Garnaut and Ergas on the economics of climate actions

Comments on Henry Ergas “Climate adviser misses the point”, 11/02/2011, http://www.theaustralian.com.au/news/opinion/climate-adviser-misses-the-point/story-e6frg6zo-1226003951163

While the logic that Henry Ergas has used is apparently and seemingly appealing, especially the discount approach for costs and benefits of climate actions, there is deep hole somewhere in his article that may heavily discount the powerfulness and persuasiveness of his whole thesis.

To start with, he didn’t not assess the likely scenario that although an international agreement for all international players to act may not be reached as he suggests, many countries may still take actions to have a measurable effect on climate change.

The second point is that he didn’t examine or analyse the possibility that Australia could take ‘unilateral’ actions that is trade neutral and therefore will not change too much Australia’s international competitiveness, especially when trade is concerned.

Third, he didn’t examine and analyse the likely advances in alternative energy technologies in the future and the impact on the costs of emissions mitigations, and the continued long term benefits of climate change actions – they are not just one year but will continue forever. Both can change the result of cost and benefit analysis of climate change actions.

Fourth, he didn’t examine and analyse the real costs of the likely depletion of fossil fuels. It is highly likely that market mechanism alone may significantly underprice the current use of fossil fuels.

PS: However, the above does not necessarily mean automatic endorsement of the Garnaut recommendations.

There are issues with trade neutrality and revenue neutrality, as well as carbon tax versus ETS that the Garnaut report or updates may have been rather unsatisfactory and disappointing.