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ENVIRONMENT

Suited polluters assess climate change risk

  • 21 August 2008
A riddle with climate change (and many other environmental issues) is the irreconcilable positions of well-informed and well-intentioned people who are firmly for and against remedial action. They share so few points of agreement that debate seems impractical. Let me propose a two-pronged explanation for this.

The first is that making policy for natural resources is — as Professor Ross Garnaut remarked in relation to climate change — a 'diabolical political problem'. Natural resources such as climate, air and water are public goods, which suffer the 'free-rider problem', or ability of everyone to enjoy the good without paying the costs of its preservation.

Because individuals have no incentive to protect or preserve public resources they can become subject to debilitating neglect, extending to toxic pollution, and can be over-exploited, even to extinction.

Any policy that seeks to reverse damage and (say) lower concentrations of carbon dioxide in the atmosphere typically follows the principle of 'polluter pays' by imposing regulation such as emission controls or placing a tax on emissions. This concentrates the costs of reducing emissions on those who directly cause them, whereas the benefits are thinly-spread because the whole community is only slightly better off on average.

This gives strong motivation to the minority opposed to the environmental policy, but much weaker motivation to the majority who benefit. As a result, resources policy making tends to be paralysed or produces an inferior outcome, and those results that can be agreed tend to be blunt instruments that occasionally get it wrong.

Although opponents of environmental policies typically criticise their efficiency and claim adverse impacts on competitiveness, fortunately these are generally trivial because compliance costs tend to be offset by innovation and regeneration of plant and processes.

A comprehensive US study, for instance, showed that tough controls on environmental damage that have been introduced since the first Earth Day in 1970 have simply cleaned industry up, not closed it down.

The second source of dispute is risk propensity. Risks associated with climate change involve uncertainty in forecasts of future warming and its impacts, along with the possibility of high cost or downside scenarios. These latter include occurrence of a tipping point where climate change becomes uncontrollable and triggers an apocalyptic outcome.

Advocates of immediate action are termed 'risk averse'. They are most concerned about risks or possible losses. On the other hand, people opposed to immediate policy action are said to