The Economic Society of Australia recently released the results of a carbon pricing survey sent to over 1,800 economists, mostly members of the Economic Society of Australia. The Environment Institute invited Jonathan Pincus, Visiting Professor of Economics at the University of Adelaide, and a Fellow of the Academy of Social Sciences in Australia to discuss the results.
Guest Blogger: Jonathan Pincus. President of the SA Branch of the Economic Society of Australia, and a member of the Research and Policy Advisory Council of CEDA, the Committee for the Economic Development of Australia.
A quarter are employed in the private sector, one-third in the public sector, and most of the others in universities; eight out ten are males. I chaired the group devising the survey.
We presented 57 statements for rating. The main interest in the media was in the responses to the only statement about emission abatement, and in our supplementary survey on that subject.
In the large, emailed survey, 421 respondents, 79 per cent, agreed or strongly agreed that ‘Price-based mechanisms – taxes, subsidies or an emissions trading scheme – as opposed to direct regulation, are the more appropriate mechanisms for cutting greenhouse gas emissions.’
Standard economic textbooks suggest a preference for taxes and the creation of tradable property rights in pollution like the ETS, over regulations like Mandatory Renewable Energy Targets. However, the choice between mechanisms depends on the shapes of the marginal damages imposed by additional emissions and the marginal cost of abatement, as well as the levels of uncertainty about those schedules.
I suspect that most respondents assumed that direct regulations were being harder to calibrate, and so would be less fit-for-purpose than the price-based mechanisms.
But some price-based mechanisms can be targeted poorly: the Productivity Commission recently estimated very high cost of CO2 abatement from subsidies to generation of electricity via solar panels on residences, and via wind turbines.
After we circulated the large survey, but before we tabulated the results, Mr. Abbott suggested that Australia needed better economists: the current lot seemed not to support his ideas about GHG abatement.
In response, we decided to ask two more direct and politically-freighted questions: in effect, how do you like Ms Gillard’s and Mr. Abbott’s abatement policies?
The additional question was hurriedly distributed before and collected after a 9 am plenary lecture by Hal Varian of Google, on ‘Predicting the present’.
We got 140 replies. 59 per cent agreed or strongly agreed with the government’s proposals, compared with the 79% of the larger survey who preferred price-based mechanisms over direct regulation. (We made a mistake in not repeating the original survey question, to see if the smaller group has a similar response to the larger group.)
The government’s proposals had been announced the previous day, Sunday, when many of the delegates would have been travelling; and well before any serious analysis of the government’s proposals had been published. (Treasury has not modelled the cases in which Australia does nothing until major economies impose a tax as high as 23 per cent, or an ETS that has a similar price effect.)
Only 11 per cent supported the Coalition’s proposals, and 27 per cent were unsure: I suspect that few know much about the opposition’s policies on GHG abatement.
Both the government and the opposition offer a mix of price-based mechanisms and direct regulation.