Friday, February 5, 2010

The Very Real Economics of Climate Change

By now, most of us who aren't in denial understand why climate change is a problem. For those of you that don't I suggest coming here to an Australian summer and sitting in a car exposed to the sun. Then, everyone, read on.

The true economics of climate change show in the solutions proposed to it. The solutions that actually might be considered to work and are being used in common debate come at a high cost to the "consumer". That is, you and me, the people who buy energy, directly on indirectly.

Now, either by self interest or by ideology (and usually both) the powers that be that actually admit to the problem usually propose one of two effectual solutions; carbon taxes and emissions trading. These are respectively taxing carbon dioxide emissions directly and selling "permits" for people to emit a certain amount of carbon dioxide and allowing those permits to be traded. Both of these solutions put a direct cost impost on the consumer. In fact, I can guarantee that if either measure is passed, you'll see the cost on your power bill.

The unfortunate choice of the consumer, who right now can make very few decisions, is choosing between consuming less until the arrival of cheap efficient devices or lowering their standard of living. This isn't really a choice at all, it's a means test, relegating those who can pay to hanging on to their standard of living and those who can't to a worse one. The people who make decisions and expand market choices (such as choosing renewable energy) still make money, they aren't forced to change what they're doing or choose a lower emissions scheme. Electric generation is usually a monopoly in any location and other large carbon emitters are in the best case oligopolies.

Either way, the average person will be worse off, but those that made the decisions will still not be impacted apart from their consumption (just like the rest of us), which they can easily afford. What we really have to do is force the hand of the decision makers, those who can not only choose to give us lower emissions but who benefit from our consumption, to choose efficiency and clean energy over other forms.

In fact, with an emissions cap, carbon taxes and emissions trading don't even work to reduce emissions. Why? Because the cost is passed on to the consumer, who will likely consume the same amount of energy anyway.

If you want to reduce carbon emissions, the trick is to put the impost on the decision makers. Tax dividends, executive renumeration and capital gains in proportion to the carbon consumption of primary producers, heavy energy using industry and energy production. Make those with the power to make real decisions regarding carbon dioxide emissions pay for them directly.

This is the only recourse to real change.

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