Friday, March 31, 2006

Some thoughts on global warming

First, if anyone needed reminding that environmental issues are economic issues, two of today’s news reports underline that fact. Researchers are worried that salinity is going to have large impacts on Australia’s premier wine region, the Barossa Valley, and a report of large-scale coral deaths from warming waters in the Caribbean reminds us that this is what could lie in store for the Great Barrier Reef. Besides their natural value, these two areas represent two of Australia's biggest and most profitable exports (agriculture and tourism).

Secondly, I talk quite a bit on this site about the power of markets and I often make the assumption that if governments re-jig incentives (eg, try and make consumers or businesses face the full economic costs of their decisions) markets will respond and come up with solutions (renewable energy, more energy-efficient products, etc) – governments don’t need to engineer the solutions themselves. But incentives work with or against existing consumer preferences and these I think drives markets much more powerfully. What’s made hybrid cars much more popular and 4-wheel-drives (SUVs) less popular over the last few years is not really increased taxes or oil prices (see this post from the Environmental Economics Blog): it’s that they’re seen as green and cool. So we can try to change institutions but changing popular perceptions is more important.

Where I’m going with this is I see it as an incredibly positive step that – from what I can see people (and businesses) are taking personal responsibility for the global warming issue and doing what they can to help in small ways. There seem to be a variety of personal emissions offsets businesses where you can offset your personal or business’s contributions to greenhouse emissions by buying ‘credits’ from a business that they will use to invest in renewable energy or carbon sink projects. In this vein, Kate from the Veggie Friendly Blog reports that she recently attended a ‘carbon neutral wedding’! The demand from consumers for greenhouse-friendly products will really move markets for renewables in the coming years I think.


Robert Metcalfe said...

Interesting post. I agree with your point about markets creating solutions etc, that governments should use incentives to change consumer behaviour, and that ethical consumption is becoming more en vogue. But I don’t think I fully share your optimism of consumers driving change.

Here in the UK, all green and ethical products are on average more expensive than normal mass produced products. Whether it be food, energy, clothes, or indeed services, they are generally seen to be catered for the high end of the market. And by that I mean well educated and high income families, who do not suffer from information asymmetries. The rest of society does not have household budgets that permit this consumer change. Obviously the market will evolve over time and we will see costs coming down, but I don’t think ethical products will be significantly cheaper than non-ethical goods in the short-medium term.

In terms of offsets, I think they are potentially a bad idea. To quote George Monbiot: “scientists are much less certain about the amount of carbon tree-planting will absorb. When you drain or clear the soil to plant trees, for example, you are likely to release some carbon, but it is hard to tell how much. Planting trees in one place might stunt trees elsewhere, as they could dry up a river that was feeding a forest downstream. Or by protecting your forest against loggers, you might be driving them into another forest. As global temperatures rise, trees in many places will begin to die back, releasing the carbon they contain. Forest fires could wipe them out completely. The timing is also critical: emissions saved today are far more valuable, in terms of reducing climate change, than emissions saved in 10 years' time, yet the trees you plant start absorbing carbon long after your factories released it…(and that) it allows us to believe we can carry on polluting. The government can keep building roads and airports and we can keep flying to Thailand for our holidays, as long as we purchase absolution by giving a few quid to a tree-planting company. How do you quantify complacency? How do you know that the behaviour the trade induces does not cancel out the carbon it sequesters?” (,,1687977,00.html)

Furthermore, while the work on sustainable consumption – i.e. ecological economics – is welcomed, I don’t really think we can pin our hopes on consumers too much. If we went down that road, it would be very difficult to measure the true effects – e.g. the numerous problems associated with ecological footprints.

Therefore I think that the government still has a massive role to play both on the production side and consumption side. On the production side, there are big sunk costs within businesses that governments must try to offset by providing bigger subsidies and incentives. On the production side, the ethical markets are there but there is not much incentive for people to actually use these markets. Therefore I think Western governments have to be more proactive in providing bigger incentives to consumers.
(sorry for the length of this reply!)

pedaller said...

I think Robert in the comment above makes some very valid points. I would also add that planting trees requires arable land, that in Australia is already at a premium, whether for housing, food production or maintenance and protection of the environment. At some point in the not too-distant future, there will not be enough land available to feed the population and off-set its cabon emissions in this way.
The second point I would make is that Australians pay a lot of lip-service to the environment, but in reality do very little to susport ecologically-sustainable initiatives. The latest news that NSW is about to buy 255 new buses, a combination of natural-gas and deisel-powered buses is just one such example. Surely now is the time to introduce ethanol-powered buses onto our roads, the technology is now over a decade old, has been tried and tested in numerous countries, reduces NOx and particulate emissions .... and would give our pilot ethanol producers soemthing to do with ethanol they are making!

David Jeffery said...

Thanks for your comments Robert and pedaller. Note that offsets doesn't necessarily mean planting trees - it could be investment in renewable energy projects or energy efficiency programs, for example. (Using your suggestion, pedaller, it could even be something like NSW Buses earning credits from changing their buses from diesel to natural gas and/or ethanol - although I agree with you they shouldn't need this encouragement!)

Veggie Friendly said...

I agree that offsets aren't perfect and that it can be more desirable to have 'good behaviour' in the first place rather than to try and compensate for 'bad behaviour' after the fact.

However, I think that Dave's point is a really important one. Governments won't take environmental policy seriously - and they won't champion the kind of changes needed to address large scale environmental issues - unless they think that the public are behind them. It's important for individuals to take personal responsibility so that Government's feel confident that they can take collective responsibility.

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