We won't achieve economic reform until we start co-operating

If you wonder why the push for economic reform has ground to a halt, I’ve discovered the reason. It’s because the foundational assumption of conventional economics – that individuals competing in pursuit of their self-interest make us all better off – is only half the truth.

If the mention of economic reform made you think of tax reform, then you’re making my point. Those who want a higher GST because they’d benefit if the proceeds were used to lower income or company tax are stymied by the many punters convinced they’d be worse off if this “reform” came to pass.

Many other cases for reform suffer the same fate. Your pursuit of your self-interest is neutered by my pursuit of my mine.

What the conventional economic model misses with its emphasis on individuals, competition and self-interest is that much of the success of the human animal – including its success economically – is owed to people co-operating to achieve changes of benefit to the whole community.

Often, norms of socially acceptable behaviour – entrenched views about what behaviour is ethical and what isn’t - are used to encourage people to put the interests of the group ahead of their own immediate interests. Markets work much better, for instance, if it’s realistic to assume that almost all the people you deal with can be trusted to act honestly.

All this applies in spades to our failure to make progress in the area of reform that’s more important to our economic future even than conquering the coronavirus: stopping emissions of greenhouse gases from wrecking the climate.

Here, the owners and miners of our huge remaining deposits of coal and gas are fighting tooth and nail to delay the day when those deposits become worthless, while the rest of us are encouraged to put the frightening thought of having to pay a bit more for electricity and petrol ahead of the future environmental and economic wellbeing of our children and grandchildren.

It’s okay for the oldies – who, until this year’s bushfire conflagration, fondly imagined they wouldn’t live long enough to suffer the consequences of their selfish short-sightedness. And those who will suffer the consequences have either yet to be born or are only just realising what a mess their loving parents are leaving for them.

But the deterrent to action isn’t just that the (modest) adjustment costs are upfront, whereas the (much greater) costs of inaction are off in the uncertain future. It’s also that the greenhouse effect is global, not local.

As the climate-change deniers love reminding us, no amount of effort to reduce emissions on our part will make much difference until people in other parts of the world are doing the same. In which case, why don’t you and I do nothing and leave it to all the others? (Economists call this the “free-rider” problem.)

All this may explain why a recent discussion paper from the Academy of the Social Sciences in Australia, Efficient, Effective and Fair, included a chapter on the moral case for action on climate change, written by Professor Garrett Cullity, a philosopher from the University of Adelaide.

Cullity argues there are five reasons why climate change is a moral issue, each of which is independent of the others. The first is that it involves many causes of harm including extreme weather events, tropical diseases, and malnutrition.

“These harms are primarily borne by the most vulnerable members of the global community,” he says. “We should be morally concerned to reduce the amount of harm we do to them.”

The second argument holds if we believe there’s a risk of serious harm in the future but can't be sure it will come to pass. “Action that imposes serious risks on others can be morally wrong because it is negligent and reckless, independent of the harm that actually eventuates,” Cullity says.

These first two arguments give us moral duties of both “mitigation” (reducing the further damage our emissions are doing) and “adaptation” (helping vulnerable people to adapt to the damage already done).

“They apply not just to national governments, but to any agent whose actions contribute to increasing atmospheric greenhouse gas concentrations – including state and local governments, cities, corporations, non-government associations and individuals.

“And they apply to each of these agents unilaterally. The moral duty not to engage in actions that harm or endanger others is not a duty that we are exempted from when someone else is not complying with it.

“The strength of the duty is proportional to the harm or risk imposed if the duty is not followed, and it may be related also to the capacity to influence others to comply with their duty.”

The third argument concerns “contributional fairness”. When a group needs to achieve something important by acting together and is doing so by sharing the overall burden among its members, failure to contribute an equitable share of that burden amounts to free-riding. Duties of fair contribution apply to groups of any size.

In the case of a wealthy country such as Australia, the size of our contribution to the solution should reflect the size of our contribution to causing the problem, the benefit we have derived from past emissions-producing economic activity, and our relatively great “ability to pay”, as tax economists put it.

The remaining two moral arguments concern the responsibility of national governments. If you accept that they have a duty to protect future citizens, not just present ones, it follows that they must contribute to global mitigation, not just local adaptation. And, since the economic costs of responding to the problem get higher the longer you delay, they have a moral duty to begin now.

Conventional economics doesn’t take much interest in morality. But economies where everyone sticks out for Number One stop working very well. And self-interest isn’t enough to solve a “wicked” problem like climate change.

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How Morrison can give us a bright economic future

A big part of getting economic life back to normal involves restoring people’s faith that the future will be full of opportunity for progress. But that ain’t easy because the gloom of recession kills our belief that things could ever get better. And the longer we think like that, the truer it becomes.

So Scott Morrison needs to accept the paradox that returning the economy to normal demands that we don’t return to squabbling politics as usual, nor to governing primarily in the interests of the Liberal Party base and its corporate donors.

Why not? Because it wasn’t working well even before the virus arrived. The economy’s growth was weak and, that being so, business was reluctant to invest. Morrison is right to say we must grow our way out of debt and deficit, and that – ultimately, at least – we need a private sector-led recovery.

But with the recession leaving business with even more idle production capacity than it had last December, it’s delusional to expect that some tax incentive could prompt a surge in business investment.

So what can the government do that would get business investing? It can fix the dysfunctional attitudes to energy policy that are blocking much-needed investment in next-generation electricity production.

And the plain truth is that no government refusing to face the reality of climate change stands any hope of convincing us that our economic future is bright. What’s so stupid is that if the government weren’t so committed to helping losers fend off inevitable change in the economy’s structure, it would see more clearly the huge potential for Australia to be a big winner in the post-carbon world.

Only drawback: exploiting that potential would require huge private sector investment. Oh, that’s right, it’s the present lack of need for more investment that will slow any recovery.

Climate change has already started to bring much damage to our personal health, agriculture and tourism, but our hesitation to get on with helping to combat it is partly explained by our long-standing and lucrative comparative advantage as a major exporter of fossil fuels.

But a report by Tony Wood and colleagues at the Grattan Institute, to be published today, confirms Professor Ross Garnaut’s assessment that our abundant resources of wind and sun give us a potential comparative advantage in renewable energy – particularly if we get in early.

Wood also confirms Garnaut’s view that our money-making potential lies not so much in exporting renewable energy directly but indirectly, by using wind and solar to make energy-intensive "green" commodities for export.

Get it? If we play our cards right – if Morrison displays his newfound ability to provide the nation with genuine leadership – we could begin a whole new era of manufacturing industry in Australia, only this time one built on comparative advantage rather than protection.

Wood says the list of potential energy-intensive manufactures includes aluminium, aviation fuel, ammonia and steel. Tens of thousands of jobs could be created, comparable to the existing 55,000 geographically-concentrated carbon-intensive jobs.

How does a revived green manufacturing industry sound as a plan that could convince climate-change worriers (that is, everyone with a brain), business people and workers that there is a future for our economy?

And here’s the best bit: Wood says the economics favour establishing the new green manufacturing industries where a large industrial workforce is already established - such as those in central Queensland and the Hunter Valley.

"It is cheaper to make green steel in those places, where labour is available and affordable, than in the Pilbara – despite the cost of shipping iron ore to the east coast," he finds.

Notice the political attraction of this idea? You don’t leave the workers in these regions to their fate as the world’s inevitable move away from fossil fuels turns their mines into stranded assets, you set them up to work in a new carbon-free industry.

Wood’s investigations see most potential in moving to "green steel". At present, most steel is made by using coking coal and a blast furnace to reduce iron ore to iron metal. Trouble is, burning the coal produces much carbon dioxide. Green steel, by contrast, involves using renewables electricity to produce hydrogen for “direct reduction”, turning the ore to metal, with water as the byproduct.

Ultimately, the massive investment needed for new green industries would have to come from the private sector. But the government would need to get the ball rolling by helping to fund a steel flagship project – maybe one that starts by using natural gas, before progressing to hydrogen.

The happy notion that governments can sit back while the private sector pioneers new, radically different industries works well in textbooks, but not the real world.

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Despite neglect, we're muddling towards low-carbon electricity

To coin a phrase, Australia’s governments are making heavy weather of their efforts to give us an electricity system that’s secure, reliable and affordable – with declining carbon emissions. Progress is slow in every respect bar one: the move to renewable energy is showing “remarkable growth”.

That’s clear from this week’s annual Health of the National Electricity Market report, by the Energy Security Board of the Council of Australian Governments. The peak security board is composed of the heads of the three government agencies that share the running of the national electricity market, plus an independent chair, Dr Kerry Schott, an economist.

If it all sounds a bit bureaucratic, it is. The national market (which covers all states bar Western Australia and the Northern Territory) is a “market” created by government and managed by bureaucrats. You have to give six months’ notice of your intention to blow your nose. Schott’s energy board – a further layer of bureaucracy – was set up partly to get the three lower outfits to work together more co-operatively.

Having been written by bureaucrats, the report (littered with industry jargon) is too polite to remind us why the industry’s having so much trouble getting its act together: the federal Coalition government’s inability to tell the many businesses exactly how they'll be required to reduce their emissions as part of the government’s commitment under the Paris agreement.

Without that degree of certainty – ideally, a plan both sides of politics are committed to – businesses are reluctant to invest. The Turnbull government had such a plan – the national energy guarantee – but its minority of climate-change deniers refused to accept it. The plan was abandoned and, pretty soon, so was Malcolm Turnbull.

Of the three key objectives – security, reliability and affordability – the report rates the status of the first two as “critical” (bureaucratspeak for “a real worry”) and only the last as “moderate-critical” (“not as bad as it was”).

To be fair, coal-fired power and renewable energy are so different in their nature that moving the power system from one to the other – and don’t doubt that this is what’s already happening – was always going to be a tricky business. That, of course, is why decent politicians would be doing all they could to minimise the uncertainty.

“Security” is now “the issue of most concern” to the board. It means maintaining a consistent flow of power at the right frequency and voltage. Failure to do so can seriously damage the system and cause significant interruptions to power supply – that is, days or months, not hours.

The problem is caused by the increasing role of “variable renewable energy resources” (aka wind farms and solar farms) and “distributed energy resources” (aka rooftop solar panels and maybe batteries).

“Reliability” – that is, the avoidance of much shorter blackouts – is now a bigger worry than it was. It has improved since last year, but the balance between demand and supply is still very tight during the summer peak demand in Victoria, NSW and South Australia.

“The increased severity of weather events, especially over summer, coincides with an ageing, and hence less dependable, coal generator fleet,” the report says.

When we come to affordability, it has “improved slightly over the year for retail customers”. Considering that retail prices leapt by 80 per cent between June 2004 and June last year, I suppose you have to regard that as progress.

Why did prices go so high? Well, not for the reason Scott Morrison keeps diverting our attention to: Labor’s evil tax on carbon, which Tony Abbott soon abolished. No, the report explains that the years of soaring prices were “largely driven by overbuilt [transmission] networks in Queensland and NSW, rising wholesale fuel costs, retail market [profit-motivated] inefficiencies and the cost of a range of renewables subsidies”.

Why did affordability (that is, not price per unit of power, but the size of people’s bills) improve slightly last financial year? Mainly because the average amount of energy from the grid fell as people moved to rooftop solar and also used electricity more efficiently – say, by buying appliances with better ratings.

Now the good news: over the three years to 2021-22, prices are expected to fall by 7 per cent, mainly because wholesale prices will fall as more power comes from renewables generation, which is very cheap. Really? That much, eh?

So don’t imagine retail prices will ever fall back to anything like what they were. And even as more and more of our power comes from renewables, there’ll be a lot of new cost coming from the rejig of the transmission network needed to connect to the different locations of the renewables’ generators.

By June last year, the proportion of the national market’s electricity generated by wind and solar had reached 16 per cent. It’s expected to reach 27 per cent by 2022, and be above 40 per cent in 2030.

There is huge variance between the states on their rate of transition. With its hydro and wind, Tasmania is close to 100 per cent renewables. South Australia is up at 53 per cent, leaving the rest of us between 10 and 20 per cent.

Contrary to Morrison’s claim that we’re a “world leader” in renewables investment, the report says we’re in the same class as Ireland, California, Germany, Spain and Portugal.

All that’s before you take account of rooftop solar. The report says it’s our high prevalence of rooftop that’s uniquely Australian. It’s now equivalent to 5 per cent on top of the national market’s total generation, and expected to be 10 per cent by 2030.

So don’t let anyone tell you we’re not getting on with the shift to renewables. But, by the same token, don’t imagine we’re doing anything like enough. We need to get to carbon-free electricity long before 2050, not just to do our bit in limiting global warming but because, as the report confirms, Australia has a “global comparative advantage in renewable energy”. We’d be mugs not to exploit it.

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Morrison's dream: climate fixed with no changes to jobs or tax

When I was new to journalism, there was a saying that the two words which, when used in a newsagents’ poster or a headline, would attract the most readers, were "free" and "tax". These days, the two words politicians use to suck in unwary voters are "jobs" and "tax".

These words have magical powers because we attach our own meaning to them and assume the polly is using them to imply what we think they imply. They evoke in us an emotional reaction – welcoming in the case of "jobs", disapproving in the case of "tax" – and so we ask no further questions.

Those two words have the magical ability to cut through our distrust and disarm our powers of critical thought. Scott Morrison has been using both in his belated response to this appalling summer of bushfires, heatwaves, smoke haze and dust.

Many of us have realised how terrible climate change actually is, that it’s already happening and will keep getting worse – much worse – unless all the world’s big countries get serious about largely eliminating their carbon emissions, and doing so pretty quickly.

Although Australia is a big emitter relative to our small population, in absolute volume we’re not in the same league as America, China or Europe. But the rest of the world’s horrified reaction to our fire season has helped us see we’re in the vanguard, that the Wide Brown Land is going to cop it a lot harder than the green and pleasant lands.

So our self interest lies not just in doing our fair share, but in doing more than our share, so we’re well placed to press the big boys to try harder.

Initially, Morrison seemed to want us to believe he agreed with those saying we must do more to reduce greenhouse gas emissions. "We want to reduce emissions and do the best job we possibly can and get better and better at it. In the years ahead, we are going to continue to evolve our policy in this area to reduce emissions even further," he said.

But then he wanted to reassure his party’s climate-change deniers, and those of us who want to fight climate change without paying any personal price, that nothing had changed. "But what I won’t do is this: I am not going to sell out Australians – I am not going to sell out Australians based on the calls from some to put higher taxes on them or push up their electricity prices or to abandon their jobs and their industries."

On the question of jobs, don’t assume it’s your job he’s promising to save. What we know is that jobs in the coal industry are sacred, but what happens to other jobs isn’t the focus of his concern. Don’t forget, this is the same government which, as one of its first acts, decided we no longer needed a motor vehicle industry. Favoured existing jobs take priority over future jobs – which can look after themselves.

But even this doesn’t fully expose the trickiness of the things politicians say about jobs. What governments usually end up protecting in an industry isn’t its jobs, but its profits. For instance, when not in the hearing of North Queensland voters, Adani boasts about how highly automated its mine will be. Apart from the few years it takes to construct a mine, mining involves a lot of expensive imported machines and precious few jobs.

Looking back, it’s arguable that most of the jobs lost from manufacturing were lost to automation, not the removal of tariff protection.

As for taxes, the latest turn in Morrison’s spin cycle is that his "climate action agenda" is "driven by technology not taxation". This, apparently, is a reference to technologies such as hydrogen, carbon capture and storage, lithium production, biofuels and waste-to-energy.

Like many of politicians’ efforts to mislead us, this contains a large dollop of truth. It’s likely that our move to zero net emissions will involve the adoption of most if not all of those new technologies, in the process creating many job opportunities in new industries and – inevitably – doing so at the expense of jobs in existing fossil-fuel industries.

So this seems to have a lot of similarity with Professor Ross Garnaut’s vision of us becoming a renewable-energy superpower. But get this: Garnaut’s grand plan has been designed to require no return to any form of carbon tax.

Economists advocate "putting a price on carbon" because they believe it’s the best way to minimise the ultimate cost to the economy (and the punters who make it up) of moving to a low-carbon economy.

But if Australian voters are stupid enough to allow some on-the-make politicians to persuade them to reject the economists’ advice, then so be it. You prefer to do it the expensive way? Okay, have it your way. There’s no shortage of more costly alternatives.

So Morrison is busy demolishing a straw man. Why? Because he wants to distract your attention from the likelihood that his preferred way of skinning the cat will require a big increase in government spending to facilitate all those new technologies and industries.

You don’t think this increased spending will eventually have to be covered by higher taxes? Dream on.

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Lack of trust may have made economic reform impossible

Life’s getting a lot tougher for optimists. I’m starting to wonder whether our politics has passed the point of peak economic reform and controversial policy changes are no longer possible.

We keep berating our politicians, urging them to show leadership and have the courage to make much-needed reforms, but they never do. Right now, it’s easy to look at the way Scott Morrison has fumbled the bushfire response, the need to get real about climate change, and even his reluctance to take a stand against blatant rorting of taxpayers’ money, and decide we have a Morrison problem.

But though we’re discovering the miracle election-winner’s various shortcomings, it’s a mistake to think one man is the cause of our reform problem. It’s possible to argue things have got steadily worse in the revolving-door period since the departure of John Howard, but the greater truth is that the problem’s systemic.

It’s hard to think of any major improvements made by five prime ministers over the past 12 years, with the possible exception of the National Disability Insurance Scheme (which we’re still busy stuffing up).

The carbon tax was a significant reform before Tony Abbott abolished it, but Labor had sabotaged its mining tax long before Abbott got to it. Malcolm Turnbull took one look at the great goal of increasing the goods and services tax and realised it was politically impossible without full compensation of low to middle income-earners, but net of compensation it would have raised peanuts.

All this is just the Australian version of similar stories that could be told in most of the other rich democracies. But, sticking with our story, why has it become next to impossible for our governments to make controversial policy changes?

The pollies would tell you it’s because the 24-hour news cycle – the media are constantly demanding to be fed, and will turn to you opponents if you don’t oblige – and the power of social media to set hares running that have to be chased. This now gets so much attention from ministers and their staff they have little time left to get on with policy development.

Maybe. A less convenient explanation is the way politics has turned into a lifelong career – from staffer to minister to a late-career job advising big business – leading pollies to worry more about their careers and less about the ideals they espoused in their first speech on entering Parliament.

But however you explain it, there’s little doubt that the life of ministers has become pretty much all day-to-day tactics and no long-term strategy. This both explains and reinforces the long-established trend – which Morrison now freely acknowledges – for ministers to prefer the advice of the ambitious young punks in their office to the advice of their department.

The staffers know about what matters – political tactics – whereas the bureaucrats want to keep banging on about policy and warning you about looming problems. Worse, they’re obsessed by the notion that whatever governments do must be strictly in accordance with the law.

Partly because fixing problems usually costs money, the era of Smaller Government and the politically motivated obsession with returning the budget to surplus has heightened the politicians’ normal temptation to pigeonhole government reports warning about problems that need to be fixed now before they get much worse.

A bunch of former fire chiefs want a meeting to warn about how much worse this year’s bushfire season will be and the need for much more equipment and action to limit climate change? Sorry, too busy with more pressing matters.

Even the idea that politicians should “never waste a crisis” – that you won’t get broad support for unpopular measures until everyone’s up in arms about the actual arrival of the problem – and its corollary – don’t act on the multitude of mere warnings of problems ahead, wait and see which of them actually transpire – seem themselves to have been pigeonholed.

Why are politicians no longer game even to seize the moment to do something real when everyone’s demanding that something be done? Because years of declining standards of political behaviour mean that trust in political leaders is now lower than ever. There’s strong survey evidence of this.

Neither side of politics is trusted to take tough measures that are genuinely in everyone’s interests. It’s got to be a trick. Mainstream politicians are trusted only when they run scare campaigns against the other side’s reform plans. But hope springs eternal that some populist rabblerouser may have the answers.

The more impotent mainstream politicians are seen to be, the more disillusioned voters will turn to populist saviours – and the more the main parties will themselves turn to populist diversions and trickery. Freeing ourselves from this vicious circle won’t be easy.

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It's official: too much banking is bad for you

When the newish boss of the International Monetary Fund, Bulgarian economist Kristalina Georgieva, contemplates the challenges of the new decade, she thinks of many things: increasing uncertainty, climate change and increasing inequality – particularly the role the financial sector in making it worse.

Georgieva foresees increasing uncertainty over geopolitical tensions, uncertainty that the trade truce between the US and China will last, and uncertainty that governments can fix the frustrations and growing populist unrest in many countries. "We know this uncertainty harms business confidence, investment and growth," she said in a recent speech.

On climate change, after observing that the "brush fires" blazing across Australia are a reminder of the toll on life that climate change exacts, she avoids saying that we are possibly the most vulnerable among the rich countries (something that might have surprised the she’ll-be-right Scott Morrison).

But she did note that it’s often the poorest and most vulnerable countries that bear the brunt of "this unfolding existential challenge". "The World Bank estimates that unless we alter the current climate path an additional 100 million people may be living in extreme poverty by 2030," she says.

The previous decade saw the rich world’s economists become much more conscious of the economic importance of inequality, with the IMF’s economists at the forefront of this realisation. "We know that excessive inequality hinders growth and hollows out a country’s foundations. It erodes trust within society and institutions. It can fuel populism and political upheaval," she says.

Many people think of using the budget to reduce inequality, which they should, "but too often we overlook the role of the financial sector, which can also have a profound and long-lasting positive or negative effect on inequality," she says.

"Our new staff research shows how a well-functioning financial sector can create new opportunities for all in the decade ahead. But it also shows how a poorly managed financial sector can amplify inequality."

"Financial deepening" refers to the size of a country’s financial services sector relative to its entire economy. Georgieva notes that, on one hand, developing countries benefit from the growth of their undeveloped financial sectors as small businesses and ordinary households gain access to credit and saving and insurance products.

The sustained growth in the financial sectors of China and India during the 1990s, for instance, paved the way for enormous economic gains in the 2000s. This, in turn, helped in lifting a billion people out of poverty.

On the other hand, the IMF’s latest research shows there’s a point at which financial deepening is associated with exacerbated inequality and less-inclusive growth. Many factors contribute to inequality, but the connection between excessive financial deepening holds across countries, she says.

Why is too much "financialisation" of an economy a bad thing? "Our thinking is that while poorer individuals benefit in the early stages of deepening, over time the growing size and complexity of the financial sector end up primarily helping the wealthy.

"The negative impact is especially visible where financial sectors are already very deep. Here, complicated financial instruments, influential lobbyists, and excessive compensation in the banking industry lead to a system that serves itself as much as it serves others."

The US has one of the most diversified economies in the world (it has a lot of everything). And yet, in 2006, financial services firms comprised nearly a quarter of the S&P500 share index and generated almost 40 per cent of all profits. (Read that again if it doesn’t amaze you.) Obviously, this made the financial sector the single biggest and most profitable part of the whole sharemarket.

Does that strike you as out of whack? What happened next – the global financial crisis and the Great Recession – tells us that excessive financial sectors increase the risk of financial instability and collapse.

The painfully slow recovery from that episode of financial crisis was the defining issue of the past decade. Research shows that, on average, a country’s financial crisis leads to a permanent loss of output (gross domestic product) of 10 per cent. This can cause a lasting change in the country’s direction and leave many people behind (as the Americans, with their opioid and middle-aged male suicide crises, know only too well).

The IMF’s latest research shows that inequality tends to increase before a financial crisis, suggesting a strong link between inequality and financial instability. But also, of course, the subsequent recession usually leads to a long-term worsening in inequality.

Much effort has been made since the global financial crisis to make the banks more stable and better regulated. But no one imagines this guarantees there couldn’t be another major crisis.

Georgieva says financial stability will remain a challenge in the decade ahead – for all the usual reasons, but also for "climate-related shocks". "Think of how stranded assets [such as now-unviable coal-fired power stations or coal mines] can trigger unexpected loss," she says. "Some estimates suggest the potential costs of devaluing these assets range from $US4 trillion to $US20 trillion."

The private sector and the banking industry, not just governments, have a critical role to play in making the financial system more stable, she says. That’s certainly the case when it comes to the climate’s effect on financial stability.

"The financial sector can play a critical role in moving the world to net zero carbon emissions and reaching the targets of the Paris agreement. To get there, firms will need to better price climate change impacts in their loans.

"Last year, climate change claimed its first bankruptcy of an S&P500 company. It is clear investors are looking for ways to adapt. If the price of a loan for an at-risk project increases, companies may simply decide the money for the project could be better spent elsewhere."

What has stopping climate change got to do with inequality? If we don’t, the consequences will fall hardest on the world’s poor (and Australians).

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Zero net carbon choice: do we want to be losers or winners?

You may regard economists as a dismal lot, always reminding us of the cost of this or the risk of that. But there’s one prominent economist with a much more positive story to tell.

Professor Ross Garnaut is more prophet than gloomy economist, a man with the vision of a better future that our politicians have lost as they squabble over votes.

The Morrison government trembles at the thought of the Paris agreement’s goal of achieving zero net carbon emissions by 2050. All it can see is the need for higher taxes and the loss of jobs in coal mining. Garnaut, by contrast, sees a golden opportunity for us to shift from an industry in terminal decline to a new set of industries with bright prospects in the low-carbon world that’s coming.

Garnaut foresees that, if we rise to the challenge of climate change, we "will emerge as a global superpower in energy, low-carbon industry and absorption of carbon in the landscape".

This vision is set out in his latest book, Superpower, which seems to offer something for everyone. Do you regret the decline of manufacturing? Garnaut sees how we could give it a new lease on life.

Have you always thought that, rather than sending our minerals off for further processing abroad, we should do it ourselves? Garnaut sees how we can.

With climate change making the land hotter, drier and more prone to bushfires, do you fear for the future of farming? Garnaut sees the bush getting a whole new source of income and activity.

Do you fear that, with the decline of coal mining, regional Australia will be left even further out of the economic action? Garnaut see all the new industries created by the world’s move to renewable energy being located in the regions.

Of course, as the author of two government reports on our response to climate change, Garnaut has form as a prophet. In his first report in 2008, he relied on scientists’ advice to predict that "fire seasons will start earlier, end slightly later, and generally be more intense. This effect increases over time, but should be directly observable by 2020."

On the other hand, Garnaut now admits that even his second report, in 2011, has been overtaken by events. Then, he calculated that the cost of moving to renewable energy would come early and reduce our rate of economic growth for many years before it was eventually outweighed by the benefits of climate change avoided.

Now, he sees that the move to renewable energy won’t cost a lot, low-carbon electricity will be cheaper and will give us major new export opportunities. These more positive benefits will come earlier than the benefit of less climate change.

The cost of moving to all-renewable electricity has been transformed by two things. First, the huge reduction in the cost of solar panels and lesser falls in the cost of wind turbines and batteries.

Second, by the fall in global interest rates to record lows, which seem likely to persist. Whereas much of the cost of coal-fired electricity comes from the cost of the coal, with solar and wind power almost all of the cost comes from setting up the system – sun and wind are free. Lower interest rates mean the capital cost is much reduced.

So far, a chunk of Australia’s prosperity derives from our huge natural endowment of coal and gas. Now Garnaut has realised that, relative to the size of our population, Australia is more richly endowed with sun and wind than any other developed country – or our Asian neighbours.

So zero-emissions electricity will be cheaper to produce (though we may have to pay more in transmission costs). More significantly, our carbon-free power will be much cheaper than other countries’.

Carbon-free electricity is the key to our efforts to achieve zero net emissions overall, and to our various opportunities to profit from the world’s move away from fossil fuels. Our transport emissions will be slashed by moving to electric vehicles and increased use of public transport.

The scope for exporting our electricity through submarine cables – or via tankers of electrolysis-produced hydrogen – is limited. But this will now make it economic to further process alumina, iron ore, silicon and ammonia before we export them. That processing is best done adjacent to the mine site.

At present, plastics and many chemicals used in manufacturing are produced from fossil fuels. But we will have more plentiful supplies of (renewable) biomass – plant material – than many other countries, which we can use to produce plastics and chemicals for ourselves and for export.

The "net" in zero net emissions implies that the world will still be emitting some carbon dioxide, but these emissions will be offset by "negative emissions" as atmospheric carbon is captured and sequestered in soil, pastures, woodlands, forests and plantations.

Guess what? Few countries have more scope for "natural climate solutions" such as carbon farming than we do. We need research to improve the measurement of carbon capture, but we have so much scope that, after meeting our own needs, we could sell carbon credits to the rest of the world. This could be a new rural industry, much bigger than wool.

To maximise our chances of benefiting from the move to a low-carbon world, however, we have to get to zero net emissions sooner than the other rich countries, not later.

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Economics isn't as highfalutin' as the jargon makes it sound

If you’ve ever had the feeling you ought to know a lot more about economics than you do – even if only to make it harder for economists to bamboozle you – here’s my long-weekend special offer: the key concepts of the discipline explained in one article. As many as I can fit, anyway.

More than a year ago, the boss of the Australian Competition and Consumer Commission, Rod Sims – surely the most experienced senior econocrat evading retirement in Canberra – began a speech by saying economics had become too mathematical and that to be a good economist all you needed was a deep intuitive feel for 10 or 15 concepts.

He then rattled off what he regarded as the 15 most important concepts, “in no particular order”. From those I’ll explain, in order, the five I consider to be most significant.

1. Opportunity cost

The first is one you should have heard of: opportunity cost.

Many economists consider “opp cost” to be the single most important and fundamental concept in economics, and the discipline’s most useful contribution to the betterment of mankind. Indeed, that’s the view Professor John Quiggin, of the University of Queensland, takes in his book Economics in Two Lessons, which I recommend as the best book to introduce you to economics.

Quiggin says “the opportunity cost of anything of value is what you must give up to get it”. Our wants are almost infinite, but our resources are limited, so we have to make choices. Economists’ eternal message to individuals and to the community is: think carefully before you spend your money, make sure you’re spending it on what you really want because you can’t spend it twice.

Really? That complicated, huh? Quiggin says “the lesson of opportunity cost is easy to state but hard to learn”. We keep forgetting to apply it. For instance, Prime Minister Scott Morrison is saying he’s not going to reduce our greenhouse gas emissions if the opportunity cost is to endanger jobs in the coal industry.

Sounds fair enough until you realise he’s saying jobs in a particular industry matter more to him than us doing all we can to help reduce global warming (which will destroy jobs in many industries).

We live in a market economy. We sell our labour in the jobs market, then use the money we earn to buy the goods and services we need in 101 product markets. Economics is the study of markets and, in particular, of how the prices set in markets work to bring supply and demand, sellers and buyers, into agreement (aka “equilibrium” or balance).

2. Invisible hand

The first of Quiggin’s two lessons is “market prices reflect and [also] determine the opportunity costs faced by consumers and producers” – which brings us to Sims’ next key concept, “the invisible hand”.

In a market-based economy (as opposed to a feudal economy or a planned economy), the differing objectives of workers, employers, consumers and producers are co-ordinated (brought together) not by the government issuing orders to people, but by the “price mechanism” (prices going up or down until both sides are satisfied).

That’s the invisible hand. And what motivates this invisible hand is the self-interest of workers, bosses, consumers and businesses. In the famous words of the father of modern economics, Adam Smith, in 1776, “it is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own interest”.

It’s amazing to think of, but it holds much truth: the invisible hand of markets and prices takes the self-interest of all those competing players and turns it into a situation where most of us have our wants satisfied most of the time.

3. Imperfect competition

But if that sounds a bit too pat – a bit too perfect – it is. It is, in fact, a description of what economists call “perfect markets” and “perfect competition”. And in real life, nothing’s ever perfect. The greatest female economist, Joan Robinson, was the first to formalise Sims’ third key concept, “imperfect competition” – the study of why markets and the price mechanism don’t always work as perfectly as the oversimplified “neo-classical” model of markets assumes they do.

4. Market failure

From the subtitle of Quiggin’s book you see that lesson one is “why markets work so well”, but lesson two is “and why they can fail so badly”. This takes us straight to Sims’ fourth key concept “market failure”. Markets are said to fail when they deliver results that aren’t “allocatively efficient” – when they don’t lead to the particular allocation of economic resources that yields the maximum satisfaction of people’s wants.

Economists have spent much time studying the various categories of factors that cause markets to fail. More recently they have turned to studying “government failure”, which is when governments’ attempts to correct market failures end up making things worse.

5. Externalities

Sims’ final key concept is “externalities” – a major category of market failure. These occur when transactions between sellers and buyers generate costs (or benefits) for third parties – known as “social” costs or benefits – that aren’t reflected in the market or “private” prices paid and received by the buyers and sellers.

These social costs or benefits are thus “external” to the private transaction and the private price mechanism. They constitute market failure because the market generates more costs (or fewer benefits) than is in the public’s interest.

One example of an external benefit is the gain to the wider community (not just the particular individual) when a student graduates from university (which is why uni fees are set at only about half the cost of the course, so as to “internalise” the positive externality).

As for external costs (“negative externalities”), Quiggin notes that the leading British economist Lord Nicholas Stern has described climate change as “the biggest market failure in history”. So now you know why so many of the nation’s economists are appalled by Morrison’s dereliction.

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Climate change: we can't stop it by refusing to change

After Donald Horne's book in the 1960s, we all know we live in the Lucky Country. What we've forgotten until now, however, is the qualification Horne added: "Australia is a lucky country run mainly by second-rate people." We haven't been feeling so lucky this burning, smoky summer. But our present leader, Scott Morrison, has certainly been looking second rate.

This summer we've had our Pearl Harbour moment. Just as the Japanese bombing of Hawaii in 1941 stopped Americans viewing World War II as some distant threat, so our season of unprecedented drought, heatwaves, bushfires and smoke haze has woken us up to the present reality of global warming.

There we were thinking climate change would be a problem for our children and grandchildren – who, we hoped, wouldn't remember our refusal in 2013 to pay a bit more for electricity so as to reduce greenhouse gas emissions.

Now we realise it's a problem – a frightening problem – for us. One likely at least to continue for the rest of our lives at its present level of harm and unpleasantness, and more likely get much worse in the years ahead unless something decisive is done by all the major economies, including us, to reduce net emissions to zero over the next 30 years and stop us cooking.

It's a wake-up moment not just for us, however, but for the entire rich world. They've been watching in fascinated horror as global warming has punished the Aussies for their repeated refusal to take it seriously.

Ostensibly, Morrison has realised we need to change course. "We want to reduce emissions and do the best job we possibly can and get better and better at it," he said when it dawned on him we were holding him responsible for the fires regardless of what the constitution says about them being a state responsibility.

"In the years ahead, we are going to continue to evolve our policy in this area to reduce emissions even further," he said. But then he started adding qualifications. "We're going to do it without a carbon tax, without putting up electricity prices and without shutting down traditional industries upon which regional Australians depend for their very livelihood."

Really? Sounds like he's promising us all the benefits without any of the costs. Nothing needs to change to make things much better. Which, in this age of cynicism and distrust of our lengthening string of second-rate leaders, makes you fear all that's changed is the marketing spiel.

What we need is a leader great enough to seize our Pearl Harbour moment and turn it into a Port Arthur moment – the moment when a prime minister exercises true leadership and uses the horrible reality of death and destruction to win public support for big changes to stop such things becoming regular events.

John Howard, Morrison's role model and mentor, saw such an opportunity and seized it. He did so not because it offered political gain, but because it was a leader's duty to deliver something great for those he led. He did so knowing it would prompt great resistance from within the Coalition. But with the public behind him and his political opponents unlikely to oppose him, that was a risk he was prepared to take.

Just the same conditions apply to Morrison's decision on whether to turn us from laggards to leaders in the global effort to halt the rise in average temperatures to less than 2 degrees. Has he the courage to stand up to the noisy minority of climate change deniers in the Coalition, who are now so badly out of step with public opinion?

There's a central lesson to be learnt from this appalling summer. The dichotomy Morrison has so far relied on – the environment versus the economy – is false. "We'd love to help the environment, but not if that involves a cost to the economy."

Sorry, since the economy sits within the natural environment, anything that damages the environment also imposes loss – of property, businesses, jobs, wellbeing, lives and health – on the economy and the humans who constitute it.

It follows that, in our obsession with the cost of fighting climate change, we can no longer ignore the far greater cost of not fighting it. The one option that's not available is no change. We can refuse to change, but nature will change things whether we like it or not.

The economy is always changing, as some industries expand and other contract. Jobs are continuously being lost in some fields and created in others. This is the very process by which we've become far more prosperous over the past two centuries.

So the notion that our steaming coal industry can be preserved in aspic is laughable. Its days are numbered. But we don't have to kill it, the rest of the world will do that for us as – like us – they increasingly turn to renewable energy and away from fossil fuels. Business can see that; Morrison professes not to.

Second-rate leaders throw in their lot with those who fear losing from change, letting the rest of us suffer while they attempt to resist the irresistible. First-rate leaders seek out ways we can benefit from that change, restoring the luck of the Lucky Country. How? Watch this space.

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Is Morrison the man who killed the Aussie summer?

This is the summer from hell. I can’t imagine anyone is enjoying their break – not with the quadruple whammy of drought, heatwaves, bushfires and smoke haze we’re experiencing. If it happens again next summer – or the one after – as it very well could, can you imagine the political doghouse Scott Morrison and his Coalition parties will be in?

Morrison is already bearing most of the ire of people displaced by the fires. So much so that he’s learned not to show up to offer his commiserations. But is it really his fault? No. Just one of the six prime ministers we’ve had over the past two decades can hardly take all the blame.

In any case, Morrison is right to protest that nothing Australia could have done by itself could have stopped the deterioration in climate we’re seeing. The only solution is global, so all the big, rich economies – particularly the Americans, less so the Europeans – must share the blame for the continuing rise in average temperatures.

And even the biggest developing economies – China and India, particularly – could have done more to reduce the intensity of their emissions (emissions per dollar of GDP) without abandoning their efforts to raise their living standards to some higher fraction of those we have long enjoyed.

But Morrison doesn’t escape the responsibility of leadership as easily as that. For one thing, it’s his side of politics that’s done most to sabotage the limited and belated efforts Australia has made, since the defeat of the Howard government, to contribute to the global effort to reduce greenhouse gas emissions.

And you have to go back to John Howard’s refusal to ratify the Kyoto agreement of 1997 to find an instance of Australia actively disrupting efforts to reach international agreement on stronger action, to match the shamefully destructive contribution Angus Taylor made at the conference in Madrid last month by insisting that Australia be allowed to use an accounting trick to shirk its responsibilities.

For any Australian leader to claim, hand-on-heart, to have done all they reasonably could to reduce global warming, they have to be able to say they committed us to a disproportionate reduction in our emissions, so as to have the moral authority to press the bigger players to do more. None of our leaders can say that, least of all Howard and Morrison.

And then there’s the law of politics that says if it's fair enough for the government of the day to claim the credit when things go well – even when the seeds of that success were sown by an earlier administration – it’s equally fair for the government of the day to cop the blame when the neglect of earlier administrations finally hits the fan, as it has this summer.

Not Morrison nor any of his predecessors can honestly claim to have been caught unawares by what’s happening before our eyes and noses. The CSIRO has been warning for at least a decade of just this concurrence of adverse and costly events – in lives and health, as well as property – as the planet warms.

At last year’s election, the climate change deniers demanded to be told the economic cost of stepping up our contribution to reducing global warming. The more sensible among us should have been demanding to be told the economic cost of allowing global warming to roll on. We’re finding that out as we speak, but doing so the hard way.

It’s tempting to wonder whether, in his heart of hearts, Morrison is himself a climate-change denier. But that hardly matters. These days, what politicians truly believe doesn’t have much bearing on what they do and say. Conviction politics is dead. These days, politicians seek out the position that, while sitting easily with their heartland supporters, is likely to give them the greatest short-term advantage over their political opponents.

Whatever he believes, Morrison is too cagey to come out as a denier. Like Malcolm Turnbull before him, he’s bound hand-and-foot by the deniers in his own party and the Nationals. So, until now, his safest position has been to say he accepts the science, while falsely claiming to be comfortably on target to reach the (inadequate) emissions reduction we committed to in the Paris agreement.

There are two approaches to the “wicked” problem of global warming: mitigation (reducing emissions) and adaptation (changing in response to whatever warming we get). The greenies have seen these as in conflict and frowned on efforts to adapt. But Morrison and his predecessors have been so bound up by their deniers that they haven’t wanted to talk about even such issues as getting set to cope with much worse bushfire seasons. No excuses for that, Scott.

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Government on the cheap leaves us burningly reliant on charity

As the cast were taking their bows at the end of a show before Christmas, one of them stepped forward to say that, as we left, we’d be approached by people with buckets collecting for the NSW Rural Fire Service. Normally I’d reach for my wallet – I’d done so a few weeks earlier when they were collecting for an actors’ charity – but this time I declined.

Like Victoria’s Country Fire Authority, the RFS is staffed by volunteers. Why did they need donations? Presumably, to help cover the cost of needed equipment or incidental expenses. Really? What’s happened to the state government’s cheque book? And don’t I remember hearing that the RFS had had its funding cut?

No one believes every worthy cause should be funded by the government so that private charity becomes redundant. And it’s true the federal government partially subsidises donations by making them tax-deductible. But where do you draw the line between what the government should cover and what can be left to the generosity – or otherwise – of private citizens?

The more I think about it, the more I realise that, as part of their commitment to Smaller Government and lower taxes, governments have been quietly shifting the dividing line between what the government pays for and what should depend on charity.

All governments have been doing it. State governments, for instance, have long left country (but not city) fire-fighting to volunteers. And have long underfunded the upkeep of public schools, believing parents and citizens can be left to make up the shortfall. But it’s been a particular trick of the federal Coalition government as it struggles to return its budget to surplus when there are expensive, vote-buying tax cuts to be covered.

If you’re wondering why, despite his contrition at having taken an overseas break his spin doctors tried to keep secret, and his freely dispensed “thoughts and prayers”, Scott Morrison remained adamant for so long that all that was needed was already being done to help the firefighters, it’s because he knows that too much generosity on the feds’ part could see his precious budget surplus whittled down to nothingness.

Since its election in 2013, this government has been insistent that the budget should be returned to surplus by cutting government spending, not by explicit increases in taxes (hidden tax increases caused by bracket creep are okay, of course, because the punters don’t notice ’em).

Its first budget in 2014 was a long-term plan to improve the budget by what the bureaucrats call “cost-shifting”. Much of the cost of health and education was to be shifted onto the states’ budgets. Some was to be moved to your household’s budget via the $7 charge for visits to the doctor.

That budget was so badly received most of those plans were reversed. But Finance Minister Mathias Cormann and his accountants have continued to limit the growth in government spending by penny-pinching in ways that voters wouldn’t notice or object to.

They’ve got welfare dependency to “its lowest level in 30 years” not by getting the unemployed into jobs, but by using petty excuses to suspend people’s dole payments. How do these unfortunates live without money to live on? They fall back on their families or go cap-in-hand to the Salvos or Vinnies. Get it? The feds are cost-shifting to charities – the same community groups whose grants they’ve cut back.

According to a recent survey of its members’ staffs by the Australian Council of Social Service, 76 per cent of staff dealing with housing the homeless reported an increase in demand, as did 71 per cent of those providing financial counselling and support (aka money). Respondents to the survey said the unmet demand naturally had adverse impacts on the community. Where people fall through the cracks they can end up in hospitals or the justice system (cost-shifting to the states).

I’ve been reading about how many small country towns are relying on newly formed charities for their supply of water. More broadly, the desire to limit government spending encourages politicians to ignore reports warning of looming troubles and push problems off into the future. Some of the foreseen problems fail to materialise, but many eventually reach crisis point and can no longer be ignored.

The aged care royal commission is revealing the shocking results of one attempt to keep government small by relying on for-profit providers, underspending on the provision of home-care packages and on policing institutions’ adherence to the rules.

Which brings us back to our truly heroic volunteer firefighters. Morrison’s reluctant decision to pay them $300 a day for a maximum of 20 days is the least he can do to acknowledge their loss of income (or annual leave) while serving their communities.

His reluctance – and anxiety to emphasise it’s not a payment of wages – is understandable, however. Behavioural economics is clear that paying people to do what they formerly did without payment can kill the motivation to donate your services for noble reasons. Morrison has stressed that this response to a problem of unprecedented severity shouldn’t be seen as setting a precedent.

Good luck with that. If climate change is making drought, heatwaves and bushfires bigger and more frequent, the horrific events of this summer will become a regular occurrence – meaning the days of leaving bushfire fighting to unpaid volunteers are numbered.

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Orana to Christmas, summer and the chance to go bush

Out on the plains the brolgas are dancing
Lifting their feet like war horses prancing
Up to the sun the woodlarks go winging
Faint in the dawn light echoes their singing
Orana! Orana! Orana to Christmas Day

To me one of the nicest bits of Christmas is a chance to sing the Australian carols of the old ABC’s William G. James, including Carol of the Birds. Orana, by the way, means welcome.

I don’t like to boast, but one of my achievements this year was to see a brolga. Several, in fact. Flying rather than dancing but, even so, one to cross off my bucket list. I’ve also seen jabirus, magpie geese, comb-crested jacana, osprey, white-bellied sea eagles, red-tailed black cockatoos and crocodiles, fresh and salty.

I’ve also seen Timorese ponies, Asian buffalo and – more surprising – Indonesian banteng cattle. By now the banteng are endangered in Indonesia, but going strong in northern Australia.

All during a 12-day tour of Arnhem Land, bouncing along unsealed roads in a truck converted to a bus, to visit remote Aboriginal communities (complete with permits) and cave paintings. An unforgettable experience, one moneyed Baby Boomers should consider before they jet off on yet another exploration of other people’s homelands.

Actually, I sometimes wonder whether the day is coming when – because of the damage it does to the atmosphere – we will look back with amazement and envy on the relatively brief golden age when flying for tourism was not only permitted but dirt cheap, so we roamed the globe whenever we could get away.

It’s a terrible thought. Let’s hope it never happens, thanks to some technological advance in aircraft fuel. But while it lasts, let’s not forget what a privileged generation we are.

But what of ecotourism? Is it as virtuous as we wilderness wanderers like to imagine, or will the new age puritans put the kybosh on that, too?

Well, I’ve been checking what the academic experts are saying – courtesy of my second-favourite website, The Conversation – and, though you can find the killjoys if you look, I think ecotourism gets a qualified tick.

It’s true that, in an ideal world, we’d all stay at home admiring nature from afar and insisting the politicians keep the outback – and other continents’ backblocks – locked up and in pristine condition. Where damage had already been done, we’d happily pay high taxes to compensate farmers, miners and tour operators for closing their businesses, and to restore the land to its former state.

No, not going to happen. Those who live in far-flung parts aren’t going to renounce the material ambitions that drive the rest of us. They’ll continue finding ways to make a buck. If so, ecotourism – whatever its downsides – will do a lot less harm than many other ways for bushies to earn a living.

Dr Guy Castley and two other researchers at Griffith University find ecotourism can contribute to conservation or adversely affect wildlife, or both. Attitudes of local communities towards wildlife influence whether they support or oppose poaching. Income from ecotourism may be used for conservation and local community development, but not always.

But for seven of the nine threatened species they studied – the great green macaw in Costa Rica, Egyptian vultures in Spain, hoolock gibbons in India, penguins, wild dogs and cheetahs in Africa, and golden lion tamarins in Brazil – ecotourism provided net conservation gains.

This was achieved through establishing private conservation reserves, restoring habitat or by reducing habitat damage. Removing feral predators, increasing anti-poaching patrols, captive breeding and supplementary feeding also helped.

For orang-utans in Sumatra, however, small-scale ecotourism couldn’t overcome the negative effects of logging. And for New Zealand’s sea lions, ecotourism only compounded the effects of intensive fishing because it increased the number of pups dying as a result of direct disturbance at sites where the sea lions came ashore.

Michele Barnes and Sarah Sutcliffe, of James Cook University, studied the effect of a shark education and conservation tour off the coast of Oahu, Hawaii. Sharks are crucial to our marine ecosystems, yet many shark populations are in decline because of fishing (particularly for shark-fin soup), fisheries bycatch, habitat destruction, and climate change.

Sharks have a PR problem. They are feared by many, demonised by the evil media, treated as human-hunting monsters, and cast as the villains in blockbuster movies. In many places, governments cull sharks in the name of beachgoers’ safety.

The researchers found that the program gave participants significantly more knowledge of the ecological role of sharks and a more favourable attitude towards them. It also had a significantly positive effect on people’s intentions to engage in shark conservation behaviour. This remained true even after allowing for the participants’ greater initial positive attitudes towards sharks than the public generally.

Even when not off somewhere exotic, my family almost always ends up holidaying in or near some national park. But what about all the damage done to parks to accommodate the needs of tourists?

Dr Susan Moore, of Murdoch University, and others from Southern Cross University, argue sensibly that parks need visitors to get vital community and political support.

“We need people in parks because people vote and parks don’t,” they say. “Strong advocacy from park visitors for environmentally friendly experiences, like wildlife viewing, photography, hiking, swimming, canoeing and camping, can counterbalance pressures for environmentally destructive activities such as hunting and grazing.” Amen to that.

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It may upset you to think about climate change and the economy

It’s coming to something when we get so little leadership from the bloke we pay to lead us that the unelected have to fill the vacuum. Now 10 business organisations have united to urge Scott Morrison either to set out the climate policy rules to drive action by the private sector, or end up spending a shedload of taxpayers’ money fixing the problem himself.

It’s not just business that’s dissatisfied. The Morrison government may be dominated by climate-change deniers, but almost all economists accept the science of global warming and believe we should be doing our bit to help limit it.

And though our elected government may be in denial, the Reserve Bank – like other central banks – isn’t. Nor are the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.

The Queensland Treasurer, Jackie Trad, asked federal Treasurer Josh Frydenberg if the Reserve’s deputy governor, Dr Guy Debelle, could be invited to talk about climate change and the economy at the recent meeting of treasurers, but Frydenberg declined.

So what was it Frydenberg didn’t want his fellow treasurers thinking about? Well, we can get a fair idea of what Debelle would have said from a speech he gave earlier this year.

But first, why do so many economists accept the science? Because they know very little about the science and so accept the advice of the experts, especially since there’s so much agreement between them.

And there’s another reason. Economists believe they can use their expertise to help the community make the changes we need to make with the least amount of cost and disruption to the economy.

As Debelle reminds us, “the economics profession has examined the effects of climate change at least since Nobel Prize winner William Nordhaus in 1977. Since then it has become an area of considerably more active research in the profession. There has been a large body of work around the appropriate design of policies to address climate change (such as the design of carbon pricing mechanisms), but not that much in terms of what it might imply for macro-economic policies” – that is, for efforts to stabilise the macro economy as it moves through the ups and downs of the business cycle.

Debelle says the economy is changing all the time in response to a large number of forces, but few of them have the scale, persistence and risk to the system that climate change has.

Macro economists like to classify the various “shocks” that hit the economy as either positive or negative and as hitting the demand side of the economy or the supply side. For instance, they know a positive demand shock increases production (gross domestic product) and prices. The monetary policy response to such a shock is obvious: you raise interest rates to ensure inflation doesn’t get out of hand.

Shocks involving the climate affect the supply (output) side and are common. An unusually good growing season would be a positive supply shock, whereas a drought or cyclone or flood would be a negative supply shock, reducing output but increasing prices.

This is a trickier shock for monetary policy to respond to because it’s both contractionary (suggesting a cut in interest rates) and inflationary (suggesting higher rates). The Reserve’s usual response is to “look through” (ignore) the price increase, assuming its effect on inflation will be temporary.

Historically, the Reserve has assumed all climate events are temporary, with things soon returning to where they were. That is, they’re cyclical. It’s clear from the reports of the Intergovernmental Panel on Climate Change, however, that climate change is a trend - a lasting change in the structure of the economy, which will build up over many years.

Of course, though climate change’s impact on agriculture continues to be great, it presents significant risks and opportunities for a much broader part of the economy than agriculture.

Debelle says we need to reassess the frequency of climate events and our assumptions about the severity of those events. For example, the insurance industry has recognised that the frequency and severity of tropical cyclones has changed. It has “repriced” how it insures against such events.

Most of us are focused on “mitigating” – reducing – future climate change. But Debelle says we also need to think about how the economy is adapting to the climate change that’s already happened and how we’ll adapt to the further warming that’s coming, even if we do manage to get to zero net emissions before too long.

“The transition path to a less carbon-intensive world is clearly quite different depending on whether it is managed as a gradual process or is abrupt,” he says euphemistically. “The trend changes aren’t likely to be smooth. There is likely to be volatility around the trend, with the potential for damaging outcomes from spikes above the trend.”

Both the physical impact of climate change and the adjustment to a warmer world are likely to have significant economic effects, he says.

Economists know from their experience with reducing import protection that the change from the old arrangements to the new involves adjustment costs to some people (workers who have to find jobs in other industries, for instance) even if most people (consumers of the now-cheaper imports, for instance) are left better off.

Economists press on with advocating such painful changes provided they believe the gains to the winners are sufficient to allow them to compensate the losers and still be ahead. But Debelle admits that, in practice, the compensation to the losers doesn’t always happen, leaving those losers very dissatisfied.

That’s bad enough. But Debelle fears that, with climate change and the move to renewables, the distribution of benefits and costs may be such that the gains to the winners in new renewables industries aren’t great enough to cover the losses to the losers even in principle, let alone in practice.

Nah, all too hard. Let’s just ignore it and hope it goes away.

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Recycling is all about being taken for a ride

Another day, another crisis. The crisis in kerbside recycling has been building since China effectively refused to take any more of our rubbish about 18 months ago. Then we sent it to other Asian countries, but now they’re jacking up, too.

The disruption to the local recycling industry has caused one company that accepted recycled material from local councils in Victoria and South Australia to collapse, leaving five big warehouses stuffed with baled paper and plastic that no one wants.

But then Scott Morrison took charge. At a meeting with the premiers, they agreed to establish a timetable to ban the export of waste plastic, paper, glass and tyres. In the meantime, he committed $20 million for “innovative projects to grow our domestic recycling industry”.

Morrison said Australia needed to take responsibility for its own waste, but this moral act should be seen as a money-making opportunity rather than a new economic burden. The changes should “not have to cost us more – in fact, hopefully, it’ll cost us less”.

Minister for Industry Karen Andrews said: “Boosting our onshore recycling industry has the potential to create over three times as many jobs as exporting our plastic waste, ensuring a more sustainable and prosperous future.”

Really? Sounds delusional to me. The truth is that most of what we put out each week is of little value to business – especially after you’ve had to move it, sort it, move it again, clean it up, melt it down or whatever.

It’s not clear that the cost of making our waste attractive to local businesses would be less than they were prepared to pay for it. If not, we’d pay through higher taxes. Of course, governments could compel businesses to use recycled materials, but if this increased their costs we’d pay through higher prices.

This is why, until now, so much of our waste – and that of the Americans, Japanese and Europeans – has been shipped around the world to Asian countries. That’s where wages are low enough to make feasible all the work involved in recovering waste materials.

But even they are now deciding it’s not worth all the air pollution, chemical emissions, discharge of untreated water and damage to workers’ health involved. A fair bit of the plastic can’t be recycled and gets burnt.

So we could spend a lot more than we do at present ensuring that we recycle a high proportion of our own household waste, but before we do we ought to ask ourselves how we’ve come to believe that recycling most of the stuff we discard is absolutely central to our efforts to reduce the damage we’re doing to the natural environment.

Why are we putting recycling on a higher pedestal than reducing carbon emissions? Because it’s easier? We’re learning it’s not as easy as it seems.

If the amount of household waste is such a problem, why are we emphasising recycling rather than reduced packaging? Because governments don’t like telling big business what it can and can’t do?

It amazes me that we’ve put recycling up there with motherhood and never stop to question whether it’s the best use of our time and money in the “environmental space”.

I think recycling involves a high degree of self-delusion (and don’t worry, I’ve been known to completely repack our bin so as to fit more in). It’s more about feeling good than doing good.

We’ve taken to recycling because, with just a small effort on our part, we’re able to convince ourselves we’re doing our bit to save the planet. (I remember shopping at a supermarket in California, with all its indulgences and absurd degree of choice. At the checkout, you were asked whether you wanted your stuff packed in “paper or plastic”. All you had to do was say “paper” and you emerged with a clear conscience.)

With kerbside recycling, it’s out of sight, out of mind. I played my part, what happens after that is up to the government. Turns out, we’ve been sweeping our dust under the carpet and only now are noticing the bulge.

Governments have found it easier to play along with our delusions – see above – than tell us the disillusioning truth. Green groups and ecologists also play along because they think it gives us something to do and keeps us engaged with their issue.

Nobody actually wants the stuff, so the authorities have been shipping it off to Asia on the q.t. Much of the stuff that doesn’t get shipped away ends up in landfill anyway.

What do we imagine recycling achieves? How much further use of fossil fuel, water, chemicals and other damage to the environment is justified to ensure the last bit of paper or bottle cap is recycled?

Recycling’s total effect on the environment is a far more complicated sum than it suits governments and experts to tell us.

For instance, we know how bad single-use plastic bags are. What we’re not told is that, according to a British government study, you have to use a paper bag three times – or a cotton bag 131 times – to be sure that, once the effect of producing the bag is taken into account, you’ve contributed to fewer carbon emissions.

We need to be sure we’re directing our effort and expense towards the most environmentally beneficial ends.

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One day the world's population will start falling

For those who worry about global warming and all the other damage humans are doing to our planet, the latest news on world population growth doesn’t seem good. Fortunately, however, the relationship between population and the environment is paradoxical.

The United Nations Population Division updated its projections in June. From its present 7.7 billion, the world’s population is projected to have grown by 2 billion in 2050. It should reach a peak of nearly 11 billion at about the end of this century, before it starts to fall.

Fortunately, projections are just projections, based on a lot of assumptions that may or may not prove to have been accurate. Some prominent demographers believe the UN’s assumptions are too pessimistic.

It’s a mistake to imagine that controlling world population growth is just a matter of access to effective contraception. Economic development also plays a big part.

It’s the activity of humans that generates greenhouse gas emissions and does other damage to the natural environment, using up non-renewable resources, over-using renewable resources such as fish stocks and forests, damaging soil and waterways, and making species extinct.

So the more people, the more damage. Most human activity is economic – people earning their living. And, the way economies are organised at present, the richer people become, the more damage they do.

But here’s the paradox: the richer people become, the fewer children they have.

As my favourite magazine, The Economist, noted in an article, before the Industrial Revolution the typical woman probably had seven or more children. In 1960, the global fertility rate was six children per woman. Today it’s 2.5.

Within that global average, the fertility rate in rich countries is 1.7 children, below the replacement rate for a stable population of 2.1. In middle-income countries it’s 2.4, not far above replacement. In poor countries, however, it’s 4.9 children.

The first economic factor to reduce family size is urbanisation. When you leave the farm, you don’t need as many kids to help with the work. (Both my parents grew up on farms early last century. Dad was one of 14, and Mum one of eight. Their four children, however, had an average fertility rate of 2.5.)

But perhaps the most important factor is the spread of education, particularly of girls. It’s well established that the more years girls spend at school, the fewer babies they have.

“Education reduces fertility by giving women other options,” The Economist says. “It increases their chances of finding paid work. It reduces their economic dependence on their husbands, making it easier to refuse to have more children even if he wants them.

“It equips them with the mental tools and self-confidence to question traditional norms, such as having as many children as possible. It makes it more likely they will understand, and use, contraception.

“It transforms their ambitions for their own children – and thus the number than they choose to have.”

Worldwide, the proportion of girls completing primary school has risen from 76 per cent in 1997 to 90 per cent today. The proportion completing lower secondary school is nearing 80 per cent.

Fertility rates are low in Europe – particularly in Italy (1.33) – and in Japan (1.37). They’re below replacement rate in New Zealand (1.9), Australia (1.83) and the US (1.78).

But the lowest fertility rates are in emerging Asia: Taiwan (1.15) and South Korea (1.11). In the world’s most populous country, China, it’s 1.69, thanks to the one-child policy. After the relaxation of that policy it rose only briefly. Flats are too small and childcare too limited.

By contrast, India’s rate is 2.24, pretty close to replacement. And it varies greatly from 1.8 in wealthy states such as Maharashtra, to more than 3 in poor states such as Uttar Pradesh. Even so, India's population is expected to overtake China’s in 2027.

Because fertility rates cover the whole child-bearing lives of women, it takes a long time for the population of a country that's a bit below the replacement rate to start falling – assuming they don’t top up with immigration, as we do.

Even so, 27 countries’ populations have fallen since 2010 – sometimes with low fertility rates reinforced by high emigration. Over the next 30 years, 55 countries’ populations are projected to fall – almost half of them by more than 10 per cent. China’s may fall by about 31 million, or 2 per cent.

So what’s the problem? In a word: Africa. Its painfully slow rate of economic development leaves it still with fertility rates of five or six, including big countries such as Nigeria, the Congo, Ethiopia and Tanzania.

The best hope that the world’s population will stop growing sooner than the UN projects is that it has underestimated the rise of girls’ education in Africa (and India and Pakistan).

Of course, economic development is two-edged. It may stop population growth, but it makes everyone else richer and thus makes more demands on the environment.

Just as we can limit climate change without reducing energy use by switching to renewable sources, so we could reorganise the economy in ways that ensured continued economic growth didn’t involve continued destruction of the environment. If we had the will.

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Change is inevitable. If we embrace it we win; resist it we lose

Will Australia’s future over the next 40 years be bright or pretty ordinary? It could go either way, depending on how we respond to the challenges facing us. So what do we have to do to rise to the occasion?

The challenges, choices and likely consequence we face are spelt out in the report, Australian National Outlook 2019, produced by the CSIRO in consultation with 50 leaders from companies, universities and non-profits. The group was chaired by Dr Ken Henry, former Treasury secretary, and David Thodey, former boss of Telstra.

The report identifies six main challenges we face between now and 2060. First is the rise of Asia and the way it is shifting the geopolitical and economic landscape.

Asia’s middle class is growing rapidly, but unless we improve our ability to compete and also diversify our exports, we risk missing out on this opportunity and will be vulnerable to external shocks.

Next is the challenge of technological change, such as artificial intelligence, automation and biotechnology, which is transforming existing industries and changing the skills required for high-quality jobs.

Third challenge is climate change, the environment and loss of biodiversity. These pose a significant economic, environmental and social threat to the world and to us. We could be on a path to 4 degrees global warming by the end of the century unless significant action is taken.

Then there’s the demographic challenge: at current growth rates Australia’s population may approach 41 million by 2060, with Sydney and Melbourne housing 8 to 9 million people each. At the same time, ageing means the population’s rate of participation in the workforce could drop from 66 per cent to 60 per cent. (I don’t accept that such a rate of population growth is either inevitable or desirable.)

The fifth challenge is that trust in governments, businesses, other organisations and the media has declined. Without a lot of trust, it will be much harder to agree on the often-tough measures needed to respond to all these challenges.

Finally, measures of social cohesion have fallen in the past decade, with many Australians feeling left behind. Inequality, financial stress, slow wage growth and poor housing affordability may be contributing to this.

The report develops two plausible but opposite scenarios of how things may develop over the next 40 years. The “slow decline” scenario is the muddle-through future, in which we resist change for as long as we can. In the “outlook vision” scenario we agree to bite the bullet, resist the lobbying of declining industries, make the needed policy changes and exploit the benefits of new technology and trading opportunities.

Under the low-road scenario, real gross domestic product grows at an average rate of 2.1 per cent a year, whereas under the high-road scenario it grows by 2.8 per cent. This would cause average real growth per person to be 39 per cent higher than under the low-road.

Real wages would be 90 per cent higher in 2060 than today, compared with 40 per cent higher under the low-road.

The low-road approach would allow cities to continue to sprawl, whereas the high-road would involve increasing the density of cities by about 75 per cent compared with today. This would keep our cities highly liveable.

Urban congestion could be reduced by higher density. Vehicle kilometres per person would fall by less than 25 per cent under the low-road, compared with up to 45 per cent under the high-road.

Net carbon emissions would fall by only 11 per cent under the low-road, with total energy use increasing by 61 per cent on 2016 levels, and only a modest improvement in energy productivity (efficiency).

By contrast, net zero emissions would be reached by 2050 under the high-road, with a doubling of energy productivity per unit of GDP and total energy use increasing by less than 45 per cent.

Whereas returns to landowners would increase by about $18 billion a year under the low-road, they’d increase by up to $84 billion a year under the high-road.

There’d be minimal environmental planting in 2060 under the low-road, but between 11 to 20 million hectares under the high-road, accounting for up to a quarter of intensive agricultural land. This “carbon forestry” explains why net zero emissions could be achieved without significant effect on economic growth.

More biodiverse plantings and better land management could help restore our ecosystems. And low-emission, low-cost sources of energy could even become a source of comparative advantage for us, with exports of hydrogen and high-voltage direct-current power.

The report says we need to achieve five key shifts to get us on to the high road. First, Industry. We need to allow a change in the structure of our industry, by increasing the adoption of new technology and so increasing productivity. We need to invest in the skills of our workers to keep their labour globally competitive and ready for the technology-enabled jobs of the future.

Second, urban sprawl. We need to plan for higher-density, multicentred and well-connected capital cities to reduce sprawl and congestion. We need to reform land-use zoning, so diverse high-quality housing options bring people closer to jobs, services and amenities. We must invest in transport infrastructure, including mass-transit, autonomous vehicles and "active transit", such as walking and cycling.

Third, energy. We must manage the shift to renewable energy, which will be driven by declining technology costs for generation, storage and grid support. We need to improve energy productivity using new technology to reduce the waste of power by households and industry.

Fourth, land. We need to use digital and genomic technology to improve food technology and to participate in new agricultural environmental markets to capitalise on our unique opportunities in global carbon markets. This will help to maintain, restore and invest in biodiversity and ecosystem health.

Finally, culture. We need to rebuild trust, encourage a healthy culture of risk-taking and deal with the social and environmental costs of reform policies.

Trouble is, a public that’s willing to re-elect the reactionary Morrison government seems more likely to settle for the low-road than strive for the best we could be.

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