The latest calls for delays to action on climate change in Europe and Australia shows just how weak our captains of industry and their political supporters are when it comes to their commitments to markets. It exposes their Stalinist, command and control tendencies and reminds us, despite their protestations otherwise, they really are more comfortable with oligopolies and private gatherings in the old club, than with the rough and tumble of a genuine market.
The transformation of the economy to a low carbon one requires change driven by new incentives. This should be music to the ears of anyone who believes, as I do, in the innovative power of people and markets when given the right incentives. Yes, change can be hard work and must be managed, but it sorts out those who are innovative and courageous, those prepared to have a go, from those lazy, over protected sections of the economy that need shaking up for the greater good.
This of course is what our captains of industry argue about markets, that if we expose our ideas, technology and management capacity to the rigours of an open process of capital allocation then the best will rise to the top. That is why many of them are so nervous and now scream for protection, because they fear that their day is coming to an end and more innovative technologies and companies will replace them. So they seek any excuse to slow down that process.
A classic example of this is the debate over trading vs taxes. The corporate sector argued strongly for trading as the most effective and efficient method of identifying where capital should be directed to cut CO2 emissions. They were right to do so as a well-designed market for carbon, without free allocation of permits, is the right answer. It lets government guarantee a steadily reducing level of CO2 pollution (the cap and trajectory) and lets the market find the right price to achieve it.
Having argued for this, many so called market advocates then wimped out and started complaining about “certainty” – that they would face uncertainty on price. Well duh, that’s what markets are, a way to set the price given limited but unknown supply. So now the market advocates seek government intervention – compensation, price caps, longer term trajectories and delay – anything to avoid this being a real market.
There are notable exceptions, such as Grant King at Origin Energy. Origin has long recognised the inevitability of a carbon price and argued strongly in favour of one, even when it was very unpopular in the corporate sector to do so. King was a part of a small group of CEOs – the Business Roundtable on Climate Change – that pushed the Howard government to act, despite derision from the conservative members of the BCA.
Beyond policy advocacy, Origin saw the writing on the wall and invested in gas and renewables and positioned their brand as a green one with consumers. So now while the market wimps are calling for protection and delay, Origin is saying “bring it on”. Their recent submission to the government called for stronger targets than Garnaut. No wimps there.
The business community needs to decide if they want a market solution or not. Either they face up to the market and let it do its work or get out of the way and let government regulate a command and control solution. You can’t have it both ways and if we don’t get to work on the market approach soon, the heavy hand of government will be the only option left.