Sunday, July 06, 2008

Sunday dollars+sense: Milk and carbon

Dedicated to Ross Martin, teacher.

What does a myth about a fountain and some glasses of milk have to do with climate change?

I’ll tell you, and in so doing let you in on the moment I first became really interested in economics.

I must have been about five. My Dad’s bedtime story concerned a wonderful plan by a village to have its fountain in the town square spurt forth milk the next morning instead of water.

All that would be needed would be for each family the night before to tip one cup of milk into an otherwise empty well.

Under cover of darkness each family brought out a cup and tipped it in...

The next morning they gathered to marvel at the milk and saw the fountain
spurt forth only water.

Each family – every one of them - had thought that it could get away with
tipping in only water. It wouldn’t water down the milk much. Besides, how
could it trust the other families not to pour in water themselves?

It hooked me on economics and prepared me well for reading last week’s draft
Garnaut report on climate change.

Economists call the behaviour of the families in the village “free riding”.
They refer to the fact that there is no obvious way to prevent it as “the
prisoner’s dilemma,” named after a mental game in which each separated
prisoner is given the opportunity to betray the other one, and does, even
though both would be better off if each kept his mouth shut.

Professor Garnaut’s report refers to the near-impossibility of making
climate change negotiations work as a “genuine prisoners’ dilemma”.

Each country believes it benefits if it waits for other countries to cut
their emissions before cutting its own.

“If all countries act on this basis, without forethought and cooperation,
there will be no resolution of the dilemma,” his report warns.

“We will all judge the outcome, in the fullness of time, to be insufficient
and unsatisfactory.”

Professor Garnaut believes that we have already lost valuable time –
“squandered the 1990s” - by waiting for other countries to adopt emissions
trading schemes before we did.

His proposed solution is ingenious: That Australia commits to a moderate cut
in emissions (perhaps 60 per cent by the middle of the century) but
guarantees to switch to a tougher target (perhaps 90 per cent) as soon as
other countries join in.

He wants Australia to pour in one cup of milk ahead of its neighbors and
show them that it are standing by ready to pour in a second as soon as they
pour in their first.

It might work.