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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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environmental policies to combat climate change

Environmental policies refer to any government policy that is designed to protect Australia's physical or natural environment from damage or depletion. In particular, governments are primarily concerned about the environmental damage that is caused by the consumption and production of goods and services. The environmental policy that will be the focus relates to the 'climate change policy' or the main policies available to combat global warming or climate change.

Climate change, economic prosperity and living standards

The government's intergenerational report (2010) highlighted the greatest environmental issue facing Australia today - the threat of climate change.  Global warming is just like pollution emitted by factories, except that all economic agents (producers and consumers) contribute to the build-up of CO2 in the atmosphere by their daily activities that insufficiently take into account the 'spillover' effects or 'third party effects' that are shared by others or passed onto future generations.'    

Clearly, climate change, as a negative externality in production and consumption, requires effective government policy action in order to force economic agents to internalise the external or social costs that are passed onto future generations of Australians.  These costs include all of those effects examined earlier when studying global warming /climate change as a market failure, such as the erosion of coastal regions, prolonged droughts, greater frequency and intensity of natural disasters, and the destruction of natural tourist destinations such as the Great Barrier Reef.

A report released by the Climate Commission in May 2011 'The Critical Decade:  Climate Science, Risks and Responses'  highlights the critical need for policy action in light of the irrefutable evidence that the burning of fossil fuels and deforestation are major contributing factors to climate change.  The report notes that:

'There is a significant risk that climate change will undermine our society's prosperity, health, stability and way of life……we must decarbonise our economy and move to clean energy sources by 2050.  The longer we wait to start reducing carbon emissions, the more difficult and costly those reductions become.'

Given that climate change is expected to reduce rates of economic growth in the long term, the dilemma facing governments is related to the need to become inter-temporally efficient with the use of the nation's resources.  To continue using our resources in production without efforts to minimise or reduce carbon emissions will promote current rates of growth at the expense of future rates of growth.  Importantly, failure to act early will tend to increase costs over time as energy intensive industries and infrastructure become more established.  Climate change will add to long term production costs as the nation's productive capacity is reduced (e.g. a shift to the left of the AS curve), particularly in industries like agriculture and tourism.  National output levels are expected to be lower in the longer term, reducing potential growth of average incomes and damaging both material and non-material standards of living.  Accordingly, it is incumbent upon the government to sacrifice some growth in the short to medium term in order to reduce the negative (economic) effects of unmitigated climate change in the future.  

The Garnaut Review (2011), highlighted that, without mitigation, Australia's carbon emissions level in 2020 will be approximately 24% higher than 2000 levels.  Professor Garnaut makes it clear that current government targets for 2020 emissions of 5% below 2000 levels are not only inadequate, but unlikely to be achieved without immediate action to price carbon, forcing a reallocation of resources away from carbon intensive production towards cleaner energy alternatives.

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Bill Gates Explainer: Energy Equation

Climate Change - Climate Policy and the Growth Imperative