Challenging the infallible economist

Colm McCarthy chaired the Special Group on Public Service Numbers and Expenditure Programmes, better known as An Bord Snip Nua. It issued its various prescription for what ails us in July, and much of the national discussion since then has been framed through the McCarthy lens.

McCarthy fancies himself as a straight-talker, and last Friday he excoriated Comhar’s Green New Deal proposals in a newspaper article headlined: “Green plan a recipe for fudge and confusion in economic policy”. Deeper into his piece, McCarthy opines: “The “Green New Deal” package from Comhar is seductive in several dimensions, apart from the catchy moniker. It promises to help the environment and to create jobs, all at no apparent cost.

“But there is no long-term advantage in creating tax-subsidised jobs at the inevitable cost of job destruction elsewhere. On the contrary, further impositions on energy costs, through excess investment in favoured technologies, will render the economy less able to compete and recover”.

I have a teeny weeny problem with this analysis. McCarthy, prisoner as he perhaps is to the ideologies of classical economics, seems to think we can somehow pick and choose the bits of sustainability we like, and discard the ones we don’t, a smorgasbord of options for the clever economist to run his slide rule over.

McCarthy backs the view of climate change expert  Bill Nordhaus, that “raising the price of carbon is a necessary and sufficient step for tackling global warming”. If only. Comhar chairman Prof Frank Convery this morning runs a sword clean through the McCarthyite analysis. His killer point is that a carbon tax can only be applied to around a third of Ireland’s emissions, which is way below our legal obligations, never mind the level that might actually save our skins.

“These realities completely undermine putting a carbon tax forward as the singular solution to global warming, and were addressed in some detail by the Commission on Taxation”, says Convery, who himself was a member of said Commission, so speaks with some authority.

McCarthy scoffs repeatedly at the implied costs of a Green New Deal, what with the country being broke and all. His economics strait jacket starts to chafe a bit here. As Convery points out, a €20/tonne carbon tax adds 6.4– 12.9 per cent to the cost of natural gas and coal for household heating. This will make a “pay as you save” package for domestic purposes – whereby increased energy efficiency is funded by the difference between the before and after heating bill – attractive to many households. Subsidies can then be directed exclusively at enhancing fuel efficiency in poor households. This combination could reduce exchequer costs, stimulate the biomass for heat business (the carbon tax in Sweden had exactly this effect) and reduce fuel poverty, says Convery.

In simple terms, in a country that imports virtually all its energy saving energy saves money. QED, Colm. “Comhar SDC’s proposals for a Green New Deal do not ignore the state of public finances; rather it is a reaction to them”. In one of Europe’s most wind-swept countries, only an economist as eminent as Colm McCarthy could warn us off a massive investment in this sector.

Heavens forbid that we might actually become a net energy exporter, imagine what that would do to our balance of payments, and all using the zero carbon, zero pollution energy that, under both Kyoto and our binding EU commitments, we are compelled to do anyhow, or face crippling financial penalties. Has McCarthy factored these penalties into his jeering critique of the Comhar document?

Elsewhere in today’s paper, comes a report that the Arctic ice pack will have pretty much disappeared entirely by 2020. This is the finding of the The Catlin Arctic Survey, which has found that virtually all the remaining sea ice is what’s called young ice, i.e. ice a year or less old. “It won’t be very long before we have to start thinking of the Arctic as an open sea. Man has taken the lid off the northern end of his planet and we can’t put that lid back on again”, said Peter Wadhams, Professor of Ocean Physics and head of the Polar Physics Group.

Allow me to translate the above into language even an eminent economist can understand: our entire way of life is at the very edge of the abyss. Nothing short of rapid, immediate and dramatic steps to decarbonise our society and economy will suffice. Nothing.

Let me expand: losing the Arctic sea ice pack is the same as switching off one of the Earth’s two air conditioning systems. Worse, it will result in a massive increase in the absorption of incoming solar radiation, as the albedo effect of snow pack is lost. The effect of this would be equivalent to dumping around a century’s worth of additional CO2 emissions into the atmosphere, all in the next 20–30 years.

Smart fellows like Colm McCarthy could do worse than putting their economic modelling to one side for a moment and instead pay climate modelling the extremely urgent attention it demands – while we still can. This notion that “Greening the economy” is some woolly fudge that we can have a look at when there’s nothing serious on the agenda is a mindset that pervades our so-called intelligentsia/commentariat.