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something rotten in free market economics « Previous | |Next »
August 29, 2012

The free market economists are a strange lot. They have been, and continue to be, silent about the global financial crisis and they opposed to the use of market mechanisms (an emissions trading scheme) to deal with carbon dioxide pollution from coal fired power stations.

With respect to the latter, the Australian design is one of a fixed price period followed by Australia’s carbon price being linked to, and largely set by, the European price. Australia becomes a part of an international carbon market. The transition from a small standalone carbon market to a much larger international market will greatly increase market efficiency, providing Australian businesses with improved liquidity, reduced volatility, lower marginal costs of abatement and lower transaction costs.

The free market economists at the IPA, who are hostile to subsidies for green energy schemes, are also opposed to the carbon market setting the carbon floor price. In emissions trading the government merely sets the target; it is the market that sets the price. Alan Moran, for instance, talks of a humiliating backdown in the AFR:

In now saying the tax will be linked to that of the European price by allowing Australian carbon dioxide emitters to buy emission indulgences from the EU, the government has conducted four somersaults and a belly-flop...It is time to recognise that the carbon tax is a total failure of policy and to dismantle it before it does further damage to the economy in general and to consumers in their power bills.

The opposition is really a hostility to a transition to a low carbon economy, and the free market economists hunt around for arguments to justify their opposition.

The opposition to a transition to a low carbon economy is premised on a denial of the existence of global warming. If we set free market economics in a broader political context, with greater emphasis on the role of institutions, then behind the denial of the existence of global warming lies the fossil fuel industry and its opposition to the transition to a low carbon economy.

Tristan Edis in Climate Spectator says that:

The base case scenario, assuming no change to European policy settings, is that rather than having the Australian carbon price plummet from $25.35 in the last year of the fixed price period to the $15 floor on July 2015; they instead drop to around $10-$15 – the forecast price for European carbon allowances (EUAs). Such a price would be insufficient to drive much fuel switching in the electricity sector, nor support serious amounts of tree planting, nor notably improve the economics of energy efficiency initiatives....it’s not anything close to a level that would stimulate a clean energy transformation.

The upside is that Europe digs itself out of its current economic morass with deeply indebted governments and this lifts the forecast price for European carbon allowances (EUAs).

These low prices aren't enough to substantially reduce emissions and drive investment in clean energy today. This is why additional policies, such as the Renewable Energy Target and the proposed national Energy Savings Initiative, are required to ensure we transform Australia's high carbon economy.

| Posted by Gary Sauer-Thompson at 10:08 AM | | Comments (6)
Comments

Comments

How long before we hear this talking point from free market conserviatives

Europe's leaders have made remarkable progress in limiting carbon production. They are almost all in deep financial do do as a result, with nothing to show for their waste of public money.

Because [un]free market economics is a fundamentally irrationalist belief its apologists can say almost anything about anything and however unreal or illogical use a smother of words to create the impression of plausibility.
Then another [media/academic]apologist can call it something nice sounding egt 'respectable', 'profound', whatever and hey presto the public have been successfully misdirected yet again from the real agenda.

Those with a history of opposition to carbon pricing are attacking Australia's linking to the European carbon markets.

Europe is a major hand brake on world economic growth. The eurozone is imploding. Australia should link to Asia and America Business is going to the dogs due to Australia having the world's highest carbon price.

Etc etc.

Many hold that the economic discipline goes astray just because so many economists are committed to a portrayal of the market economy as a smoothly or efficiently functioning system that is inconsistent with the workings of social reality.

That is the reason for the marked significant explanatory failure of economics as a discipline.

Neoclassical economics appears to be the currentmain “driver” for analysis and policies regarding unsus- tainable development.

The purely “free-market” approach to energy development is now coming from thinks tanks and politicians on the right, and companies concerned about the growth of clean energy.

When the government encourages renewable energy, that’s called picking winners and losers. But when the government encourages coal — that’s “the best way to advance Australian energy independence.”

They deny the long history of assistance to energy technologies such as coal and gas.