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Australia needs to demonstrate how to take climate change action that balances effective policies with a realisation that costs must be contained in the short run, according to a paper by ANU economist Warwick McKibbin.
Professor McKibbin, from the ANU College of Business and Economics and the Lowy Institute, said there are a number of reasons why Australia might gain from undertaking early action in his paper From National to International Climate Change Policy.
“The most important is the argument that the uncertainties on climate change and the uncertainties about climate policies mean that important investments, particularly in energy infrastructure, are not being undertaken. By creating markets for risk management of long-term climate uncertainty there is a real wealth gain for the economy and an incentive for large-scale energy projects to move forward with substantial benefits,” he said.
In the paper, Professor McKibbin argues that early action would also stimulate the national economy because anticipated changes in carbon prices provides a clear signal for investment rates to change.
Expanding on an alternative model for reducing greenhouse emissions that he has developed with colleague Professor Peter Wilcoxen from Syracuse University, Professor McKibbin said that a 100 year target for emission reduction should be set.
“This target profile would be used to create long-term carbon emission permits of fixed quantity, and that are tradeable in a market which determines a long-term carbon price as well as the expected price of carbon at each year into the distant future.
“The second component of the policy is to allow the federal government to issue as many annual permits in the current year to prevent the annual carbon price from rising above a trigger price. This short term cap on the price of permits is set for a decade at a time.
“The approach provides flexibility in the sense that no international permit trading is required to create an efficient outcome, because the annual carbon price is set by the government and would ideally be the same across countries. The defection of any one country from the policy would not affect the carbon price in other countries. The approach is one of domestic actions and institutions but coordinated globally to build up a global system.”
Editor's Note: The original opinion piece can be found here.
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