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Managing Environmental Capital: The Case of Climate Change

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All human productive activity has some impact on the environment—magnified in recent years by population growth and industrial and domestic demand for energy. It can no longer be assumed that market operations and technology will resolve these huge emerging problems without serious consequences for humanity. This chapter focuses on the problem of global warming and the formidable political difficulties that continue to be experienced in establishing an effective program to bring greenhouse gas emissions under control. Climate change has been described as a ‘diabolically difficult’ problem of collective action. The chapter views it in terms of interaction among four main groups: current producers and users of fossil fuel energy, scientists and economists who have defined the nature and magnitude of the problem and proposed ways to resolve it; the broad public; and national politicians. Following the 2015 Paris Agreement (COP 21), many consider that political momentum towards limiting emissions has significantly increased, although it is acknowledged that even if all country commitments are fulfilled, the global target of limiting global warming to 2 degrees Celsius may not be achieved—unless overachievement by some (such as China) compensates for failure by others. Climate change thus constitutes a landmark case for both the necessity of measuring environmental impact in terms of likely global social costs and using economic instruments to guide behaviour in this area. The chapter includes an overview of climate policy development and political opposition in Australia to illustrate and emphasize the complex political dynamics involved at the national level.


  • Global warming
  • Climate action
  • Greenhouse gases (GHGs)
  • Emissions trading
  • Carbon price
  • Paris Agreement
  • Australia
  • National and global politics

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Chart 6.1


  1. 1.

    President Trump during his campaign and subsequently has used the social media ruthlessly to promote a set of favoured beliefs/memes spread by modern media (‘climate change is a hoax’, ‘drain the swamp’, ‘make it in the USA or pay a border tax’). This technique, aimed against professional ‘elites’, poses extreme social dangers because of rapidity and simplicity of transmission and difficulty of presenting more complex counterarguments. The role and importance of professional elites is developed more generally in Chaps. 7 and 8.

  2. 2.


  3. 3.

    The Agreement entered into force on November 4, 2016, thirty days after ratification by the threshold of 55 parties. 125 parties had ratified prior to COP 22 held in Marrakech. See

  4. 4.


  5. 5.

    See Sandler (2004), Chap. 10.

  6. 6.

    In fact, President Trump did confirm his intention to pull out of the Paris Agreement at the G7 Summit. The ramifications of this action are discussed in the Epilogue.

  7. 7.

    See Epilogue.

  8. 8.

    As discussed further in Chap. 7, the Trump campaign went well beyond what has been earlier described as ‘dog whistle’ tactics. John Zaller’s analysis of the Clinton and Trump campaigns, referenced in that chapter, gives a fuller and more worrying interpretation.

  9. 9.

    See Garnaut (2013) for a description of Australia’s fiscal trajectory prior to the GFC, immediately after, and the likely ‘dog days’ ahead.

  10. 10.


  11. 11.

    A very useful timeline of these events prepared by the Australian Broadcasting Commission (ABC) is given on The ABC also aired a three-part television documentary series, The Killing Season, by Sarah Ferguson, covering the political events. See

  12. 12.

    See Garnaut (2008), Introduction: “Observation of daily debate and media discussion in Australia and elsewhere suggests that this issue might be too hard for rational policy making. It is too complex. The special interests are too numerous, powerful and intense. The time frames within which effects become evident are too long, and the time frames within which action must be effected too short.

    “But there is a saving grace that may make all the difference…. A high proportion of Australians say that they are prepared to pay for mitigation in higher goods and services prices. Most of them say that they are prepared to pay even if Australia is acting independently of other countries. There is a much stronger base of support for reform and change on this issue than on any other big question of structural change in recent decades, including trade, tax and public business ownership reform… . Public attitudes in Australia and in other countries create the possibility of major reform on emissions reductions, despite the inherent difficulty of the policy problem.”

  13. 13.

    Implicitly, many major oil enterprises, such as Exxon-Mobil, already do so by applying a shadow oil price to guide their investment decisions. No doubt this tactic is primarily a defensive one to avoid overinvestment in the expectation that a global scheme to limit GHG emissions will eventually be put in place. Likely, however, some within the industry acknowledge the value of climate change science.

  14. 14.

    Roger Wilkins (2008), Strategic Review of Australian Government Climate Change Programs, Department of Finance and Deregulation Financial Management Group.

  15. 15.

    Council of Australian Governments (COAG), (2010), Final Report: Jurisdictions’ Reviews of Existing Climate Change Mitigation Measures, Complementary Measures Sub-Group.

  16. 16.

    The Wilkins report emphasized the likelihood that Australia would suffer significantly from climate change and that too little was being done in this area. It suggested that, while the Commonwealth should take the lead in mitigation response, states and local government should have lead responsibility for adaptation, since the effects would be specific to localities. The report added that the role of risk analysis and the pricing of risk were not well integrated into decision-making. It recommended establishing a panel to provide advice to COAG on adaptation priorities, cost-effective responses, and the role of government. Policy documents of the time include: Adapting to Climate Change in Australia: An Australian Government Position Paper (2010) and Roles and Responsibilities for Climate Change Adaptation in Australia (adopted by the cross-jurisdictional ministerial Select Council on Climate Change as a statement of common understanding on 16 November 2012).

  17. 17.

    See, The CSIRO and the Bureau of Meteorology do, however, continue to undertake climate-related research as part of the overall global effort—see

  18. 18.

    For the 2016 Environmental portfolio, see

  19. 19.

    ANAO Report 26, 2009–10.

  20. 20.


  21. 21.

    See Hawke, L., Performance Budgeting in Australia, OECD Journal on Budgeting 7(2) (2007).

  22. 22.

    As the Epilogue examines, the United States under Trump did indeed back away from its pledges.


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Allan, W. (2017). Managing Environmental Capital: The Case of Climate Change. In: The Last Empires. Palgrave Macmillan, Cham.

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