a game of cat and mouse

The Australian government is flirting with the actual policy settings it will use for emissions trading at the moment and it struck me that a game of cat and mouse, and 'double dare' is going on right now.

Looking at the challenge of decoupling economic and emissions growth, the Government has prepared its modelling for the economic impact of climate policies under four scenarios which all assume we reduce emissions by 60% of year 2000 levels by 2050. Essentially the only difference between the scenarios (especially given the marginal differences by 2050) is how quickly we start taking action. This prompted one Australian Senator to ask why we can't go further given the small differences, and it also supports my idea that dealing with climate change won't be that hard: it's just a matter of what we lose, and the increased risks we will face, between now and when we start to take action. And this is where the game of cat and mouse begins.

If reducing emissions is easy, then the urgency to do so is less. So in order to create the urgency for action, governments have to talk tough. On the other side, business does not want this urgency so it ramps up its rhetoric even further, daring the government to make decisions that will cause supposed untold damage, hoping it will take decisions that reduce the urgency.

Ultimately I think in this instance the government needs to call the bluff: despite what CEOs and other Executive's claim to know, one thing they are not very good at predicting is the next crisis (just look at the state of finances at the moment!). And the problem with the climate crisis is that we actually don't know what will eventuate if it takes hold, nor how much worse it will be if we don't take action sooner rather than later.

The other side of the modelling that I found intriguing was an implicit assumption which arguably underlines the report's conclusions and simplicity: how business will actually respond.

Given the long term nature of the modelling it is largely based on trend averages which only consider if a sector is going to grow or decline, and at what rate. The basic assumption was that a carbon price will start the decline for high energy industries relative to their ability to introduce new technology or achieve energy efficiencies.

To that end, the assumption was that high energy industries - all industries for that matter - do not want to decline and thus will make changes to prevent this. What will be interesting to observe as time plays out will be how accurate the implicit assumption is: that changes will be driven more by technology than location change. Under the technology driven assumption the economy can continue to grow without producing carbon, and therefore the report concludes that the government’s climate policies will have little negative impact on the economy in the long-term.

The dare, however, is that high-emitting industries are arguing that they will move their operations first, and take other actions second.

Personally I am not sure who will call the bluff - the government or business - but I am inclined to think that for business to call the bluff and move it operations offshore is a knee-jerk reaction that could have longer term implications as the climate issue extends across the world.

Unlike the free-trade movement or global institutions which try to create a better world, global climate change policies have the chance to actually take effect quickly and grow if the burning platform of the very climate we live in, starts to burn quicker and hotter.

And if (when?) that happens, what will be the benefit of being a company that moved its operations to avoid climate change legislation? Very quickly those extra dollars might seem quite small as the increased PR and other promotional activities add up to convince consumers that the company takes its global responsibility seriously.

And if this happens, then the cost of climate change to business will be higher still. And no one wants this.