undoubtedly fudges in climate science. Doesn’t mean its completely “wrong”.

  5. @lorax: Yes, things like this can happen. People like to point out how science was bought out by Big Oil or Big Pharma or Big Tobacco or Big whatever. How about Big Government? I am just pointing out these things do happen and have happened in the last century. It seems you wish to believe that Government is benign and the scientists are impartial in this case, but earlier you were willing to posit the possibility of scientists being bought by Big Oil. Inconsistency much?

    Also, I made no suggestion he was a friend of mine. He is not a prof of mathematical physics. he is a prof of pure maths. Nor did he say climate science was dodgy – rather the opposite. What he is saying is that the science is complex and the solutions may be different to the ones we are considering now.

    I actually met a phd candidate in climate scientist once who nervously agreed that there was significant uncertainty in what they do. But why would you concede that publicly, when the largesse is so bountiful and the cost of questioning the consensus is being ostracised?

    Are there vocal and dissenting scientists? Yes. You just need to read more widely than the turgid crap coming from the SMH or the IPCC summary reports.

    1. MannyC, I wasn’t responding to you, I was responding to Ricardo, who said “My friend who is a Dr of mathematical physics…”

      Why on Earth would any government want to bribe scientists to support AGW? The consequences are massively inconvenient to any government, and as we’ve seen recently, electorally disastrous.

      What a ridiculous nonsensical claim.

      I have no doubt there are huge uncertainties in what they do with something as complex as the Earth’s climate. There are huge uncertainties in all kinds of modelling, but the models are still useful, if imperfect.

      There is a tiny minority of dissenting scientists. Why do none of their papers get published in credible journals if their data is so compelling? Again, you are suggesting there is a grand conspiracy of some kind. I don’t know what the motivation might be for this. Surely not financial, because the rewards for any mainstream climate scientist to ‘fess up that it was all a hoax would be stupendous.

      There’s a helluva a lot more money in fossil fuels than climate science grants.

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