(cross-posted at Core-econ)
Whilst it is fairly clear that the current climate change policies of Australia and other countries will do next to nothing to avert climate change (see here for a latest update on the debate), there is a key element particular to Australia that has so far managed to stay off the political battleground: our coal exports.
Australia is the biggest coal exporter in the world, responsible for about a quarter of the world’s total coal exports. Australia’s coal production accounts for 6% of the world’s total coal production. We export roughly half of our production. Since coal is responsible for about 40% of the world’s total greenhouse gas emissions, Australia’s contribution to total greenhouse gasses is 2.5% just via coal alone, twice as much as the proportion of Australia’s total GDP to world GDP. Put simply, our coal exports alone account for about the same proportion of the World’s greenhouse gasses as the whole of the domestic economy accounts for world GDP. Yet coal exports account for no more than 3% of Australian GDP. By giving up 3% of our GDP we could thus `re-coup’ our whole domestic economy’s worth in terms of global production and global emissions. That puts the paltry 5% we have promised to reduce our own domestic emissions by into the shades (a target we are furthermore almost certain to fail).
The key question is why both Australia’s political parties have exempted coal from their discussions about climate change? Australia could at a stroke achieve far more world greenhouse gas reductions by halting its coal exports overnight than it could do with trying to become more energy efficient in the domestic economy.
There are several lines of defense that coal interests can and do use to keep it out of the debates. One is the economic theoretical argument that in an ideal world, one would want to punish the users of something that is bad, not the producers. Another is the argument that it would do much damage to our own economy, and there is finally the argument that if we wouldn’t dig up the coal and export it, then someone else would just dig theirs up faster. Let us take each of those arguments in turn.
In an ideal world where one can perfectly monitor and control everyone, it is almost immediate that one would not want to prevent production and export of coal, but rather tax or punish the person burning it since it is the person who burns it that receives the final benefit of the use of coal, not the producer.
Yet, we do not live in an ideal world. We cannot force the importers of coal to abide by the taxes we have in mind for them, nor can we even somewhat accurately monitor what they do with their coal if they would put their minds to the task of hiding it from us.
The situation one is then in, is rather like that of the production and use of cocaine. One can similarly argue that it is the user of cocaine who should be punished, but in reality this is too hard so the legal system punishes those it can somewhat more easily lay its hand on: the producers and traders in cocaine. Just as the drugs dealer can hide behind the excuse that it is ultimately his clients’ problem, so too can the coal producer hide behind the same argument. And in both cases, the reality is that we should put the enforcement effort on the person who produces the stuff for the simple reason that we can more easily punish the producer than the consumer. Australia in this regard is a bit like a rich drugs dealer who hides behind idealised economic theory to say it is not his problem if his clients are addicted to coal and he shouldn’t have to change his ways.
Then there is the question as to whether halting coal exports would seriously hurt the Australian economy. Here, the essential distinction is between short-run and long-run. There is no doubt that to halt 3% of our GDP constitutes a medium sized recession there and then. A political poisoned pill. The pain can be spread out over a few years, but a 3% reduction in GDP is painful in the short-run, no doubt about that.
In the long-run, probably the opposite is true: halting coal exports is most likely a long-term blessing. The main reason is that high mineral exports are hurting all the other sectors of our economy (including the export of education!) via an inflated exchange rate. The mining boom in the last few years has nearly doubled the value of the Australian dollar relative to the American dollar, and this is seriously hurting our manufacturing and service export industries. Australia’s future as a high-technology and high-skilled economy would be much safer if we weened ourselves off our mining incomes than if we remained dependent on it.
Moreover, choosing not to dig up the coal now doesn’t mean it cannot be dug up in some far future. We are thus essentially swapping income now for income in the far future, and probably at a much better price too since the price of fossil fuels can only be expected to rise rapidly in the coming decades. Hence, leaving the coal into the ground should be seen as a kind of Future Fund for next generations: we leave wealth in the ground that accumulates in value.
Then the question of whether others will take over from us in the export market for coal if we halt our own exports. Whilst there of course is the real possibility that other coal producers will get a short-term benefit if we leave market share to them (probably with an associate price increase too), the main point to make here is that we shouldn’t care about this. For one, it underscores the short-run versus long-run argument. More importantly, to be afraid that others step in should surely not be a reason in itself not to halt coal exports. To argue that we should pollute the planet because others would do it if we don’t, is like saying one should keep slave trading because others would if we don’t. If we feel it is truly morally just to do something, independent of what others do, then it should be irrelevant what others do. And of course, the world only has so much coal so if we don’t dig ours up there is less for the world as a whole to burn off.
Hence making a concerted effort to reduce our coal exports as a means of making an actual difference to the level of Greenhouse gas emissions in this world is sound from a second-best economic point of view, a long-term wealth point of view, and is impervious to trade equilibrium arguments. But it would mean short-run political pain so it won’t happen and we will be stuck with the symbolic policies we have at present. Nor do I personally think that any policies oriented around reducing our own energy use, or indirect energy use, are going to really do much to change the world’s climate. The only realistic options are to either adapt to the forecast climate changes or else embrace far more radical geo-engineering options.