Unsurprisingly, Garnaut concludes that the economic case for mitigation has only gotten stronger; the basic modelling was sound, the development of climate science is pushing up the expected costs of climate change, and the development of new technology is pushing the cost of mitigation down. This shouldn’t come as any shock to anybody.

Given the politics has come down to “electricity bills! Scary!” I can’t see this part of the update having a huge political impact, useful though it is. But there’s one fascinating little sidebar to the discussion surrounding the inter-generational equity of mitigation.

Essentially, some of the economic literature that suggests we should not take any action now rests on two premises: 1) that our descendents will be much richer than we are, and 2) that, on equity grounds, rich people taking a big hit to their welfare (for instance, by spending far more on late mitigation) is fairer than (relatively) poor people taking a small hit. The extent to which point 2) is true is quantified in a parameter of the social discount rate, which we’ll refer to as r for the purposes of this blog post. As the commissioned companion paper puts it:

Thought experiments are useful for making the choices of different values of r transparent. Stern (2008:15) discusses Okun’s (1975) ‘leaky bucket’ experiments to make the implications of different choices for r more concrete. If person A is five times richer than person B, r equal to one implies a unit of consumption is worth five times as much to B than to A, so a transfer from A to B improves social welfare even if 80 per cent of the transfer was lost along the way. With r equal to two, consumption is worth 25 times more to B and the transfer is worthwhile when up to 96 per cent is lost. Judgements about whether society accepts this trade-off or not can provide information about a value for in social policy contexts.

Some of the work critical of Stern and Garnaut has used values for r of two, or even higher.

Where it gets really interesting is when you compare it to what presently happens in the real world. As the technical report says:

When inferring preferences for climate policy evaluation, the last two of these conditions in particular pose challenges for inferring values from behaviour. Given that the aim is to infer ethical judgements for use in climate policy evaluation, preferences should be derived in a context that has at least some appropriate mapping to a global, long-term, risky and uncertain environmental problem with potentially catastrophic impacts. Economists adopting a normative approach to discounting have taken guidance from values of inferred from tax and transfer systems, as they provide information about social preferences for the distribution of consumption within generations. Such empirical work has given a range of values for r including numbers less than one (Stern 2008:16). Cowell and Gardiner (1999:24-5) infer from the United Kingdom personal income tax system, obtaining estimates of around 1.3 and 1.4 depending on the scope of taxes and transfers included. Evans (2005) investigates tax systems in 20 OECD countries, estimating r as 1.4, with a 95 per cent confidence interval of [1.2, 1.5].

In other words, to make an argument against mitigation work in terms of inter-generational equity, you have to plug numbers into the model that imply a preference for radically more egalitarian redistribution of income than our present taxation and social welfare systems.

I wonder what the likes of Gina Rinehart and Clive Palmer think of that.

Elsewhere: John Quiggin comments on a proposal by Sinclair Davidson over at Catallaxy to finance greenhouse action with long-term bonds. I’ll leave the technical discussion to actual economists, but note that Davidson is factoring in climate skepticism into his arguments. The analyses discussed here accept mainstream climate science (or, at least, most of it) but argue against mitigation anyway.

Political leaders and parties can associate themselves with national interest objectives, or align themselves with special interests. If they align with special interests, they can catch a ride on the advantage that concentrations of capital have in marketing a distorted perception of the national interest. These opportunities expand with sophisticated modern analysis of opinion and influence.

The vested interests have large advantages, but they don’t hold all the cards. The big card in the hand of the public interest is the community’s capacity and tendency to respond to leadership. An able leader’s articulation of his or her conception of the national interest can elicit powerful responses, capable of overcoming loyalty to private interests, and of swamping the appeals to perceptions of the national interest that have been distorted by sectional interests.

It’s long, but worth reading in full.

Dobell is particularly interested in the work of Ross Garnaut (chapter 2 of the proceedings). The key finding?

There is now compelling evidence that the period of labour surplus andr easonably steady real wages for unskilled workers—supported by continuing large-scale movement of people from agriculture to industry and from the countryside to the cities—has come to an end. The implications of this change for all aspects of Chinese development will be profound.

It’s worth observing that this is, apparently, by no means a consensus position. The Economist‘s By Invitation page has several contributions suggesting otherwise: indeed, Yang Yao argues that this point is getting further away:

First, it cannot be made congruent with the fact that the countryside still has 45% of China’s labour force, but agriculture only contributes to 11% of China’s national GDP…Indeed, we find that China is moving away from the turning point, primarily because agriculture has become more mechanised and squeezed out labour.

While the exact timing may not yet be clear, sooner or later the “turning point” will be reached, and it sounds like it’s not that far away. The consequences not only for China, but the rest of the world, will indeed be profound.

The clear implication is that this isn’t the impression people would form if they went by the coverage and commentary in the Australian media.

Similarly, you’d be forgiven for thinking that Copenhagen spelt doom for any concerted international action on climate change (despite the fact that the Coalition’s policy is still tied into setting emissions targets, no matter how ineffectual it would be; and that it also provides Liberal moderates some leverage if the Abbott truck hits an electoral blackspot). There’s been nary a word published about the targets that states agreed to submit post-Copenhagen. It’s as if the event’s only significance was its ramifications for Australian domestic politics.

The Economist links to The Sustainability Institute’s interactive Climate Score Card, which enables a picture to be drawn of the probable impacts on average temperature of the various nations’ commitments. The paper also points out that:

countries can express their intentions in different ways, and that many have provided two or more levels of commitment: a low one that they say they will pursue regardless, and one or more higher ones that they will try for if enough other countries are also going high.

For those whose horizon is wider than the prism of the Australian partisan debate, the whole thing, as they say, is worth reading.

Details are here.

On SBS news tonight, Kevin Rudd stated he was open to negotiations with all parties represented in the Parliament. The current ETS bills obviously have no chance of passage via Liberal votes since Malcolm Turnbull lost the leadership. It’s intriguing to contemplate Labor reaching an accommodation with The Greens. In many ways, Labor doesn’t need a double dissolution, as it would increase the prospects of non-major party Senate candidate. The current CPRS has also now lost its utility as a political wedge against the Liberals, and in an election year, there may be some value in Labor being able to demonstrate something has actually been done on climate change.

The sticking point, of course, would still be Senators Xenophon and Fielding.

Christine Milne:

Finally there is the question ‘do we think we Australians deserve to pollute more than everybody else?’ This is the vexed ‘per capita’ issue that Professor Garnaut so cleverly inverted – taking what had been a powerful argument for change and turning it into a weapon in the hands of climate naysayers. He took the ‘contraction and convergence’ model that is the only equitable basis for a global agreement, and perverted it by talking up future population while sidelining current per capita pollution, stretching out convergence – the point where all people have the same pollution allocation – to the far future, and ignoring historical responsibility.

Writing in The Age, Tim Colebatch has had a close look at the numbers in the White Paper, and doesn’t think they sustain the Prime Minister’s claims.

But there are two things wrong with it. The smaller error is that their numbers are wrong — all of them!

The larger error is that they tell only a small part of the story, and the part they don’t tell matters more.

[Via Peter Martin.]

However, you don’t need to dig very far to find the massive unseriousness – and probably disingenuousness – in the Carbon Pollution Reduction Scheme white paper.

The policy decisions summary (downloadable here) essentially accepts Garnaut’s views of the international situation:

• a fair and effective global agreement delivering deep cuts in emissions consistent with stabilising concentrations of greenhouse gases at around 450 parts per million or lower would be in Australia’s interests

• achieving global commitment to emissions reductions of this order appears unlikely in the next commitment period
• the most prospective pathway to this goal is to embark on global action that reduces the risks of dangerous climate change and builds confidence that deep cuts in emissions are compatible with continuing economic growth and improved living standards

So while “450 world” is the desired target, we should go all out to get some kind of agreement – which probably means a global agreement with a 550 ppm target (To be fair, 15% cuts by 2020 is actually a bigger reduction than what Garnaut suggests for “550 world”).

But what are we prepared to do to achieve a 450ppm target? In the short term, nothing:

In the event that a comprehensive global agreement were to emerge over time, involving emissions commitments by both developed and developing countries that are consistent with long-term stabilisation of atmospheric concentrations of greenhouse gases at 450 ppm CO2-e or lower, Australia is prepared to establish its post-2020 targets so as to ensure it plays its full role in achieving the agreed goal.

If we’re really serious about achieving a 450ppm agreement, why aren’t we prepared to place anything on the table to achieve it?

In the global, long term scheme of things, the bribes to the EITE industries aren’t a big deal. Yes, they represent a big transfer of money to Big Carbon from the rest of us. But they, in themselves, don’t inhibit global deals. Wimp-out targets, by contrast, do.

Mr Robb says the Government must include recent global events before it finalises the scheme in its White Paper by the end of the year.

“We will be demanding that the White Paper is not released until such time as the Government has made some attempt to assess the impact of this financial meltdown around the world,” he said.

Well, the government could have done that, but Robb probably wouldn’t have liked answers when they came back.

The first and obvious point, made by Penny Wong in response, is that the Treasury’s modeling exercise extends out over decades. Over such timescales, several recessions will occur, and will have been factored in to the model; the current gyrations will have little impact on the long-term outcomes.

The second and almost as obvious point is that in the short term, the economic costs of the ETS will go down in a recession, because the reduction in economic activity leads to a reduction in emissions. People spending less money tend to drive less (though this may change in response to the drop in petrol prices). Less freight gets moved from place to place. Less electricity and gas gets used. So, if the price of permits is floating, the lower emissions should drive the price of permits, and thus the amount people will have to spend to avoid buying permits, down.

The final issue is that, as Ross Garnaut has pointed out, that recessions are good opportunities to do reforms cheaply.

Economic modeling is a funny thing, with all manner of potentially quirky results. But I highly doubt that any such modeling would suggest any cause for delay. But it sounds plausible, which I suppose is good enough for the Opposition at this point in time.

In any case, as of writing the modeling is out. Download and read here.

Australia’s total greenhouse emissions, assuming a 450ppm target and “backstop technology”. Source: Garnaut Review Final Report, Figure 23.6

The above chart shows the modelling for the Garnaut Review of one emissions scenario – that an international agreement for a 450ppm target is adopted using the model he proposes. It also assumes the existence of “backstop technology” that can take unlimited amounts of greenhouse gas from the atmosphere at $250/tonne (a reasonable assumption for the long term).

It’s stunning how much of “our” reduction is actually achieved overseas. We’re going to be buying a lot of permits on the open market…

By way of preview, a number of climate scientists have released an open letter to Kevin Rudd (text here):

The Garnaut Review concluded that an emission reduction target for Australia of 25% below 1990 levels by 2020 would be an equitable contribution to the international effort required to achieving this outcome. As a group of Australia’s leading climate change scientists, we urge you to adopt this target as the minimum requirement for Australia’s contribution to an effective global climate agreement.

In Crikey yesterday, Bernard Keane contrasted the apocalyptic prophesies of doom emanating from business with the rather lame reality of the government’s proposals to date.

Nightmare stuff. Imagine how bad it would be the Government had actually proposed a serious effort to reduce our carbon emissions?

As Keane notes in another article, the release of the Treasury modelling today:

should provide a welcome corrective to much of the hysteria generated by modelling commissioned by rentseeking industry groups.

Keane also observes that Garnaut will be talking about adaptation strategies and costs in this report as well.

Note: Related post from dk.au on public opinion, polls and climate change.

Update: The report has now been released and can be downloaded from here.

Update: From Crikey, Bernard Keane on Garnaut at a glance and Clive Hamilton on politics trumping science.

Elsewhere [dk.au]: Barry Brooks is also running an open thread at his blog Climate Dilemma [ht: Peter Wood in comments]

Joshua Gans comments on Chapter 14 (TEEIIs) which he argues is “dramatically superior” to the Green Paper solution of free permits. He also renews his call for border adjustment taxes:

In my opinion, it would be better to bite the bullet and, at least for imports, assess the carbon cost of those imports and tax them. This will get the price signals right and also put pressure on trading partners to put in their own emissions trading schemes so as to avoid that tax.