Monday, May 08, 2006

The ethics, politics and economics of climate change

I have a concern that as environmentalists operating in a capitalist system and a very pro-market political environment, we sometimes tend to tack rather half-baked business arguments onto ethical arguments. We say ‘You should do this, it’s good for the environment. Oh, and it will also save you money’, but we don’t necessarily think through the second part of our claim.

I see this most often in climate change debates. People say things like "It is (economically) crazy for Australia to continue to rely on fossil fuels / have such high per capita emissions / refuse to ratify the Kyoto protocol when climate change will decimate the Great Barrier Reef / Australia’s agricultural industries". I disagree. It is unethical and immoral for a small country like Australia to emit disproportionately high levels of greenhouse gases when climate change will cause such huge global problems. It is hypocritical for a country like Australia to say it won’t agree to binding targets until developing countries with much, much lower per capita emissions also agree to reduce their emissions. And it is politically unwise to white-ant international solutions like Kyoto when Australia has so much to lose from climate change and needs international co-operation. But it’s not economically crazy to continue to emit high levels of greenhouse gases.

The reason is simple: this is a global issue of which Australia presents about 1.5% of the problem (ie, emissions). We capture the full benefit of mining and burning fossil fuels here and now, while the cost in terms of climate change is spread throughout the world and over the coming centuries. On the flipside, if we decided unilaterally to, say, halve our greenhouse gas emissions, we’d face the cost of that, while making very little difference to scale of the problem in the coming decades.

Now please don’t misunderstand my argument. I’m not saying we shouldn’t unilaterally cut our emissions. On the contrary, I believe we should – for moral, ethical and political reasons. In my view, these massively outweigh the short-term economic considerations. (I also believe it would ultimately and indirectly be in Australia’s economic interests, because the enhanced credibility we’d gain by taking a principled stand will assist our ability to pursue international solutions to get other countries to reduce their emissions, and because reducing our emissions will have some spin-off economic benefits that mean it won’t be as expensive as we think). But it is economically na├»ve to suggest that there’s a direct and immediate economic benefit to Australia from reducing its greenhouse emissions. There isn’t.

That isn’t to suggest that environmental advocates should shy away from economic arguments. The head-in-the-sand crowd drastically overstates the costs of doing something about climate change and ignores the spin-off economic benefits. It’s our job to point out where they’re wrong. But let’s not pretend that environmental solutions are always win-win-win. They usually involve trade-offs.

Environmental advocates have a responsibility to present the ethical, moral, political and economic arguments for improving our economic performance. But we should also recognise when one of those arguments is weak. In my opinion, some of the purely economic arguments for reducing emissions – at a national level – are weak. We should recognise that, and present the other arguments (including the argument that narrow economic self-interest shouldn’t always win), rather than pretending that there’s no debate. After all, the other arguments are overwhelmingly in favour of acting now and acting decisively.


Amy Stodghill said...

I think you've hit on the major problem in the environmentalist vs economist dichotomy - and one of the main reasons progress/change can be slow to come about.

Robert Metcalfe said...

You are sounding like a proper ecological economist now david! :-)
The points you raised are valid and when it comes to climate change I think there should be a greater pluralistic approach. Neoclassical economics can be problematic when one examines climate change, for example, due to the substitutability of natural capital, discounting etc. However, this approach is still very dominant in the public policy sphere, and will continue to do so. Therefore, if environmentalists want their voice heard in the debate, they have to fully understand the arguements that classic economists make, and likewise for economists to understand natural processes better. There is definately a vacuum to be filled between environmentalists and classical economists, but who will make the move first? Or would you argue that ecol economists fill this gap?

mel starrs said...

Thanks for the post. It prompted me to clarify a few of my own thoughts on a similar vein.

David Jeffery said...

I really don't know enough about ecological economics to say. It seems to me that classical / environmental economics does a pretty good job except when you're looking at the really big issues of scale. Standard economics, if applied properly, is good at allocating resources within the given constraints of your system but I wonder how good it is when that allocation starts effecting the constraints themselves. At the risk of being melodramatic, I sometimes think that economics is good at telling us the optimal arrangement of deckchairs on the Titanic.

Thanks for your comments Mel and good to find your blog.

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