Economists struggle to reach consensus in debate over pollution reduction

August 16, 2010


As Prime Minister, Labor’s Kevin Rudd proposed an emissions trading scheme to reduce carbon emissions.  “Yet the nation’s economists were neither unanimous nor active in supporting the Rudd government’s carbon pollution reduction scheme” argues Ross Gittins in the Sydney Morning Herald.

“Department of Climate Change secretary Dr Martin Parkinson observed in a recent speech that, unlike with other, earlier economic reforms, ‘there has not been a broad consensus within the economics profession on the merits of action to reduce Australia’s greenhouse gas emissions, nor on the general approach to how it should be implemented’.”

There has been clear agreement amongst economists for some kind of carbon price signal (none currently exists in Australia now).  But beyond that there was much disagreement over many details, including the way such a scheme would be implemented, the price to be set on carbon, and, in a few cases, whether there should be any government intervention at all.

There are many reasons for this disagreement among economists, including a general preference for market mechanisms, a lack of understanding of situations that might result in catastrophic changes (as opposed to marginal ones), and uneasiness with the messy world of politics as opposed to the ‘elegant’ world of theory.  In the end, Gittins argues, the consensus of economists on some sort of carbon price was neutralized by these differences.

  1. Why do carbon emissions represent a ‘market failure’?
  2. How would some sort of ‘carbon price’ correct that market failure?
  3. How is a carbon price related to emissions trading?
  4. What does the author mean, in economic terms, when he says that “economists usually deal with marginal issues and have little experience with issues having potentially catastrophic outcomes.”?

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