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Environmental Economics Seminar Series
Department of the Environment, Sport and Territories, 1996
ISBN 0 642 24878 8
David Butcher (World Wide Fund for Nature): I found the two addresses very interesting. They raised a huge number of questions and I do not want to bore everybody with these. However, there was one fundamental question which looks at the use of specific resources and the continuum of equity, intragenerational as well as intergenerational. That question is: how do we factor up-front the cost of the use of a natural resource? There are very few examples - and I say 'very few' advisedly, because I haven't found one yet - of sustainable use of natural resources. What we see happening when we use natural resources is a depreciation of the utility of the natural resource over a period of time. We see this, for instance, with land care where we have to readjust our land usage effectively. This is a negative entity that has affected our ability to use this natural resource, but it is seen as a positive - an add-on - when we do it. Effectively it adds to our gross national product. How do we bring those things back to the front of the equation and say: 'If we are going to use this natural resource, how do we factor into it the cost of actually using that natural resource?' Do we leave it for someone in the future to pay for it? Or do we say: 'If we are going to take this course, these are the costs to the community of the future,' and do we take that into account?
I turn specifically to the utilisation of coal and fossil fuels. If you consider the world as a thinking entity, you see that over a period of a couple of hundred million years it had sequestrated a whole lot of carbon into various forms which has taken it out of the use cycle. What we are effectively doing now is moving that sequestrated carbon to use for our particular gain and that of perhaps a few other generations in order to produce energy. Should we not be thinking that there is a cost in doing that, which we should factor into the equation?
We have to put the cost of extracting this sequestrated fossil fuel up-front on to the producers, which effectively means the producing countries. Do you say that the cost to the environment over a period of perhaps many future generations is likely to be such, therefore we will take a cost up-front to the producers - or producing countries - which will have to pay for the environmental effects later on? In summary my question relates to a different way of looking at how you account for the effects of your decision to use that natural resource. I suppose that is the focus of my several points.
Frank Topham: I suspect that Clive's knowledge of these theories is far greater than mine, but I would say that it comes down to substitutability. If you can substitute for those natural resources with human and built capital, the problem does not arise to the same extent. If you cannot substitute, there is clearly a significant problem. If you construct green accounts on a proper basis, it is clear that depreciation of utility should be factored in. It is a very difficult problem as to whether those resources are substitutable or not.
In some areas - for example, those of high natural value - the cost of the depreciation rate is extremely high. In areas of lesser value, you might have some doubt that there is much depreciation of utility at all. Let me take a mining example without being terribly controversial. If you wish to mine in a pristine wilderness area, you may find the mining industry saying that you should not do so because the value to society of those areas is extremely high. It may be that the damage caused by such mining would lead to very high depreciation of that area. On the other hand, there may be areas of lesser utility which, perhaps, have some definite natural attributes for the community and where, if mining took place, there might be no significant depreciation of the values because rehabilitation could take place and even if you could not perfectly replace the ecosystems, you could do it to an extent that the community was perfectly happy with.
The other issues you raised were a little closer to the question of coal and the idea of the utilisation of coal as a fuel. I would point out that coal is very much a transitory fuel. There is no real possibility that coal will be a fuel for world development over a very long period - and by that I mean centuries. While world coal reserves are extensive, obviously they have a limited life and we have to move on to other fuels. Currently coal is probably the cheapest fuel for a lot of developing countries, particularly those in Asia. If they maximise their development, they will undoubtedly use coal as the basis of their energy. But it is something which will have to give way in the longer term to other forms of energy.
Therefore, I do not feel that the notion that one should try to preserve coal resources is really very valid. We should ensure that we use resources wisely and not waste the energy they produce. But at the same time, we must ensure that R & D is carried out, the economic circumstances are put in place and alternative technologies are fully developed over time. It is probably rather like putting the jar of raspberry and whisky jam in the cupboard because it is really too good to eat. By the time you decide you do want to eat it, the jam has crystallised and has to be thrown out. That is possibly a poor analogy, but it serves to suggest that coal is the cheapest form of energy at the moment, so let us use it to achieve the maximum economic gains, but at the same time make sure that we have something to replace it in the future. Obviously, if we could not replace it, we would have to give very serious consideration to conserving it.
In terms of putting the cost of extraction on the producers, I would flip that argument around and point out that we produce it for our customers. If people do not want to use the coal, we will not produce it. After all, a mine has an economic life; the economics of a mine justify it over a period of, perhaps, 20 years. If people want to use coal and there are some environmental costs associated with it, those costs should be borne by the consumers. That seems quite unexceptional. The cost of goods reflect the cost of all the resources involved in their use and that includes environmental costs.
In terms of greenhouse, the problem is that we do not actually know the environmental costs in terms of global change at the moment, and therefore you cannot fairly impose something like carbon tax on coal because this factor remains to be determined. If, in the future, it turns out that we have a scientifically proven and serious climate change arising from the use of fossil fuels, then we will have to introduce something like a quota scheme of international tradeable quotas which will, of course, increase the cost of goods, including coal. Then, of course, there is the question of whether the burden should fall on consumers or producers. I think we have to ensure a balance so that the burdens are shared more equitably.
David Butcher: I ask a brief supplementary question. What I was talking about with the sequestrated carbon source is that the climate has changed over the past 200 million years associated effectively with sucking carbon out of the active system. That has been one of the major changes in our climatic cycle over that period. What we are looking at doing is pulling that sequestrated carbon out and, in general terms, putting it back into play again. That would be one of my concerns. What took maybe 200 million years, we are going to do partially over a few centuries.
On the point about cost, I simply say that I am not an economist but usually anything that is a cost to the producer translates into a cost for the user at the end of the day. At least if it is a cost to the producer it makes that producer consider fairly carefully the economics of actually extracting the resource in the first place. You are thus putting a true cost on to the extraction. I wasn't saying that the resource should be left in the ground. If you could convince me - and the other 2,500 scientists who met last year - that there is no validity in the climate warming process, then you could probably say: 'We will eat our raspberry and whisky jam now and forget about tomorrow!'
Clive Hamilton: That is exactly the justification for a carbon tax! In light of the Government's proclamation of the precautionary principle, I do not find it in the least convincing to argue that since there isn't absolute scientific certainty about global warming, therefore we will not do anything. Arguably there will never be scientific certainty. You can still find doctors who will argue that smoking does not cause lung cancer.
I think it is a little disingenuous of Frank to say that the producers produce coal only because people want it and that if people stopped wanting it, the producers would stop producing it. That might be valid except for the fact that part of Frank's job, as I understand it, is to cultivate the market for coal, not least by persuading Federal and other governments not to take measures that would diminish the demand for coal, by, for example, more actively promoting renewable energy or energy sources, or by introducing regulatory or economic incentives to induce people to use energy sources other than coal.
On the question of the costs of the use of natural resources, or the costs of the effects of the use of natural resources on the natural environment, economics is much better at estimating the costs of measures to protect the environment than it is at measuring the benefits. In the Industry Commission's inquiry into greenhouse, Mick found that the fact the Industry Commission could make some estimates of the economic cost of the carbon tax, for instance, but could not estimate the benefits of the effect of reduced greenhouse gas emissions, meant that the whole focus in the subsequent debate was on the costs and not on the benefits. As a result, our greenhouse policy has been much weaker than it should be.
Greenhouse is always talked about, but I can give you an easier example that I have come across in the past few weeks - and that is the cost of preserving koalas in Coffs Harbour. There are two types of costs that will arise from preserving koalas: one is the direct financial cost that results from building koala-proof fences to stop them walking on to the road, and from traffic calming devices, because most koalas are killed by being run over or being attacked by dogs; the other cost is in forgone benefits - you cannot build a housing development in that valley because it is a koala habitat. That analysis of the costs and benefits ultimately cannot tell you what you should do because it is a political decision-making process. The reason why koalas are going to be saved in Coffs Harbour - if they are - is the result of the political process in the New South Wales State Government, which has decreed that councils are not allowed to approve development applications that will result in the death of koalas. It is a question of finding the best ways to accommodate development needs without killing off the koalas.
John Saw (Ecologica): I wish to return to an issue that Frank raised about coal being a transitional fuel and the assertion that there was no benefit to the future generations from leaving it in the ground. Clearly, if the costs of climate change are very great, there will be benefits to future generations in leaving it in the ground. The very great equity in the environment issue in relation to coal is not so much Australia's coal mining, but the prospects of the very greatly expanded coal mining and combustion in India and China. If those two countries embark on massive programs - and that seems to be starting now - there will be greatly increased emissions of carbon dioxide and other greenhouse gases into the atmosphere. That may be the biggest greenhouse issue that the world will face.
The equity question involves their right to do that. How inequitable would it be to those countries to deny them the right to generate electricity from coal when it is the cheapest form of energy and when both those countries have great needs for producing electricity? I think that is a major equity and environment issue. Australia's coal mining and combustion is related to that. Can I have some sort of reaction from Frank on that?
Frank Topham: Yes, you are right; that is the problem. With the convention we have two different paths that are being followed. One is a relatively low path in terms of the growth of fossil fuels in developed countries, and a very high growth path in developing countries. One of the things that the convention provides is that technologies be transferred in relation to fossil fuels and other forms of energy. Clearly those countries, having vast domestic resources, have decided that they will run with coal, while obviously there is a responsibility - and indeed many commercial opportunities - for making sure that they use that coal in an efficient fashion.
The question arises that if they pursue these policies they will do potentially considerable damage to the climate, the world environment and to their developing country colleagues around the globe. Therefore, it is not sufficient for them to take the view that the developed countries have been responsible for the present level of greenhouse gases in the atmosphere and thus they alone must bear the responsibility for reducing those emissions. That simply will not happen. There needs to be a way in which those countries, particularly China and India, reduce their emissions over time. Obviously, the only way that that will happen is by the development of alternative technologies.
You have put your finger on it. We have a crazy situation at the moment where the convention will not be effective unless those countries are brought into it in terms of giving some sort of commitment to reduce their emissions; yet, on the other hand, there is absolutely no movement at the moment to bring them in or to reduce their emissions in any substantive way. I do not know what the solution is; the solution can only be over time.
The only way we can get those countries to undertake emission reduction obligations is by bringing about massive transfers of technologies from the developed world to the developing world. I do not detect any great willingness by developed countries to actually transfer that wealth. For example, will we willingly shut down industries and jobs in Australia and transfer them overseas? I cannot see the electorate going for that sort of policy! I do not have any solutions. I am afraid you have drawn attention to the big problem.
Clive Hamilton: There is no doubt that while developed countries are the major greenhouse gas producers now and always have been, in 30 years time it will be China, India and a couple of other developing countries that will produce most of those gases. That is the reality that has to be faced.
While one can argue that a country like Australia can, if needs be, take a significant cut in its rate of economic growth in order to reduce its emissions, it is a great deal more difficult to make such an argument in relation to China or India.
Sooner or later countries like China and India will need to be brought into the convention and will need to undertake measures which will drastically reduce their rate of carbon emissions. The problem is that, given the history of global warming and the role of developing countries in creating the problem to date, it is inequitable in the extreme, or at least politically foolish, to go along to international negotiations and demand that developing countries come in and be treated like developed countries. Clearly, measures will have to be introduced - perhaps in the subsequent round of the convention in five or 10 years' time - but at the moment the developed countries must take moral leadership because they have a moral responsibility to be the first to seriously tackle the problem.
In 10 years time the developing countries will be much less reluctant to come in and take significant measures. If the developed countries have waited another 10 years before taking those measures they will just delay the whole process. That is why I think it was a grave error on the part of the Australian Government to adopt the position in Berlin that insisted that as far as was possible developing countries be brought into the abatement measures at this stage.
Frank Topham: I would not agree with Clive on that - and neither would Gareth Evans!
Clive Hamilton: Well, he has been proved to be wrong!
Frank Topham: I was about to say that perhaps he is not a terribly credible witness!
Brett Odgers (Commonwealth Environment Protection Agency): On reading Mick Common's background paper, I was struck for the first time by the convergence of intergenerational equity, which we have been discussing so far, and intragenerational equity.
I guess the kernel of this thought is Mick's reliance on the Brundtland Report and Agenda 21, both of which tend to deal with intergenerational equity under the chapter heading 'Poverty'. Poverty gets very easily mixed up with the definition of relative incomes and inter-country comparisons, particularly North and South.
Previously we have tended to separate intergenerational and intragenerational. What I see as common between the two is a focus not on easily translatable economic concepts, but on the concept which, within the family of Environment Protection Agencies, is classed as that of 'public health'. Increasingly, in relating standards of pollution control to environmental quality, we are moving away from engineering solutions and estimates of costs of implementation towards a more dynamic situation where priorities are set by considerations of human needs, in particular, public health very broadly defined.
During the ESD process some years ago, we found that the literature on public health internationally and in some leading countries such as Canada was providing more insights into the human condition than, say, the environmental movement itself which at times concentrates more on ethical or moral precepts rather than on human needs. If you go back to the Brundtland Report you will see that it uses that concept of human needs more effectively than that of poverty.
I suggest that a candid assessment of essential human needs will provide the sorts of insights we need to make some progress with respect to carrying the community - internationally and domestically - to an understanding of why it is necessary to make changes in the patterns of production and consumption.
We can be distracted by an argument such as the one that Frank used with respect to our population growth. Australia's population growth is founded on very well worked-out social and economic purposes and has been the subject of very careful assessment. Presumably, we have judged that we get net benefits from our rate and composition of population growth. It is perhaps stretching things too much to import the reasons why we go for the population growth into the question of our international stance on responses to climate change.
Gene McGlynn (DEST): I wish to go back to the issue of developing versus developed countries. I think there is a broader issue there which is related to intergenerational equity. Our concern with intergenerational equity is this idea that we should not impose costs on future generations. What we do not often discuss is how much this generation should pay for the environmental damage of past generations. What developing countries are saying in the climate change debate is that most of the climate change problem has already accumulated from greenhouse emissions and developed countries are responsible for 95 per cent of that and therefore they should pay.
My understanding is that this is the approach the United States took on toxic waste clean-up when it made current landholders responsible for toxic waste clean-up which may have occurred a long time in the past. The response to that was basically that it was an inappropriate way to handle this issue - that you shouldn't make people responsible for things that were done in the past, legally or without proper understanding or whatever.
The countervailing argument is that while causing that damage, those people, companies or whatever received income and that income allowed them to invest and make more money. Thus part of the current standard of living of the landholders is a result of the previous damage that was caused. It may be that this issue should be handled differently at an individual or company level from the way it is handled at a national or country level. That argument doesn't hold all that well at an individual or company level and I do not think it would necessarily be the best thing for Australia to force current agricultural landholders to pay for the environmental damage or land degradation caused in the past.
At a national level it might be a much better argument to say: 'Your current standard of living is reliant on your damage to the environment in the past and therefore you should pay for this past damage.'
Henry Leveson-Gower (DEST): I want to come back to the idea of an intergenerational ombudsman, which I think is very interesting, and also to related issues such as what will be the values or, in economic terms, the personal preferences of future generations. Clive pointed to one important factor about future generations: we actually give property to future generations. Added to that is the fact that we don't just give property, we give - in some sense at least - the values attached to that property. In a personal sense, if you give to your child a clock that was handed down to you from your great-grandfather, you hand over with that piece of property all the historical associations and feelings that your family have about that object.
We also give other values to future generations - values associated with how we see the world and so on. Just recently I was chatting to the mother of a four-year-old child. That child did not want to do what she wanted him to do - not an unusual occurrence! I was watching with interest because I have a 21-month-old child and I wanted to see how it was all done. The mother wanted the child to do one thing, but there were two options. So the mother said: 'If you come with me to see X, I will give you a special present when we get back home. On the other hand, if we go straight home, you will just get your normal lollipop.' It was interesting to watch this child - you could almost see the classic utilitarian calculation going on while he tried to fathom out the best outcome for him. Eventually he negotiated quite a good compromise in which he said: 'Okay, we'll go and see these people, but I am staying outside. Then we'll go home and you'll still give me the special present.' I thought that this child would go far! That was a classic example of child bribery. It would be an interesting research project to see how much bribery of children has increased over the last 10 or 20 years.
I think this story illustrates the way values are passed down; the way in which we see the world. If we create a next generation of utilitarian calculators, then perhaps their values will be such that when they are told that the theme park in Clive Hamilton's example is just a theme park, they will say: 'So what?' It seems to me that the key issue in what is important about a rainforest as opposed to a theme park is that the forest was not made by man; it was associated with something bigger than man and what is important is our relationship to that rainforest and to the larger system beyond and above ourselves. That is the key difference between aesthetic, spiritual values and ecological values.
Another example of this is the Scottish mountains in which I spend a lot of time because I think they are incredibly beautiful. They draw an enormous number of tourists and a lot of people feel a great attachment to the Scottish mountains. But they are, of course, ecological disasters. They are a totally degraded landscape that used to be forested, and they have thus lost an enormous amount of ecological value. But, on the other hand, for many people they have a lot of aesthetic and spiritual value. This illustrates a lot of the difficulties in trying to work out what future values might be. I think it might come back to the question of what we think they ought to be. The values of future generations will be, in a sense, very much up to us. We will bequeath our values to future generations and how they view the forests, equity considerations, decision-making and consumer preferences and so on is probably very much up to us. Those sorts of thoughts would need to be factored in to how an intergenerational ombudsman might view his or her role.
Michele Smith (DEST): I am interested in the ombudsman proposal. But I point out that we had a Commission for the Future which was not terribly successful. Why was it not successful and why would an Ombudsman for Future Generations be any different?
Clive Hamilton: This is a complex issue - like the history of the Resource Assessment Commission. The Commission for the Future was not as significant as it could have been. It had a very useful role, and I do not want to belittle the work it did because some very interesting things came out of it. But it was seen to be a sort of think tank over there; it was rather like the way we look at astrologers - interesting, but somehow without any concrete reality. It was too airy-fairy. The idea of having an Ombudsman for Future Generations is to give that person a role similar to the Commonwealth Ombudsman now. I spoke to the Deputy Ombudsman recently and he pointed out that there were quite dramatic structural differences between the two concepts. His office also has a strong proprietorial interest in the word 'ombudsman' and would oppose anyone else using it!
The Office of the Ombudsman for Future Generations would not have any statutory powers, but would be a bit like the Heritage Commission.
That Commission has an institutional role to advise government on aspects of heritage that need to be preserved, which the Government may or may not choose to accept. But it is very specific and very concrete and puts its points to the Government. The role of the Ombudsman for Future Generations would be to do that a lot more broadly and to have a pretty wide-ranging brief to intervene through analysis and argument on particularly important issues, such as those that are part of a current debate - for example, a big environmental impact assessment, the greenhouse policy debate and so on. That is how I see the ombudsman working.
Mick Common: I want to ask a question about the ombudsman because I think it is a very interesting idea. As I understand it, a lot of the problem is that we do not know the future, either in terms of production opportunities or people's preferences over those opportunities. It is not clear to me how having an ombudsman per se will solve those problems. How will the ombudsman come up with the advice that he or she offers to government? How will the creation of an ombudsman put that office in any better situation than we mere mortals who are now struggling with the problem?
Clive Hamilton: I think the reason why it would make a difference is this: part of the reason why we don't know the future - perhaps only a small part - is that we do not systematically think about what will happen in the future and what will be in the interests of future generations. All of us do in a sense, but it is not our role to think systematically about what future generations will value, what will be important to them and what will be the implications of this decision or that decision for them. The ombudsman will always be operating in a cloud of unknowns - as we all are - but if that office were given institutional responsibility to think about nothing else, I think it would be an advantage. It would not have to represent the impoverished, industry or the environment movement; its sole role would be to represent as best it could the interests of future generations. I think that would make a difference - perhaps not a huge difference, but a difference. I think the real difference would be that it would compel all of us to start thinking more systematically and more concretely. Let's face it - when we talk about 100 years hence, it all seems pretty bloody vague. But it need not be.
Steven Dodds (Treasury): First of all, let me say that I am not speaking as a Treasury official. I would put a different slant on that in that I do not think the problem is so much an intellectual one of not thinking about the future, but a moral one of not caring about the future. That is the nub of the difference between intergenerational equity and equity in the current generation.
My perception is - and greenhouse is a classic example of this in practice - that when we are called on to make sacrifices, the fallible human beings are all too prone to put off the sacrifices and uncertainty is a good excuse for that. Much of the discussion about equitable burden sharing would be a lot clearer if we were a lot more pragmatic about it and said: 'We are not really about equitable burden sharing. In the context of greenhouse we are trying to construct an agreement where nobody thinks that they are too badly off.' So it is not about equity, it is a very pragmatic discussion.
I think the primary task of the ombudsman or advocate for the future is to embarrass us, because it is all too easy when no-one has the specific task of thinking about the future and taking a long-term perspective. If nobody is thinking about that, it is too easy to get away with decisions that blatantly favour current generations over future generations. Thus the role of an advocate is not so much to think - although that is an important part of it - but to put the obligation on people where they have to say: 'Yes, I am choosing this because it will benefit me and I don't care too much about the future.' At present people are not prepared to say that explicitly, so if we have an advocate to embarrass us into thinking about those things in an open way, then we will get better decisions.
Frank Topham: I would like to pick up a couple of points that interested me. This has been a very wide-ranging discussion. Brett's point on population growth is a challenging one. I am still working on a good answer to it, but the starting point is to ask: 'What is the ultimate rule that you might impose, or provide for, in terms of our individual allowances of greenhouse gas emissions?' If we assume that in a future world in which we have a demonstrable, serious and proven link between emissions of greenhouse gases and climate change, then we will have to have an allowance. We will be told that we can have only so many emissions and no more from fossil fuels before we have to go to an alternative form of energy. It strikes me that the only fair allowance is one that allows an equal amount of emissions per capita - adjusted, of course, depending on whether you provide services to others and so forth. If we did not take population into account we would have to give an absolute allowance per country. Therefore we would have to ask whether Australia should have the same allowance as the United States, even though we have only one-tenth of the population? That would not seem very fair. Thus the reason for factoring in populations is equity. A per capita basis is the fairest way to share the burden.
In terms of past generations and environmental policy, the notions of producer liability and polluter come in strongly. The trouble is, if you do that in the environmental area, why shouldn't you do it in every other area? Much greater grief has been suffered by these generations due to actions by past generations as a result of things such as war and - if you take a particular view - economic imperialism and colonial activities, dispossession of Aborigines and so on. To my mind those are probably far, far more significant than the environmental harm that has been caused and might be caused in the future. So while I am not disagreeing with the notion, I wonder how you could work it in practice. What we can do is look at our current wealth and current endowments and treat people fairly on the basis of, for example, the ability to pay from this day forward. That is a challenging point.
Henry's points on spiritual values point to the fact that everything has a value. Even aesthetic and spiritual values are semi-qualified in people's minds and it may be that people will prefer a theme park in the future. If they are fully informed and still believe that, that is just the way it is. Perhaps we will end up with a whole lot of Scottish hillsides all around the world. If that is what people want, then so be it. Nothing has an infinite value. That is only an observation, not an answer.
Clive Hamilton: Frank has simply illustrated that two groups of people can look at things and have completely different perspectives on what they actually see. The suggestion of an Ombudsman for Future Generations is really made in the hope of compelling us to look at things from the perspective of future generations.
As an illustration of how different perspectives can be, I would like to read a little bit of verse, which is taken from a children's book called Revolting Rhymes by Roald Dahl. He reinterprets the story of Goldilocks and the Three Bears from a biocentric viewpoint. This is how Roald Dahl puts it, after telling us that the bears have decided to go for a walk while their porridge cools:
No sooner are you down the road
Than Goldilocks, that little toad,
That nosey, thieving little louse
Comes sneaking in your empty house.
As you know, Goldilocks tries the porridge and then sits on and breaks Baby Bear's chair. The rhyme continues:
But your most special valued treasure,
The piece that gives you endless pleasure,
Is one small children's dining chair,
Elizabethan, very rare!
It is in fact your joy and pride,
Passed down to you on Grandma's side.
But Goldilocks, like many freaks
Does not appreciate antiques.
She doesn't care, she doesn't mind
And now she plonks her fat behind
Upon this dainty, precious chair,
And crunch! It busts beyond repair.
I will leave it at that!
Chairman: What does one say to follow that and sum up? One way of putting the different perspectives of the same objective phenomenon is in terms of a Scotsman and an Englishman contemplating a bottle of whisky. One sees a half empty bottle and the other sees a half full bottle!
I think the idea of the Ombudsman for Future Generations is really interesting, but I am not sure that an ombudsman is the right concept. As I understand it, an ombudsman has to have people to come to him or her with a case to be made about something to somebody. The whole problem about the future is that future generations are not here now to go to the ombudsman. So I am not sure that this is quite the right concept.