The Economy and the Environment

I’ve wandered off the reservation again this morning and am strolling around Carbon E Coyote’s turf  but I hope he doesn’t mind too much because as we Australians await the Prime Minister’s “Carbon Tax” announcement tomorrow I thought it is worth a quick post and link that is related to this issue. 

It is important to note  I believe we should do something about the amount of CO2 that is going into the atmosphere. I believe this not just because of global warming but also, primarily in fact, I believe that we are using the planets resources at a rate that is unsustainable and leaves the future generations behind us at a massive disadvantage.

So for me a price on carbon, with the requisite industry and consumer adjustment packages , is way of ensuring we change the nature of our consumption of non-renewable resources. It should also asssist the development of new industries and approaches that will make living on this planet more sustainable for all humans not just the developed world rich.

Indeed I posit that perhaps the Carbon Tax, for all the political kerfuffle that is going on at the moment, is a natural economic evolution of what needs to be done in the economy (given the science suggests the planet seems to be warming). In addition as countries like  China and India move toward levels of consumption of natural resources that are trending toward developed world rates we’ll find it difficult to allocate these scarce resources – particularly to feed ourselves.

We need a better way to allocate resources, both energy and food, and crucially a new government body to fund  “green” businesses, to ensure the future for my children, your children and our grand children.

There is no avoiding the fact that there is going to be a cost of adjustment but the cost now, will be less than the rampant inflation and costs associated with the future economy if we  don’t make our consumption of resources less intensive.

Pre GFC commodity prices were a window of the future of inflation – remember Australian CPI inflation hit 5% in 2008 and the RBA was rabidly worried about reining it in – it’s why they are still so nervous now. Just think about what an extra 1% or more in interest rate hikes would cost the economy. Equally imagine the damage that $2+ per litre petrol would do. These are “hidden’ costs and risks in our future but they are costs nonetheless and can not be ignored when thinking about the issues.

For me it is not just about global warming and sea level rises and it’s not just about carbon and carbon dioxide in the atmosphere. I’m less interested in the debate about what the science reveals because we can all see for ourselves the rate of consumption of non renewable resources and the need to make agriculture more productive. And I don’t believe it’s ok for me to consume whatever I want and just assume that technological change at some nebulous point in the future will make everything ok for future generations.

Jeremy Granthum recently published an essay on the very topic of “peak” resource availability and I would suggest that you have a read and form your own view but here is an excerpt from the introduction, (my bolding)

The purpose of this… to recognize that we now live in a different, more constrained, world in which prices of raw materials will rise and shortages will be common…

Accelerated demand from developing countries, especially China, has caused an unprecedented shift in the price structure of resources: after 100 hundred years or more of price declines, they are now rising, and in the last 8 years have undone, remarkably, the effects of the last 100-year decline! Statistically, also, the level of price rises makes it extremely unlikely that the old trend is still in place. If I am right, we are now entering a period in which, like it or not, we must finally follow President Carter’s advice to develop a thoughtful energy policy and give up our carefree and careless ways with resources.

The quicker we do this, the lower the cost will be. Any improvement at all in lifestyle for our grandchildren will take much more thoughtful behavior from political leaders and more restraint from everyone. Rapid growth is not ours by divine right; it is not even mathematically possible over a sustained period. Our goal should be to get everyone out of abject poverty, even if it necessitates some income redistribution. Because we have way overstepped sustainable levels, the greatest challenge will be in redesigning lifestyles to emphasize quality of life while quantitatively reducing our demand levels.

So I hope the carbon tax debate is the catalyst for a broader debate about the interaction of the economy and the globes ecology – and taking steps to make the human race sustainable. If we don’t I’m fairly sure mother nature and natural selection will.

Here is 17 minutes and 11 seconds of a must view video that I first saw on naked capitalism. Yves wrote of the video

 “William Rees is one of the pioneers of ecological economics and is the originator and co-developer of ‘ecological footprint analysis’. This video contains some basic facts about current consumption levels in advanced economies that are attention-grabbing. I’d normally say “Enjoy” but this is not that sort of video.”

As John Mauldin would say you may “need an adult beverage” when you watch this.

Australian’s are being asked to take some pain now for the sustainability of the globe’s ecology in the future. It’s now time for our politicians to spend as much time convincing their global peers that their populations too should think about the future of the planet. Otherwise we may injure ourselves for not much gain for the planet or our kids.

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  1. The more I think about the carbon debate, the more I think the argument over whether man is contributing to climate change is irrelevant. If we look a carbon tax/ETS from a productivity and economics point of view, then taxing energy will force humans to use energy more efficiently. This can only increase productivity in the long run, much the way increasing labour costs as countries develop encourage more automation and technological advances in order to reduce labour costs. Standards of living increase when we do more with less resources and energy – which should be one of the side affects of a well-designed, market-based carbon pricing scheme. Of course, there is also the compelling “Pascals Wager” argument, as well as the points made by DFM in his post above. Fossil fuels are finite no matter where you sit on AGW, so eventually we will run out of them (on this planet at least). Any mechanism that encourages more sustainable energy use (without killing our standard of living) surely has to be a good thing.

    • I completely agree with this too. It’s unfortunate that debate about the carbon tax always turns into a huge slanging match about the science of global warming, which many on both sides of the argument seem to hold religious views about.

      As you point out, regardless of global warming, the fact the resources are finite argues that we need to be heading in that direction anyway. Not to mention the fact that anything that results in cleaner air is a good thing too.

  2. Thanks DFM, my thoughts exactly!

    This is not about global warming… it’s about sustainability.

    Another key issue that needs to be addressed is peak population.

  3. Montgomery Burns

    I don’t disagree with Grantham qualitatively but quantitatively he is stretching it. His starting assumption about a single commodity price trend over the last 100 years is flat out wrong (w.r.t. to oil, metals and minerals at least, I don’t follow softs)…unless he is using some sort of unusual deflators.

    Apart from that, yes, we use finite resources that run out (oil), or become more expensive to extract.

    • Deus Forex Machina

      Agree, Grantham is sometimes prone to hyperbole – he is partly marketing his funds management firm don’t forget.

      But the idea is solid.

      Worth noting though is Qcontinuim’s point above – a price leads to new technology, leads to more productive use leads to less intensive use and so on.

      So it may work out differently than we all think anyway

  4. I totally get our crazy consumption of finite resources and global warming but I don’t get at all how having every grams of coal we do not use (thanks to this wonderful carbon tax) burned in dirty Chinese plant will achieve anything.

    Make no sense at all

  5. There are several competing propositions about the climate that can be stated and evaluated:

    1 Climate change is not real

    2 Climate change is real, but it is nothing new and nothing to be alarmed about

    3 Climate change is real and alarming, but is not primarily (if at all) caused by human activity

    4 Climate change is real, alarming and is caused (primarily) by human activity

    If the odds are that 4 is accurate, then we have two meaningful further choices to select:

    5 Climate change is real, alarming and is caused by human activity, but is already too far advanced to be averted, implying that chaos lies ahead

    6 Climate change is real and alarming, is caused by human activity and could possibly be arrested

    Supposing we choose 6 (because choosing 5 is psychologically impossible for our species), then we have to decide between

    8 Accepting that humans are incapable of acting rationally, and will therefore choose not to take effective steps to alter our activities


    9 Since it is in our own common best interests to arrest climate change – we will reluctantly find ways to take action, hoping that we have not already have passed the tipping point into run-away thermal lift-off.

    I reckon we have got to the threshold of option 9, better late than never, I suppose.

  6. We can move to pretty much 100% renewable quite quickly if there is the political will ( low cost of financing + regulations), tech exist and it would solve our Dutch disease. But all this tax talk / global warming talk is Utter BS unless we shut down the quarries as every single gram of coal extracted is going to be burned somewhere.

    Frankly I do not give a damn about CO2 as nothing will do is going to reduce it, population is growing, emissions are a given but I would love us to move to a more modern/high tech energy infrastructure

  7. Great post. I still have never heard a convincing case that Malthus was wrong. Problem with the carbon tax is that it will quickly morph into a cap and trade scheme/scam. It seems to me that it is a means to snatch a share of the remaining energy resources, via a carbon proxy.
    The paradox is that we will need to expend energy, lots of it, in developing alternative energy, ie rebuilding a replacement electric transport fleet, revamping the rail network etc.
    Add to that the inconvenient truth that millions of tons of coal will still be shipped overseas tax free. So the earth still leaks CO2 at a steady rate and nothing is achieved.
    The best outcome will be that the carbon tax never becomes an ETS.

  8. wayne from st albans

    I had nearly given up on this blog,
    thank you for this post.

    Rob W you beat me to it.

    Perhaps regular readers of this blog
    should also check out –

    Conservation above all else.
    Jeavons Paradox will erode
    any efficiency gains in
    resource use.

  9. Bring on the carbon tax. Destroy the Australian economy though it was on its way anyways just it will happen sooner rather than later because of the carbon tax. Australia will go down in history as the laughing stock of the world because of this and that it was all based on junk science. BRING IT ON LMAO!!!!!!

    I am for better ways of producing energy. Create incentives (tax cuts or something) for producing cleaner energy not taxing the old way. Then Australia and the rest of the world will get far better results. A much better approach as it will make both sides happy and would be implemented much faster in my opinion.

  10. Stuff this. I’m going to sell my motorhome, quit travelling, buy a small productive acreage and do my own thing, flying below the radar for the rest of my life.
    As a simplification of our situation in the West, cop this. Once the myriad unproductive leeches in society have impoverished the productive sector which provides their lifestyle, it’s all over when the debts become unpayable. If you personally produce nothing physical like commodities, food or consumer goods or of social utility, like primary health care you are a leech or living off your savings like me.
    Carbon tax, like all unnecessary bureaucracy is another leech system trying to take wealth from the productive. I have no doubt that financial elites and pollies will benefit and live off an ETS but it won’t affect sea levels or reduce CO2. Some idiot doesn’t understand the benefits of CO2 to plant life or a warm climate to human productivity and has conned the sucker class into believing that climate change isn’t a continuing planetary process.
    I do think reducing other pollution of nasty substances is worthwhile and better allocation of scarce resources could be achieved but not by a carbon tax.
    It’s a mistake by the morons to penalise the productive.

  11. Firstly thank you to DF for putting a sane perspective with which I largely agree. Given that I oppose the Carbon Tax on the basis that its proponenets have lied so much this is a fair concession!
    Strangely i agree with Rod AND DF. Is there any evidence at all to show that Governments are capable of limiting their activities in response to a new source of Income? Then what is proposed is that we move on to some sort of trading system that will largely be controlled by those who have largely been responsible for the excesses leading to the GFC! Following that move, given that Government has expanded its activities in response to the CT are they really going to reign in their spending, sack Public Servants, sell off purchased buildings, etc when the tax disappears in favour of a trading system. Even currently I see NO ESTIMATES OF ANT KIND of the cost of governemnt in collecting the taxes, dispensing the proceeds, and controlling the process. We are just told it is ‘Revenue neutral’!!! That is by definition a bare-faced lie!
    There looks to be much that can be distorted in trying to create a better world. Unfortunately those who are championing the cause of the Carbon Tax, have already engaged in stealing from one politically disadvantaged group, and a trading system seem to have no agenda for controlling the excesses of those they are appointing as gods in this process.
    I don’t mind if there is a cost. Just don’t lie to me about it.

  12. The greatest exponents of environmental destruction were the former communist countries that had industrial bases. This was mainly due to both idealogy and bad economics. No proper price signalling for the law of supply and demand to work properly.

    We in the West are now facing the same problem. Artificially induced supplychain disruptions.

    Bad economics, bad policy.
    ‘Should government refrain from regulation (taxation), the worthlessness of the money becomes apparent and the fraud can no longer be concealed”.
    John Maynard Keynes
    “All the perplexities, confusion and distress in America arise not from defects in their constitution or confederation, not from a want of honour or virtue so much as from downright ignorance of the nature of coin, credit, and circulation.” John Adams

    “The state is the great fiction by which everybody tries to live at the expense of everyone else.” Frederick Bastiat

    True capitalism.
    “The characteristic feature of capitalism that distinguishes it from pre-capitalist methods of production was its new principle of marketing. Capitalism is not simply mass production, but mass production to satisfy the needs of the masses.”Ludwig von Mises

    Note that it says: “to satisfy the NEEDS (not the wants of individuals or governments) of the masses.

    “If any behavior needs to be reined in, it should be the propensity of people to use the political system to take other people’s money.” Jeffrey A. Singer

    “Public interest criteria” does not mean criteria that the public decides are in its interest. It means that the elite – via various appointed bodies – decide what the public’s interest is for them.” Mark Steyn

    “We have but to remember man’s natural tendency to satisfy his desires with the minimum of effort to realize how political power will be utilized.” Frank Chodorov

    To paraphrase the great M.Ghandi: there is always enough for mans needs but never enough for mans greed.

    There is always enough for mans needs but never enough for government wants.

  13. Outstanding piece. I fully agree that a carbon tax is all about resource sustainability and only in a minor way about climate change. Whether climate change turns out to be real or not, the world’s natural resources will run out some day. So Australia has loads of coal and iron ore. That will run out one day (and quite probably within 100 years in the case of iron ore). Given that it’s taken us 200 years to get to this point, I don’t like our chances of re-tooling in half that time.

    Throw in peak oil and we have a situation where the world’s economy is based on increasing use of non-renewable resources. That is a fundamentally unsustainable position to be in. You only have to look at what happened to the Easter Islanders. For a more recent example, look at Nauru. And beyond that, Saudi Arabia. Moving to a more sustainable footing has to be a self-evident thing to do.

  14. This interview(must view video)at Naked Capitalism is one the best summaries of Marx’s economic analysis and prospect of capitalism. It is amazing how people started thinking and accepting his ideas without even knowing they are talking “dangerous” truth.