ESSA

ESSA

Economic growth and climate policy: mutually exclusive?


Matthew Rao

By

October 12th, 2014


Matthew Rao shows how economic growth and political success can be reached through suitable climate policy.


Australia has the honour of hosting the G20 summit this November in Brisbane, and as chairman, Prime Minister Abbott is responsible for setting the agenda. The agenda currently includes many issues that you would expect to be discussed, such as economic growth, tax evasion and unemployment, but presently, there is no mention of climate change. After the managing director of the International Monetary Fund (IMF), Christine Lagarde, commented on Australian television that climate change “must be dealt with”, Mr Abbott responded by saying that he wanted the G20 to be “focused primarily on economic growth” and not “cluttered” with issues that would deflect from this focus. These comments suggest that Abbott believes economic growth and tackling climate change are mutually exclusive.

According to a certain understanding of economic theory, he is correct. After all, addressing climate change through policy such as a carbon price only saddles businesses with extra costs, discourages production and forces firms to fire employees in an effort to repair their profit margins. This was the narrative peddled relentlessly by the then opposition Liberal government from the moment Ms Gillard introduced the carbon tax and was arguably the main argument that won over the Australian people to the Liberal’s cause to repeal it.

However, it is becoming increasingly clear that effective climate policy cannot only exist with economic growth but that in fact, you can’t have one without the other.

World leaders, scientists and economists are converging on this point, exhibited recently at the UN with the presentation of a report by former President of Mexico, Felipe Calderon, entitled “Better Growth, Better Climate: The New Climate Economy Report”. The report takes the ambitious route of focusing on the positives of policies to combat climate change rather than the negatives of leaving it unchecked. Specifically, the immensely positive impact of infrastructure spending on a global scale is emphasised. Re-structuring the global economy can only be a long-term effort, requiring at its core, investment in infrastructure that is designed for long-term use, the same kind that Nobel Laureate economist Joseph Stiglitz singled out as one of the key reasons as to why Australia’s post-GFC stimulus was so successful. Long-term investment, where job creation is the central focus, is exactly what is needed in a global economy that is suffering primarily from weak aggregate demand rather than budget deficits. And yes, this is the situation we face in Australia too.

We should also ask ourselves, why do we want economic growth? One of the first things that any economics student learns is that economic growth is desirable because it improves material wellbeing. When one considers the impact that drastic climate change can and will have on both material and non-material wellbeing, it becomes clear that the compatibility of the two issues is not just illuminated by research but inscribed in the very definition of economic growth itself.

We should also not forget the political costs of Abbott’s actions. He has already embarrassed himself once on the international stage when he failed to form a coalition of leaders advocating climate change inaction, in a hopeless attempt to create a counter-weight to President Obama’s increasingly proactive approach to climate change. Another episode like this at the G20 summit is not desirable. Obama’s G20 emissary, Caroline Atkinson, has already stated that “addressing climate change” was an important issue and a European Union official has likened Australia’s shift away from climate change action under the Liberal government to “losing an ally”. Depressing comments of this sort are only going to increase in frequency if Abbott leaves climate change off the agenda, and with it, the chance of Australia being branded as an outcast on one of the most important issues of this century increases.

This isn’t just an opportunity missed for us as a country, but for Abbott as a world leader. As the agenda-setter for the G20 this year, he has the unique opportunity, with the world watching, to show strong leadership by championing the cause of energy-efficient economic growth. The irony of course is that in taking the opportunity to lead the pack in this way, he would first have to conform to the opinion of most G20 leaders that climate change is a serious issue to be addressed. However, this just shows how great the opportunity is for Abbott. He has the peculiar chance to position himself as a leader without having to worry about the potential of being labelled as an eccentric or an outcast. Also, as a bonus for him, in tackling climate change, he would still be able to achieve his primary goal of economic growth.

It is rare that such a titanic win-win situation lies so tantalisingly within reach for a politician and a nation, and it would be devastatingly foolish of Mr Abbott not to pursue it for his own success and for ours.

The views expressed within this article are those of the author and do not represent the views of the ESSA Committee or the Society's sponsors. Use of any content from this article should clearly attribute the work to the author and not to ESSA or its sponsors.

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