Phillip Adams and Peter Dixon have prepared a reply (over the fold) to the opinion piece by Robson and Davidson in the Australian which offered a range of incoherent criticisms of proposals to reduce emissions of greenhouse gases. Disgracefully, but not at all surprisingly, the Oz has declined to print it, marking yet another step in its decline.

Admittedly, the debate is so one-sided that printing the reply would have made it obvious how ill-advised it was to publish the Davidson-Robson piece in the first place. Dixon is Australia’s pre-eminent economic modeller, and Adams is his successor as Director of the Centre of Policy Studies at Monash. They have published extensively in leading economic journals on modelling and climate change, and their expertise shows. Robson and Davidson have essentially zero professional expertise on these issues, and that shows too. Of course, they have exactly zero professional expertise in climate science, and that hasn’t stopped them claiming the entire profession is wrong, so we shouldn’t be surprised.

Tim Lambert cleans up what’s left
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Last night I went to hear Warwick McKibbin at the Brisbane Institute talking about climate change. It was a good presentation and Warwick made an effective analogy between the McKibbin-Wilcoxen plan for climate change which uses fixed prices in the short run and fixed quantities in the long run, and the bond market, where central banks set short-term interest rates but allow long-term rates to be set by the market.

One thing I hadn’t realised, though, is that the plan doesn’t allow for international trade in emissions permits, even in the long run. McKibbin sees this as an advantage, since there’s less of a reduction in sovereignty, but I see it as a big problem for two reasons. First, there’s an obvious efficiency loss in not allowing countries with low-cost offsets to trade with high-cost countries. Second, the biggest source of credits so far is China, the country that is going to need the most persuading to join an international agreement (contrary to Warwick, I’m confident the US will ratify Kyoto, perhaps extracting some concessions on timing and targets, as soon as Bush goes out, and that Australia will do so then, if not earlier). The possibility of gaining credits, combined with the threat of border taxes on exports from non-ratifying countries will be needed to overcome the obvious free-rider problems.

It doesn’t seem to me that the restriction to national markets is crucial, at least to the long-term part of the plan. A modified version that incorporated some form of international trade would be more appealing.

Felix Salmon gnashes his teeth at yet another incorrect report on discounting and the Stern review, by David Leonhardt in the New York Times.

Using his discount rate and other assumptions, a dollar of economic damage prevented a century from now is roughly as valuable as 7 cents spent reducing emissions today. (In fact, it’s less than that, because Stern adds another discount rate, called delta, on top of eta.)
Leonhardt says that “spending a dollar on carbon reduction today to avoid a dollar’s worth of economic damage in 2107 doesn’t make sense” – but this is a straw man, since Stern never comes close to saying that we should do such a thing. Leonhardt also spends a lot of time on the academic qualifications of Stern’s opponents, but neglects to mention that Stern himself, a former chief economist of the World Bank, is actually a real expert on discount rates, and understands them much better than most economists do.

Salmon is right, both about the Leonhardt piece and, unfortunately, about the limited understanding of discounting issues on the part of economists in general.
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Just before Xmas, I wrote a paper for CEDA about water policy, with themes I and others have been writing on for some time, including the need to repurchase irrigation water rights for urban use and environmental flows, and some sceptical comments about the idea of a Federal takeover of water (then being pushed by Peter Costello, IIRC).

CEDA released the paper today (I did a briefing last week) and it’s had a fair bit of coverage (at least by comparison with most stuff I put out), including a nice mention from Andrew Leigh. I’ve posted the PDF over the fold. Comments appreciated.
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