Like what you've read?

On Line Opinion is the only Australian site where you get all sides of the story. We don't
charge, but we need your support. Here�s how you can help.

  • Advertise

    We have a monthly audience of 70,000 and advertising packages from $200 a month.

  • Volunteer

    We always need commissioning editors and sub-editors.

  • Contribute

    Got something to say? Submit an essay.


 The National Forum   Donate   Your Account   On Line Opinion   Forum   Blogs   Polling   About   
On Line Opinion logo ON LINE OPINION - Australia's e-journal of social and political debate

Subscribe!
Subscribe





On Line Opinion is a not-for-profit publication and relies on the generosity of its sponsors, editors and contributors. If you would like to help, contact us.
___________

Syndicate
RSS/XML


RSS 2.0

Emissions trading: a zero sum game?

By Josh Fear - posted Wednesday, 9 September 2009


Picture this country five years from now, once an emissions trading scheme is fully operational. How will your life be different? Will higher energy prices radically change your approach to work, travel, shopping and leisure?

Some people, particularly firm believers in the Rudd Government’s Carbon Pollution Reduction Scheme, ascribe almost magical powers to emissions trading, believing it can transform the moral as well as the economic basis of our society.

The assumption behind the government’s policy is that an issue as complex as climate change issue can be addressed via one simple instrument. The CPRS relies on changes in price, to the exclusion of all other factors, to bring about changes in behaviour.

Advertisement

While price is important, it is by no means the only determinant of behaviour. Just as critical is the intrinsic urge to act in one way rather than another due to habit, personality or even the desire to “make a difference”.

Unfortunately, there is evidence that the likely rises in the price of electricity will not deliver significant reductions in household energy use, because demand for electricity tends to be insensitive to changes in price. In fact, it has been estimated that a 10 per cent increase in the price of electricity will reduce overall demand by only 3.5 per cent.

This is due to the relatively fixed nature of some important factors in household energy use: house design, the number and type of appliances used and so on. The financial benefits of saving energy often do not accrue immediately, instead becoming apparent only when the electricity bill arrives.

Moreover, electricity actually accounts for a very small percentage of total household budgets. A 10 per cent increase in the cost of electricity will cost most people less than a takeaway coffee. It is therefore naïve to believe that such price increases by themselves can bring about the necessary changes in household consumption of energy.

There is another critical dimension to the way that prices influence behaviour. Research has shown that price signals can undermine intrinsic motivation to undertake a socially desirable activity, sometimes even reducing overall levels of the activity because people make their decisions based on different criteria. This phenomenon is known as “crowding out”, since other considerations overcome intrinsic motivation as the basis for action.

The potential for price signals to crowd out climate-friendly behaviour makes it imperative that carbon markets are designed in the first instance to complement and reinforce the desire of individuals to make a difference.

Advertisement

Unfortunately, the design of the CPRS is almost entirely inconsistent with this principle. Efforts by individuals (or even whole communities) to reduce emissions will result in increased emissions by big polluters, who can take advantage of the additional permits freed up through voluntary action.

Further, the CPRS legislation creates no causal link between the amount of emissions saved by individuals and the number of permits issued. Neither improvements in household energy efficiency, nor reduced car use, nor the installation of solar panels will reduce overall emissions by a single tonne. Rather, such changes will simply free up additional pollution permits, which will allow other sectors of the economy to increase their emissions.

The CPRS, as currently proposed, creates a zero-sum game in which total emissions are fixed, regardless of what concerned individuals, households, businesses and even governments do to lower them.

  1. Pages:
  2. Page 1
  3. 2
  4. All

The paper Zero-sum game? The human dimensions of emissions trading by Josh Fear and Richard Denniss is available here.



Discuss in our Forums

See what other readers are saying about this article!

Click here to read & post comments.

3 posts so far.

Share this:
reddit this reddit thisbookmark with del.icio.us Del.icio.usdigg thisseed newsvineSeed NewsvineStumbleUpon StumbleUponsubmit to propellerkwoff it

About the Author

Josh Fear is is Deputy Director of the Australia Institute, an independent public policy think tank based in Canberra. He is co-author (with Dr Richard Denniss) of Zero-Sum Game? The human dimensions of emissions trading, and Money and Power: The case for better regulation in banking.

Other articles by this Author

All articles by Josh Fear

Creative Commons LicenseThis work is licensed under a Creative Commons License.

Article Tools
Comment 3 comments
Print Printable version
Subscribe Subscribe
Email Email a friend
Advertisement

About Us Search Discuss Feedback Legals Privacy