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