Reading the reactions to the incoherent report on electricity pricing from the ACCC, I was struck by this quote from Tony Wood of the Grattan Institute, writing in the Oz
Australians need energy policy that is driven by neither green evangelism for renewables nor a deep-seated fear to protect the role of coal for baseload power.
“Green evangelism” is rhetoric straight out of the denialist camp, associated with the bogus claim that climate change is not science but a religion The content of the piece bears this out. Wood opposes any form of subsidy for renewables and (by omission) any price on carbon emissions. He advocates a policy that is “the policy is indifferent to the technology mix, whether new-build or the extension of the operating life of an existing, newer coal-fired plant.”
This is centrism at its worst. Faced with a choice between an evidence-based response to climate change and culture-war proposals to actively subsidise the destruction of the global environment, Grattan has gone for the “middle course” of doing nothing whatsoever about climate change.
John Quiggin 
The campaign to associate reasonable, responsible responses to the climate problem with extremist politics has been extraordinarily effective, to the point where it is taken by people smart enough to know better to be compelling, if not an undeniable truth. The science that underpins our understanding has been as much a target as those who take it seriously. It means people often start their personal education in the climate issue by distrusting mainstream expert sources; the results can be peculiar. I suspect Freeman Dyson’s out of touch utterance for example, arose from beginning with an assumption that mainstream science has been tainted by extremist political associations.
I wish the ‘green’ label could be left off completely; sure, ‘green’ voices do sound loud when the silence from ‘adults’ is deafening, but the actual policy responses are not coming from the extreme environmentalists, but by reasonable people, often professional, skilled people who have legitimate concerns based on mainstream scientific advice.
Here we go again. It is one thing to leave the technology mix to the market if markets are complete (ie there is a well functioning administered price for all negative externalities), it is another to say what Tony Wood of the Grattan Institute has said, or rather wrote in the Australian according to the thread.
I say here we go again because it is yet another example where the condition, the ‘if’, is ignored.
Don’t buy into the use of the word subsidy. How many times do you hear anybody talking about the underlying issue? Mislabelling the redress by the community of avoided externality cost due to climate change attributed to the economic activity (solar, wind etc) as a “SUBSIDY”, skews the balance of the conversation. We need a new word. The “subsidy” is about making a level playing field (to use another widely abused concept) so that correct price signals are going into the market. Imperfect as that is.
way over the top John,
The latest report clearly showed coal the highest cost alternative.
If it were deniailst it would show coal at absurdly low cost levels alah mineral council.
The first-best policy is a tax on carbon given that there are externalities. The second-best policy is a subsidy on reducing carbon pollution. A third-best policy (with respect to carbon pollution) is to subsidise non-polluting energy sources. I discount the role of learning about new technologies – most people know that solar renewables are a good deal.
JQ is just right here. But coal can no longer survive on bad-faith indifference, it needs full denialist subsidy. Grattan has jumped ship.
I thought the Grattan Institute is a reality-based think tank? Do they truly think carbon emissions have no negative externalities?
I hope someone from the Grattan Institue clarifies their position on carbon emissions, and explains the basis for their position.
There are cogent careerist reasons for cultivating a reputation for seriousness among people who can’t be taken seriously.
He isn’t saying it in what John quotes and they do not say it in their articles. John and the rest are simply being ,mirror images of Catallaxy although the latter part of the quote makes John’s thought a joke as it completely contradicts Ttony wood as a denialist!
It is very lazy in the extreme to mae such an accusation without resorting to what they have written on the topic at Grattan.
As i said very Catallaxian!
I agree that “It is one thing to leave the technology mix to the market if markets are complete”. A key question is this. How do we complete markets? I think we can remove obvious distorting subsidies although that is always a political fight. We can also add costs for known externalities and I presume these costs will be estimates based on the relevant science and financial/actuarial calculations.
How do we “complete” a market for unforeseen consequences (unforeseen negative externalities)? It is a characteristic of science, technology and economics that they can have powerful unintended and unforeseen consequences. Firms could carry a liability for unintended consequences but nobody can sue a company which has gone bankrupt and out of business. Should innovations carry a standard risk cost or insurance cost which is paid up front by manufacturers, perhaps as a licence cost to manufacture? Should all products carry an up-front a “life-cycle” recycling and waste cost? These could be levied as fees and taxes by government.
I tend to think the above should be the case but I am interested in Ernsrtine’s opinion as she has subject expertise in this area. It occurs to me that if the extant economic system were to pay all its real costs then not only some consumer costs are going to have to go up but also some profits and incomes net are going to have to go down. Again, I imagine it would be a hard political and economic battle to go from our current position to an economy where markets are complete and all negative externalities properly paid for. This is not an argument against that position which I support so far as I understand it. It’s just hard to imagine how we would politically and economically get from “here” to “there”.
A key problem is that our extant economic system has not been paying all its real costs, both the real costs for free gifts from nature and the real costs for exploited, oppressed and dispossessed peoples. Bioservices as free gifts from nature (the benign Holocene climate was a free gift from nature) and natural capital have both been consumed without “repayment”. Repayment would actually consist in bearing the general economic costs as preventative costs, remediation costs and more austere living for all (for example giving up private automobiles and making large reductions in Western meat consumption).
I suspect, just my opinion of course, that our extant economic system (avoiding “ism” words here) cannot pay its real costs, ever. That is to say, our extant system is systemically incapable of paying its real costs. It can only live off bioservices and natural capital at rates which chronically deplete them, thus not at sustainable rates. Any attempt to pay the real costs under the current economic system would cause an economic crisis of stupendous proportions (a crisis in the circulation of capital under current system rules). Of course, failing to pay the real costs leads to a collapse crisis as well, this time an environmental one (a real system collapse).
Again, I am taking issue with the “single issue” analysis so prevalent on this site, be those issues coal, solar panels, nuclear power or markets. What we have is a complex system problem. Commentary on world events from a socialist and democratic viewpoint ought to be based on comprehensive complex system analysis, on a whole of system analysis.This is where orthodox economics and orthodox approaches (orthodox within the current system) continue to fail us.
I’m aware I’m both nitpicking and OT, but Ernestine misunderstands the difference between incomplete markets (essentially markets that fail to operate well because of systematic information problems) and market mispricing (because some costs or benefits from a transaction are borne by others external to it). The problem here is one of mispricing due to externalities rather than of information asymmetries or incomplete contracts.
This distinction is ultimately why correcting that mispricing through taxes or subsidies is the first-best solution (as Harry says) rather than the direct prescriptive regulation that is typically preferable for major information or search problems.
But this distracts from John’s point – that Tony Wood has produced rubbish, and not for the first time. Think tanks IME fall into two groups, regardless of ideology – those that produce nothing but rubbish because they are really political lobbyists for hire, and those who try for independence but, real expertise being in short supply, have output that varies between useful and rubbish. Grattan is firmly in the second group, but does seem to have preserved its rubbish for this topic.
It seems there are different definitions of incomplete markets. There is derridaderider’s definition and then there is this from Wikipedia;
“In economics, incomplete markets are markets in which the number of Arrow–Debreu securities is less than the number of states of nature.[1] In contrast with complete markets, this shortage of securities will likely restrict individuals from transferring the desired level of wealth among states.”
Then there Ikon’s definition: “Markets are flawed.”
Market failure is the rule not the exception. There is a vastly excessive emphasis on markets in orthodox economics. Try this paper:
“Missing from the Mainstream – The Biophysical Basis of Production and the Public Economy” –
June Sekera.
Click to access 17-02Sekera_BiophysicalProduction.pdf
Anything who thinks that John is being hard on Grattan should read this clueless attack on rooftop solar.
https://theconversation.com/policy-overload-why-the-accc-says-household-solar-subsidies-should-be-abolished-99937
The most generous take on what JQ presents of Wood’s comments would be to interpret them not as denialism, but as either one of these “recovering denialist” talking points: “Australian emission reduction what make a difference”; “It is too late anyhow”. Or maybe he believes n clean coal.. His views are indicative of 30 years of studied attempts at ‘balance’ in climate change policy, which has please no-one, achieved nothing and taken us nowhere.
derridaderida, see (the late) Martine Quinzzi, an early and important contributor to the theory of incomplete markets (result: generic inefficiency), who published an introduction to this important post-1950 research program: http://martine.ucdavis.edu/uploads/9/0/0/9/90095273/volume_1.pdf. See Quinzzi and McGill, Theory of Incomplete Markets, 2008.
Incoherent comment deleted – JQ
Incoherent I merely said you were aping Sinclairr Davidson in making substantiated accusations. Show us evidence the Grattan instute denies climate change or apologise!
Even if you think the report is rubbish that does not equal denialism in any form.
Of course deleting critical comments is also aping Sinclair Davidson.
By incoherent, I meant that the comment wasn’t written in coherent sentences and contained lots of mis-spellings and things that weren’t even words. I had no idea what Davidson you were referring to. Please take a week off commenting, and avoid abuse like the above when you return – JQ
Sorry, nottrampis. The piece on which JQ commented is plainly denialist. Any discussion of new capacity that ignores climate change, as the Grattan piece does, is denialist. Any discussion of subsidy that ignores even the non-climate-change externalities of coal is denialist. Tony Wood’s piece, accessible on the Grattan website (for those facing the Murdochracy’s paywall), is a demonstration of denial in almost every paragraph – and that’s before noting the absurd inaccuracy of its new-build costings, substantially understating coal and gas new build cost and substantially overstating renewables (-plus-storage), though it does acknowledge expected continuing drops in renewable pricing.
I don’t understand what Grattan’s policy is on energy and climate change but the comment “green evangelism” does not encourage me to be bothered with Grattan at all.
They don’t seem to be able to meet with their own claims of providing rigorous and independent commentary.