There is continuing debate among scientists over the extent and causes of global warming. Some say warming will be minimal; others argue that the world is facing a significant challenge which could harm future generations. Almost nobody suggests that the planet is cooling.
Yet science is only half of the debate. The other half is concerned with the appropriate policy response. This involves economists, not scientists. Unlike its scientific counterpart, the debate on what exactly should be done in response to global warming is not even close to completion. Here too, there is diversity of opinion. Some say Australia should implement a carbon tax. Others prefer a carbon trading system. Most agree the best solution would be one which reduces carbon dioxide emissions, and also does not harm economic growth.
The Rudd government acted quickly without waiting for the economics debate to run its course. A new department dedicated to tackling climate change has been established. Its mandate is to implement and recommend policies that would reduce Australia’s greenhouse gas emissions.
But there’s a problem. While bureaucrats in the Department of Climate Change are busy coming up with ways to ward off the global warming bogeyman, their colleagues in the Department of Industry are diligently subsidising the very fossil fuel companies that contribute to global warming. A study released by the Australian Conservation Foundation in 2006 found that a large amount of corporate welfare is given to causes that hurt the environment. As The Age reported on October 29 of that year, “Analysis of this year’s federal budget papers reveal that programs for activities that increase greenhouse gas emissions will attract total funding of about $8 billion in the 2006-07 financial year.”
Does it seem odd that two agencies are actively working against each other? It appears to be accepted practice within the government, judging by the lack of protest.
About $570 million was distributed as industry assistance to car manufacturers. Of course, eliminating this subsidy could result in the loss of jobs. However, as the car industry receives recurring grants on an annual basis, it would be cheaper to give every sacked worker a taxpayer-funded severance payment, rather than persist with a policy that not only harms the environment but also distorts the market.
Some environmental groups prefer increased government spending on other more ‘appropriate’ programs, regardless of whether these subsidies are eliminated. This can only exacerbate the problem. As politicians must always be seen to be ‘doing something’ about the environment, there is a risk that ill-conceived ideas adversely impacting standards of living will be implemented.
This would not be so bad if measures addressing climate change occurred at a state rather than Commonwealth level. Some states with heavy industry like Western Australia, could adopt a different response to states with less industrial development. Unfortunately, this ideal is practically impossible given the growth in federal government power over the past century, so we are stuck with a one-size- fits-all environmental management that does not adequately take into account regional variations. Anything the states do tends to supplement, rather than replace, federal environmental regulation.
We must not hand further discretion to the government to spend on programs considered beneficial, as this additional spending could result in similar unintended consequences. We should only demand that all subsidies to fossil fuels cease. The effect of eliminating these subsidies could then be noted, and this evidence could further contribute to environmentally-friendly policies.
A cautious approach towards climate change is appropriate given that the costs of government intervention, when mistakes are made, can be exceptionally high. And the benefits can be disappointingly low.
Which politician will have the courage to stand up to vested interests that benefit from lavish subsidies? Once time permits, a thorough analysis of the Rudd government’s budget for 2008-09 (released on May 13) will reveal if there is any improvement upon the Howard government’s record. However, I am not optimistic!
Originally published in Indian Link (May 2008).