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Lessons about climate change and drought from Down Under

David Zilberman, professor, agriculture and resource economics | March 12, 2019

I went to Australia to represent AAEA in the Australasian Agricultural and Resource Economics Meeting in Melbourne, and while I was there, I visited Sydney and New Zealand. Melbourne is considered one of the most livable cities in the world – great weather, wonderful parks, and a Goldilocks pace of life: not too fast or too slow. Downtown has free and convenient public transportation. The city combines grand buildings from the colonial era, modern high rises, a thriving Chinatown, and comfortable residential neighborhoods. The meeting venue was a conference center on the bank of the river.

I liked the Australian meeting. The meeting had 350 participants, which provided diversity of presentation and discussion, yet maintained an intimate, inclusive environment. This was my fourth conference in Australia, and I realized my age. Some of my contemporaries were there, some are retired, and others work as consultants or simply chill. Australian agricultural economists would be described more accurately as “urban cowboys” than “Crocodile Dundees,” and culinary excellence is a key feature of the meetings.

I found the discussions of climate change and water management to be the two most interesting topics at the conference, as well as my visits in Australia and New Zealand. Australia gains from extracting coal and iron and sending it to China, so it seems that there is very little official recognition of climate change by the government, which is consistent with elsewhere in the world and can be explained by political economy considerations. Groups that benefit from emissions suppress recognition that a problem exists. But environmental awareness is part of Australians’ everyday reality. In every restaurant sunscreen is accessible for protection, because people are aware that they are living under a hole in ozone layer and risk of excessive exposure to the sun. Temperatures have risen over the last 30 years and the majority of the year is spent in drought. Farmers and agricultural economists I spoke to frequently mentioned the need for adaptation to a new weather regime, which is not theoretical but instead part of everyday life.

I really enjoyed a session where John Freebairn, an excellent economist who has been active in government, gave an insightful perspective on environmental policy in the era of climate change. Like all economists, he yearns for carbon taxes and tradeable permits and he believes that they will emerge after we exhaust other alternatives. But he recognizes the importance of political economic considerations, especially regarding the coalition of energy intensive businesses and low income consumers, who both tend to oppose raising transportation costs (as in the case of the yellow vests movement in France). The challenge is to develop carbon pricing formulas that, combined with redistributional transfers, will make it apparent to consumers that they don’t carry the main burden climate change mitigation. Subsidies given to consumers and industry for alternative energy, while costly, in some cases seem to work, as they lead to high penetration of solar energy and establish biofuel industries (that are admittedly far from perfect). Freebairn suggests that in light of the political challenges, direct control has been a useful tool to address climate change concerns, as fuel economy standards and especially energy efficiency standards seem to be acceptable to the public.

As economists, we understand the importance of policy standards. A pollution-generating producer who is an expert in producing engines may not have any idea how to reduce pollution from many of his activities. Such a producer may therefore prefer to modify his production process to conform to regulations when they are not very costly, as opposed to paying a pollution penalty, when possible pollution control mechanisms are not very clear to the farmer. That may suggest that regulations or financial incentives that will trigger research and development activities, leading to pollution reduction strategies, will be very valuable. Moreover, regulatory standards are essential elements to the operations of many sectors of the economy. Engineers design projects subject to safety standards, and the housing sector operated under zoning and safety regulations (for example, in the Bay Area, housing costs are affected by earthquake safety regulations). If economists want to improve the efficiency of environmental policies, it’s important to conduct research on the economics and value of thse regulations, which means multi-disciplinary collaboration and understanding the reality that leads to these regulations. So striving for carbon taxes should be part of the economic strategy for improved environmental policy, but improving the economic sense of regulatory standards should be another part.

Another key issue discussed at the conference was water policy, which is an area of contention for Australian agricultural economists. We have seen immense improvements in the water system in Australia, but it is still far from perfect. While in the past, Victorian farmers would “waste” water on flooding fields to grow low-value pastures since Southern Australia was dry, today pricing and other incentives lead to more efficient transferal of scarce water to locations that need it, drastic reduction in the acreage of crops with low water productivity, and mechanisms for relatively fair sharing of water inventory during droughts. There was a long discussion about the economics of drought insurance. I am very suspicious of some agricultural insurance schemes that are supported by the government because the main beneficiaries of these programs may be the insurance companies, and this is an area for future research. This sentiment was shared by the Australian agricultural economists, who reported that farmers that developed adaptive strategies that allowed them to adjust to droughts did very well on average. But some also suggest that while disaster assistance program may not be economically efficient, one advantage of these programs is that the citizens feel that the state cares for them and will support them in moment of trouble. It seems that we need to recognize this type of political/behavioral consideration when assessing policies, because we strive to have an efficient economy but also a politically stable economy.

From Melbourne, I travelled to Sydney. Sydney is a much more exciting city than Melbourne. The two remind me of San Francisco and an idealized form of Oakland. Sydney is a hilly city, with diverse and colorful neighborhoods and steep winding roads. The Sydney Bay is breathtaking, with the constant movement of giant containers and tankers going to the harbor and thousands of sailboats floating in the water.  The Grand Sydney Bridge is (almost) on par with the Bay Area bridges and the majestic beauty of Sydney opera building is unsurpassed. I enjoyed viewing the opera building from land, air, (high rise), and sea, and in particular watching fireworks at night all over the harbor (these fireworks are a feature of cruises to the bay).

One of the most enjoyable indirect benefits of being a professor at Berkeley is having a network of students and collaborators to greet you everywhere. In Melbourne, I had a wonderful breakfast with ARE Alumni Lesley Martin and her family. My former student and collaborator Rebeca Taylor was my host and tour guide in Sydney, where we a had a delicious dinner at ARE alum and my former student Daniel Tregeagle’s parents’ house. One of the amazing things that happened to me in Sydney is that I met an ex-girlfriend from 44 years ago who lives in Sydney now. She discovered that I was in the city through Facebook – another indirect benefit of the frequently maligned Facebook (the older you are, the more you appreciate it).

New Zealand was always on my bucket list and I took this opportunity to visit it. In Auckland, New Zealand, I visited another collaborator, Kenny Bell, and was hosted by Lynn Riggs and Suzi Kerr who run an excellent economic research instituted called Motu. Auckland is the largest city in New Zealand. It is a sprawling city with many beautiful beach neighborhoods, patches of open space and wilderness, and a small downtown with an impressive tower. On the other hand, New Zealand’s capital, Wellington, is a compact city with a lively downtown and a beautiful beachfront. Life in New Zealand is pleasant and it is unique in its respect and inclusion of their first nation. There is a strong awareness of environmental concerns, including an ongoing campaign to protect ancient birds and other wildlife forms, by eliminating predators like mice and rats.

At Motu, we had a discussion of climate change policies in the context of New Zealand and Ireland (Alan Matthews, a leading thinker from Ireland visited while I was there). In both countries, animal flatulence is a major source of greenhouse gas emissions. In New Zealand, there are 7 sheep and 2 cows per person. In Ireland, these ratios approach 1 sheep and 2 cows per person. These countries are major producers of wool, meat, and cheese, and they are low cost producers. I suspect that even with transportation considerations, the emissions of their livestock sectors per unit of output (milk, wool, cheese) are lower than for most other countries. From a global greenhouse gas perspective, they are good locations to produce these products. But of course, they can still reduce their emissions per capita. With modern technologies, it may be possible to improve pastures and other input grains to increase digestibility and reduce methane pollution. I actually think that with the future development of animal-free meat and milk, the total greenhouse gas emissions associated with these products will decline drastically. These new technologies are driven by animal welfare and cost reduction considerations (in principle, it requires less grain to produce meat than it does to produce a living cow), as well as animal waste considerations. These technologies will be introduced gradually over a long period of time, and their adoption by consumers will be detrimental to the huge livestock sector; this is another example of why reducing greenhouse gas emissions is challenging. New Zealand is actually aiming to adapt to this future reality by expanding its horticulture sector and taking advantage of its moderate climate and seasonality (being in the Southern Hemisphere). I don’t envision much horticulture in Ireland. But both countries will continue to benefit from a prosperous tourism sector, because they have much to offer in that respect. However, there is also challenge in the tourism sector in reducing emissions of greenhouse gases by airplanes.

While the trip was very enjoyable, in discussing overall climate change policy, I felt a sense of futility. There is an abundance of scientific research on the risks of climate change and many studies on mechanisms to reduce it, but the reality is that climate conditions get worse and very little is done about it. New Zealand, Ireland, and many other countries have impressive targets for greenhouse gas emissions reductions for 15, 25, and 50 years from now. But in these countries and in many other parts of the world, the actual emissions levels are increasing. In Australia and New Zealand, there is evidence of the damage of climate change and evidence of some capacity to adapt. We are losing time and are challenged to develop more effective strategies that will reverse this worrying trend. As economists, we have to continue to preach carbon pricing, but we need to develop alternative strategies that consider political realities. We also have to go beyond markets and better interact with other disciplines to affect regulations and the evolution and deployment of technologies, to contribute to drastic reductions in greenhouse gas emissions without major losses in terms of quality of life.

Comments to “Lessons about climate change and drought from Down Under

  1. Very interesting and insightful read. Water is continuously becoming scarce globally and requires attention in relation to changing climate. I hope Natural Resource Economists will discuss this with rigor. Best wishes. Patrick

  2. discussions of climate change and water management it also two most interesting topics in my country, Indonesia

  3. Hello David, reading from Africa clearly shows that it’s possible to develop and adapt even though you’re in a very dryland environment. There should be more exchange of experiences between Africa and this side of the world. Always a pleasure to read your excellent pieces! When are you coming back here? Cheers, Abou

  4. A most important imperative Prof. Zilberman, your conclusion:

    “We also have to go beyond markets and better interact with other disciplines to affect regulations and the evolution and deployment of technologies, to contribute to drastic reductions in greenhouse gas emissions without major losses in terms of quality of life.”

    I hope and pray that your UC colleagues join with you, with the greatest sense of urgency, to save an acceptable quality of life for all future generations before time runs out.

    https://alumni.berkeley.edu/california-magazine/september-october-2006-global-warning/can-we-adapt-time

  5. Hi David. It was great to have you here in Oz again, but nobody has ever called me an urban cowboy before. I don’t even like horses! To emphasize your point that the reality of climate change is palpable in Australia, check out this remarkable graph: https://www.watercorporation.com.au/water-supply/rainfall-and-dams/streamflow/streamflowhistorical It shows runoff into the streams that supply Perth’s dams over the past century. It shows why, in my lifetime, the proportion of Perth’s water supply that comes from surface runoff into dams has fallen from close to 100% to about 10% (albeit with population growing from 400K to 2 million in that time). But even with evidence like this, one side of politics succeeded in scaring voters with the slogan that our national carbon tax was “a great big tax on everything” and had it repealed. Now Perth’s water supply comes from desalination of sea water (50%) and pumping of local groundwater (40%). When the groundwater runs out, they’ll build another desal plant.
    Cheers
    David Pannell

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