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economic growth and green innovation « Previous | |Next »
December 14, 2009

Now that the reality of climate change no longer a contentious issue, the debate has shifted towards the growth consequences of climate change mitigation and adaptation. How well are we doing on this economic governance?

As Copenhagen is currently showing, developing countries do not want to engage in environmental policies which they see as constraining the process of catching up with more developed countries. For their part, the US and other developed countries such as Australia are reluctant to take any steps which would jeopardise their own growth potential.


The governance pathway forward is not rocket science, and we know what should be done. Government intervention needs to be designed in order to effectively facilitate and encourage on the private green innovation regime thus paving the way for ‘green growth’: the optimum tradeoff between ‘reducing’ climate change while maintaining a reasonable rate of growth.

There are there are two problems to deal with, namely the environmental one and the innovation one. The optimal policy involves using (i) a carbonprice to deal with the environmental externality and, at the same time, (ii) direct subsidies to clean R&D (or a profit tax on dirty technologies) to deal with the knowledge externality.

As soon as the clean technologies have gained sufficient productivity advantage over dirty fossil fuel technologies, the private innovation regime for these clean technologies can be left on its own to generate further, even better and more efficient, clean technologies.

Sceptics offer two counter-arguments to this: first, that the science underlying climate change is highly uncertain; second, that costs exceed benefits. The science may be uncertain but it is not wrong and climategate---the CRU scandal--- does not disprove this. Few politicians and pundits are willing to to bet the planet on the claim that climate scientists are talking through their hats, since this involves the larger claim that they have managed to assemble an enormous conspiracy to perpetrate a hoax

Do the costs outweigh the benefits? This--it is too expensive, we can’t afford it,and it results in economic ruin--- hasn't been shown to be the case. The Treasury arguments and those of Stern< Review /a> and the Garnaut Review still stand.

What these objections have been cleared away we can see that the current governance approaches in Australia leave a lot to be desired. Therein lie the problems. The carbon price is too low to address environmental externality, and drive green investment and innovation; whilst the public R&D spending targeted at the renewable energy and energy efficiency constitutes a very minor share of total public R&D spending.

| Posted by Gary Sauer-Thompson at 2:43 PM | | Comments (2)


I agree that public policy needs to incentivize green investment. The U.S. has proven to be a global economic leader for the past century and only now are we beginning lag in the next wave of innovation. We must balance our investment incentives with realistic and pragmatic goals. There are already thousands of companies in the U.S. who are investing in a new "green collar economy" and they are seeing huge returns as they become front-runners in this industry. The website has a directory of many of these companies and even has thousands of white papers demonstrating that green investment results in job creation and economic growth. The neysayers are going to be left behind if they think environmental sustainable business practices will lead to economic catastrophe.

australia doesn't have a very good record for backing home grown innovation, but you'd think it would be different when such a substantial market is clearly emerging.

I've wondered whether the CPRS in its original and Lib-modified forms were actually designed to get past the senate, with plans to tighten it up in the future. The optimist in me hopes so, but my inner cynic is winning.

Plimer and Monbiot on Lateline tonight should be interesting, if another depressing reminder that we're still having the debate everyone else resolved years ago.