Andrew Leigh

The ANU has recently posted on their website the video of Lindsay Tanner speaking about his new book, Sideshow (introduced by Gia Metherell and thanked by yours truly). It's just on an hour long, but well worth watching.

Andrew Leigh and Andrew Southcott debate the price on pollution on ABC News 24 Capital Hill, hosted by Lyndal Curtis.http://www.youtube.com/embed/Rdmc0gtatkI

In his new book, Adapt, economic journalist Tim Harford tells the story of ‘Geoff’, a man who is determined to reduce his carbon emissions. As he goes through his day, Harford shows Geoff making a series of well-intentioned mistakes: going out of his way to wash his dishes by hand rather than use the dishwasher (Harford argues that the dishwasher has a smaller carbon footprint), but then choosing to tumble-dry rather than line-dry his clothes (which uses significantly more carbon). Geoff buys energy-efficient lightbulbs, but then decides not to install them until his existing ones pop (which will cost him more). He switches off his mobile phone charger, but leaves his desktop computer on standby (Harford tell us that the computer uses 100 times as much energy).

The point of Harford’s story is that solving climate change through personal action alone is hard. Even if we had a sophisticated computer program that could tell us the carbon intensity of a particular decision, how many of us would bother to check it?

Thankfully, there’s a simpler solution. The effect of putting a price on carbon is to change prices so that they reflect the carbon emissions embodied in them. Under a carbon price, an environmentalist doesn’t have to know precisely how a product was made – you just need to look at the price tag. By modestly changing prices (overall price impacts will be just 0.7 percent), carbon prices will change consumption patterns. As any marketer can tell you, customers already flock to cheaper brands. With a carbon price, there will be an incentive to choose the low-carbon option.

This incentive will exist for both firms and households. For firms, carbon pricing will encourage them to think hard about how they can reduce emissions. A recent Economist article gave the example of the potato chip firm Walkers, which discovered its carbon footprint was unexpectedly high.

‘It turned out that because Walkers was buying its potatoes by gross weight, farmers were keeping their potatoes in humidified sheds to increase the water content. Walkers then had to fry the sliced potatoes for longer to drive out the extra moisture. By switching to buying potatoes by dry weight, Walkers could reduce frying time by 10% and farmers could avoid the cost of humidification. Both measures saved money and energy and reduced the carbon footprint of the final product.’

With carbon pricing, we can expect to see simple changes like this taking place inside each of the 500 large polluters, as managers and workers look together for ways to reduce emissions. The better companies succeed, the more that business assistance can be used to grow the firm and increase employment.

Changing prices and providing assistance is the Labor way of achieving reform. As Paul Keating pointed out on Lateline, this is precisely why we floated the dollar. But it’s also a simple description of trade liberalisation (which reduced prices of imported vehicles and clothing, and provided industry assistance for textile and car workers), as well as the Accord itself (which kept real wages constant in exchange for improvements in the social safety net).

Unlike previous Liberal Party leaders – and conservative leaders in Britain and New Zealand – Tony Abbott refuses to accept that the market can be used to solve environmental problems. (Perhaps this suspicion of markets isn’t so surprising from a self-confessed admirer of the late BA Santamaria.) What Mr Abbott fails to realise is that a government that won’t use price signals has to fall back on heavy-handed alternatives like regulation, mandates and bans. That’s why the Coalition’s ‘Direct Action’ plan is so much more expensive – and less effective – than the Gillard Government’s Clean Energy Future approach. We’re now in the ‘Bizarro World’ in which Tony Abbott is the proponent of highly interventionist solutions, while Labor favours the market-based approach of pricing carbon.

Little wonder that a poll of members of the Economic Society of Australia, released at last week’s Australian Conference of Economists, found that 79 percent agreed with carbon pricing, while only 12 percent supported direct regulation. When it comes to reducing carbon pollution, a carbon price is the only sensible way to go.

(Cross-posted at the ALP blog)

ABC Canberra is looking for local storytellers for their 'Now Hear This' competition. This year's theme is 'Changes'.

More details here. One of last year's stars, Eleri Harris, is now an ABC producer and presenter, so you never know where the competition might lead you...

Today I held a mobile office with Member for Canberra Gai Brodtmann at the Civic bus interchange to discuss the Gillard Government's Clean Energy Future Plan.

Tackling climate change is an issue that many local families and businesses in the ACT have been eager to discuss with me, and there is a broad community consensus that the time to act is now.

The Labor Government's Carbon Price will target the biggest polluters, while driving investment in clean energy technologies and infrastructure. The package is designed to assist those who need it most, with 9 out of 10 households due to receive tax cuts or increased payments.

Details on the Clean Energy Future Plan can be found at  http://www.cleanenergyfuture.gov.au/.

I understand that many people will have questions about the Plan and how it will affect them. I am happy to answer these questions, so please feel free to email me or call my office on (02) 6247 3457 if you would like more information.

Talking carbon pricing with the locals.

John Quiggin is a rare beast. He produces 500 academic words a day, plus endless blog posts for his two blogs. He's written on just about every policy topic imaginable, and always manages to find something fresh to say about them. In fact, I can't recall a conversation of substance with John in which didn't learn something new - whether we were talking about water, education, crime or politics.

So I was most chuffed last night when John was awarded the Distinguished Fellow award from the Economic Society of Australia, following in a long line of extraordinary economists, including Trevor Swan, Colin Clark and Bob Gregory (who gave a splendid intro about John's shift from mathematics into economics).

Incidentally, I was also delighted to receive the Young Economist Award for the best Australian economist under 40, following on from my friends/coauthors Joshua Gans and Paul Frijters. (Thanks to Justin Wolfers and Joshua Gans for very kind words, and Danielle Cronin for writing it up in the local press.)

My AFR op-ed today explains why providing household assistance doesn't undermine the effect of introducing a carbon price.

The price is right for consumer shift, Australian Financial Review, 12 July 2011

One of the most persistent myths in Australian politics has been that providing household assistance undermines the effect of imposing a carbon price. If the prices of carbon-intensive products rise by $10 and you give me $10 in assistance, aren’t we back where we started?

If there was only one product in the world, the answer would be yes. If there’s only one thing I can buy, you can be sure that’s where every dollar in my wallet is going to go. So if you put the price of that product up and increase my income, I’ll carry on exactly as before.

Yet the one-product world is a far cry from the vast plethora of options facing modern consumers, who can spend on anything from a ballet lesson to a bunch of bananas, a train fare to a television. And here’s the insight from modern economics: when you have choices, changing relative prices changes behaviour.

While we’re sometimes coy about it, government policies change relative prices all the time. When we raise the first homeowner grant, house sales go up. When we cut tax rates on superannuation contributions, more people put money into their retirement accounts. When we raise cigarette taxes, fewer young people take up the habit. And when we tax alcohol, fewer people buy it.

Yet here’s the other thing: all these taxes and subsidies also affect government revenue. All taxpayers help subsidise homeowner grants and superannuation, and all of us share the revenue from alcohol and cigarette taxes. But the revenue impacts don’t undermine the price changes.

In understanding how carbon pricing works, there’s no more critical distinction than the difference between prices and incomes. Indeed, it’s this distinction that should make us optimistic about moving to a low-carbon economy. If some supermarket prices rise, but you have more money in your wallet, you have a choice: you can either buy the same amount of the high-carbon products, or make a switch to a low-carbon product.

One of the great things about a market economy is that we can leave it up to people to decide what’s best for themselves. For example, some might decide to turn off the beer fridge, so they can spend the household assistance on a new surfboard instead.

This will parallel the choices being made inside the 500 largest emitters, where managers will look for creative ways to cut CO₂ emissions in order to save money for the company. Indeed, when the US introduced an emissions trading regime in the 1990s to tackle acid rain, firms found so many innovative ways of reducing emissions that the eventual cost was just one-third of what the boffins originally anticipated. Anyone who thinks companies will shut up shop rather than find creative ways of reducing carbon emissions underrates the ingenuity of Australian businesses.

To see the fallacy in the ‘money-go-round’ argument, just think back to recent increases in households’ disposable incomes. When economic stimulus cheques were sent to millions of households during the global downturn, did families spend it all on high-carbon products? When the single pension was raised by $65 a fortnight in 2009, did pensioners put it all towards goods that produced carbon pollution? And when tax rates were cut in recent budgets, did taxpayers spend all the money on carbon-intensive commodities?

In each case, the answer is no. If you increase disposable incomes, we spent the money on the next thing we’re hankering after: a nicer brand of coffee, a new book, a visit to the cousins. The same principle holds for tax cuts and pension increases that will be delivered as part of the clean energy future plan.

By pricing carbon, we’re encouraging a shift to a cleaner economy. But assistance offers a simple guarantee to most Australian households: if you want to keep buying the same things, you’ll be able to do so. Indeed, some groups will receive a buffer – such as full rate pensioners, who will get a 1.7 percent increase in their pensions to compensate for a 0.7 percent price rise.

Since Tony Abbott has called economics ‘boring’, it’s perhaps not surprising that he is in complete misinformation mode on this point, describing tax cuts to assist households as ‘a con’. Yet language sometimes reveals. When universal superannuation was introduced in the 1990s, Abbott told parliament that it was ‘a con’. Let’s see how long he’s able to rage against good economic policy this time around.

Andrew Leigh is the federal member for Fraser.

I spoke in parliament last week about the Eastern University Games, hosted this year by the University of Canberra and ANU.

Eastern University Games, 7 July 2011

I rise to speak on the 2011 Eastern University Games, hosted this year by the University of Canberra and the Australian National University. The games were launched in style on Sunday night and finish up today. Canberra is playing host to 19 universities from across New South Wales, the ACT and, for the first time, New Zealand. The Eastern University Games complement the Northern, Western and Southern university games being held across Australia.

There are 1,600-plus students attending the Eastern University Games, which were opened by my good friend the ACT minister for sport, Andrew Barr. Representatives from the University of Canberra and the Australian National University appropriately took an oath on their own behalves and on behalf of all athletes to uphold sportsmanlike conduct and commit to a fair and fun week of competition. Last year's champions were the University of Technology Sydney, and all other universities are aiming to give them a run for their money this year. There are 15 sports being played at the Eastern University Games: basketball; football, futsal; handball; hockey; lawn bowls; netball; both kinds of rugby, league and union; squash; tennis; tenpin bowling; touch; volleyball; and ultimate frisbee. I would particularly like to pay tribute to the ultimate frisbee players, who have played this week in blizzard-like conditions in Canberra. To them, my hat goes off—as theirs no doubt did.

The games have been accompanied by a great social program, including 1980s nights, country and western nights and hero and villain nights. What the Eastern University Games represents is the notion that student life in Australia is alive and flourishing. Camaraderie at universities is a critical part of the student experience. The friends many of us make at universities are friends who we keep for life. On the sporting field, we not only make friends but learn new skills, such as how to win with grace and how to accept losing.

The teams that are coming together this week will in some cases be wonderfully well prepared. They will be teams that have been training together every week for the past year. But there will also be teams that have come together more recently, with not everyone feeling that they know their team mates. They will not necessarily all have been playing the sport since they were kids. I pay tribute to them as well, because they are in that great Aussie spirit of diving in and giving it a go. Good luck to all of those competing this week. May the best university win.