There are many dimensions to the factors pressing for action to reduce carbon dioxide emissions. Among them are genuine concerns that mankind may be causing climate shifts, and the subsequent commercial pressures applied by those, largely in the alternative energy camp, who see the prospect of canalising these pressures to obtain regulatory favours.
Many spearheading calls for action are zealots who are radically opposed to the ways of the world. But many politicians who have endorsed action to cut carbon dioxide emissions do not harbour extremist notions. Most are responding to public opinion and want to feel they are able to do something to mitigate a problem they are told will have severe consequences.
They are also anxious to avoid early major action, recognising that there are costs involved in requiring reductions in emissions. Hence, many have called for the exemption of certain activities or fuels, exemptions that cannot proceed on any big scale because they multiply the costs of those activities remaining. But politicians' concerns are mollified by economists' consistent forecasts that the longer-term costs of action will be no more than the loss of economic growth of a year or so.
The problem with the economic models on which these costs are estimated is that they only tackle small changes in particular products. This is far different from measures that require reductions in production of goods that comprise much of the economy.
One way of explaining this is to consider a tax on food. It is not difficult to model the effects of a tax specifically imposed on, say, fish. There would be some changes in behaviour and loss of consumer satisfaction due to people reducing their consumption and switching to other, untaxed, foods that would otherwise not be preferred. All this can be measured.
But the same analysis with food as a product group would be far different. This is an essential part of human consumption. Energy as a class of goods has similar characteristics.
Calls for reductions in carbon dioxide emissions of 80% are common to the Stern report in Britain and that of Ross Garnaut in Australia. These represent calls for a reduction in a much wider class of goods than economic models normally deal with. There is no empirical data on which to base models for such a carbon tax.
The only recent occasion when a whole class of basic human needs was subjected to a big price rise was the quadrupling of oil prices in the 1970s. Although similar to the carbon tax proposals, two factors mark it as different.
The first of these is that oil, not energy, was the product that faced the price increases induced by the Organisation of the Petroleum Exporting Countries. Though more important than fish within its product group, there are many substitutes for oil. With the oil price increases, coal, gas and, for a time, nuclear energy, showed an upward surge in supply. These were rather more costly/ cumbersome to use than oil, but were clear alternatives, albeit at a penalty that would have amounted to several percentage points of income growth.
Secondly, and more importantly, the increase in oil price did not bring a reduction in oil use, except for a blip that was largely due to its accompanying recession. This cannot be the outcome with a carbon tax, which would be designed for no other purpose than to bring reduced use. If this did not materialise, an even higher tax would need to be imposed.
Economic models have been developed in the context of a relatively small shift in cost for classes of products that are minor components of demand. These are being used to determine outcomes for economy-wide changes. The hubris of modellers is such that they will seldom acknowledge they have no idea what the outcomes are likely to be.
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