Disincentivising middle-east oil use vs. disincentivising CO2 emssion

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A summary of my thoughts from a recent Facebook discussion with a friend in which I explain why I don’t think pricing CO2 emission is a good idea:

I’m absolutely not advocating apathy, just that we not crucify ourselves on a path which cannot possibly achieve its objective.

Pricing carbon unambiguously will harm Australia. Our industries and wealth are strongly tied to carbon emission, if we merely “adjust the market so transformation can occur” we’ll materially reduce our GDP exactly because we’ll transform our economy into one which exports less stuff that people want. This is definitely economically harmful. That said, if that sacrifice contributed to improving the world at large, then it would be a potentially justifiable use of discretionary wealth and in scope for decision making by political processes. Sadly, it can’t possibly contribute to improving the world at large:

  • The big problem with treating CO2 emissions as just another form of polution is that atmospheric CO2 emissions rapidly spread themselves uniformly across the planet, so the “traditional” approach of cleaning up the environment within a location (e.g. country) by regulatory/legislative means is simply inapplicable: we can reduce carbon emissions until the cows come home (or stop farting, or whatever) but it will have no affect on Australia’s environment at all.
  • There is some rather irresponsible wishful thinking going on along the lines of “if we do our bit first, then everyone else will eventually follow”. This works for a whole lot of things which can be somewhat localised (bans on slavery within jurisdictions, bans on discharging toxic wastes into rivers, …) but is not workable in a situation where (a) benefits to participants only start to accrue after almost everybody has adopted (CO2 emissions from non-participants continue to affect participants) and (b) where massive growth in emissions are a foregone conclusion for very large nations (China not only declined to bind itself at Cophenhagen, it announced a tripling of emmissions over the next few decades! India can’t meaningfully bind itself as it has no capacity to enforce constraints on its population).
  • Finally, the Jevons paradox clearly applies here. Every technological change that we make in response to economic incentives to reduce carbon emission will reduce consumption in affluent countries with relatively stable economies, but those same changes will materially alter cost/benefit analyses for poorer people who are currently emitting little/no CO2 simply because of the excess of fuel cost over benefit. Develop technologies which achieve the same benefit for less carbon emission and watch 200 million poorer people thank you for your ingenuity and promptly commence consuming more fuel and, therefore, emitting in aggregate more CO2. It is an interesting coincidence that this phenomenon was first observed around the burning of coal, and measures to reduce units of coal consumption per unit of industrial output.

I’d suggest that there is a related measure that Australia should take: there is a clear strategic problem with dependence on middle-east oil, so continue to increase taxes on oil[-derivatives] from the middle-east year-on-year. Those who want to feel good about reduction in CO2 emissions (and ignorant of the above) will still get to do so because this will provide incentives to reduce oil consumption but (a) we’ll avoid strangling all CO2-emitting activities in our economy and (b) we’ll materially reduce the strategic distortions that our dependence upon middle-east oil is causing.

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4 Responses to “Disincentivising middle-east oil use vs. disincentivising CO2 emssion”

  1. Christian Kent Says:

    If you begin with the assumption that developing economies will become developed economies, and energyy use per person will increase in both developed and developing economies, then an implementatiom of efficiencies by developed economies still benefits developed economies. The alternative is an increased total of emissions from developed and developing economies, combined and separately.

  2. Roland Turner Says:

    Please study Jevon’s paradox.

    The error in your argument is the assumption that technological efficiencies adopted by developing countries will cause aggregate emissions to fall. This overlooks the likelihood that a more efficient process not only affects quantity of emissions per unit of activity (e.g. km driven) but also enables/encourages more activity (e.g. driving further).

    In many situations, the efficiencies cause a large enough increase in use that the aggregate consumption goes up, not down.

    It is a strange co-incidence that when Jevon first described this phenomenon, it was in the context of burning coal; that attempts to make industry more efficient succeeded and, therefore, created more industry which burned more coal in total. This is very much the situation for developing countries and fossil fuel consumption today.

  3. Christian Kent Says:

    I challenge the error you point out: Aggregate emissions will fall compared to the base case. The base case is that developing countries will become developed countries. Their affluence and energy use (in any renewable / non-renewable mix) will increase.

    The rate of this increase (whether peaking in 50 years or 150 years) is irrelevant when calculating a global CO2 peak in parts per million. And, surely, this is the end game — to limit the ppm.

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