Tipping Point 02: Climate Change and Economics

Posted on 12 November 2010


According to CSIRO’s Dr Stefan Hajkowicz who is an economist, economics has interesting views on climate change. To explain how to an audience of non-economists, he first explained the concept of the ‘invisible hand of the market’ which was what the father of modern economics, Adam Smith, called the self-regulating nature of the market.

He invisible hand is the personification of how economic forces make sure things are put in the right place in the world to create mutually advantageous transactions between parties. Transactions like ‘if I get up real early and bake bread, you’ll come and buy it a bit later. You get bread; I get money’. This pattern does a good job of meeting people’s needs.

Then he went on to say that climate change and the things impacting on it is an area where it doesn’t work. The example he used was companies not receiving a price signal that prevents them from causing damage via emissions so it isn’t a mutually beneficial transaction. Therefore, says Dr Stefan, global carbon markets—ie charging big carbon producers for their emissions—will be the internalising of environmental components built into the price. He mentioned that a downside might be that making things more expensive for big companies causes food prices to rise.

Whatever happens, it sounds like there are already and will continue to be significant behavioural changes happening globally to cope with all these changes and help people survive.

Overall it was a refreshingly, unexpectedly optimistic talk by someone who is in the middle of the science of what’s happening to our home. (In the question time after the presentations there were a couple of comments that he didn’t convince everyone!)

You can see all my Tipping Point posts under the Tipping Point tag.