The impressive Warwick McKibbin
Time is important to Warwick McKibbin. Arguably Australia?s busiest, quite possibly Australia?s most brilliant, technical economist he measures it in slivers. It is also at the core of his world-renowned economic model.
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He has sold more than 150,000 copies of his software worldwide. His clients like it because it is better at predicting how an economy will react to shocks than its more expensive competitors. It takes into account the value of time. McKibbin likes to joke that he is only small businessman on the Reserve Bank Board.
When I do meet him in his office at the ANU?s Coombs Building there is no time to waste. We sit down at a side table and he explains with passion how almost everyone on both sides of the climate change debate is wrong.
It takes me back to when we first met, in Tokyo when I was working as the ABC?s correspondent. Warwick McKibbin phoned, said he was visiting and suggested that we have a bite to eat. Back then experts were either supporters or opponents of the Kyoto Protocol. I don?t remember the detail what he said over soba noodles but I do remember the way in which he said it.
It was obvious that both sides were wrong. Globally agreed targets to cut carbon emissions would never work, and nor should they. Why adopt a target when no-one knew what it was necessary to achieve? What you needed was a mechanism that would set up a framework for action and get people on board. He had come with a framework that would work and in time people would see that his was the right one.
I asked him where I could find out more. He spelled out his web address: www.notwrong.com
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McKibbin says he was selected personally by the Prime Minister to serve on the Switkowski Review into Nuclear Energy. ?He wanted serious people on this review and I am probably the only person in Australia who has done serious work on this.?
The review was widely expected to find that there was an economic case for uranium enrichment, for the storage of foreign nuclear waste in Australia and for a domestic nuclear power industry without the need for a carbon tax. It found none of those things.
McKibbin says he is pretty sure that John Howard was surprised: ??but then I usually don?t toe any line, I just speak what I believe.?
He believes that it is the Switkowski inquiry that has led to the current remarkable inquiry into carbon emissions trading, an idea the Prime Minister once said he never would countenance.
McKibbin asked not be a member of the Prime Minister?s emissions trading task force. He wants to present his ideas to it. They are ideas that should strike a chord with the Prime Minister.
McKibbin says the Kyoto Protocol cannot and will not work. For one thing it requires international governments to trust each other to do the right thing. And even if they did the flows of capital across borders as emission permits were traded would massively distort exchange rates.
And there?s something else. Treaties lock governments into targets that they lack the political ability to meet. ?In a democracy, a policy doesn?t become credible simply by being written into law. Every subsequent government will have the ability to repeal the law or to relax enforcement until it is irrelevant. Why would an energy company want to make a long-term investment knowing that? It?d easier to lobby to neuter the law.?
McKibbin says what is needed is a scheme that will create a constituency with a strong financial interest in keeping the climate change policy on track: ?Bluntly, you?ve got to create a powerful lobby group that will vigorously resist backsliding.?
Here?s how it work for Australia. Carbon emissions would be illegal without a permit. But the government would issue lots of them, enough to cover somewhat less than Australia is emitting now. The permits would allow the emission of one tonne of carbon each year for the next 100 years. (?About the lifespan of a Canberra lease,? he says).
The government would hand them out for free. But ? it would hand out only half of them to carbon emitters. The rest it would give as a gift to each Australian household ? probably two permits per household, worth about $1000 each. Polluters will need them and they will try to buy them from households.
?But $1,000 doesn?t sound like much money?, I suggest. What sort of incentive is that going to give households?
?If you hold on to it, it would be like being given Microsoft shares. Eventually as the price of carbon emissions climbs those permits would be worth an enormous amount of money,? McKibbin says.
Households will find it worthwhile to lease their permits out to business rater than sell them. Each year the government will set a new price of carbon (?in the same way as the Reserve Bank sets interest rates?) and if that price is higher the value of the permits will increase. A constituency will be created that wants the government to increase the price of carbon every year.
If the government ever tried to walk away form the scheme or water down its enforcement, it would have a mutiny on its hands. Householders, businesses and superannuation funds would be ropeable at the prospect of seeing the value of their investments plunge to zero.
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The McKibbin scheme is carbon trading without a carbon target and without Kyoto, the sort of thing likely to appeal to Australia?s Prime Minister. As might the notion of a nation of carbon-permit capitalists. John Howard has talked often of his pride in helping create the world?s biggest share-owning democracy. McKibbin?s idea might help him go further.
