Warwick McKibbin - Designing climate policy for a volatile world

Professor Warwick McKibbin gives this talk as part of the Vice-Chancellor's Public Lecture Series. The talk is entitled 'Designing climate policy for a volatile world', and was recorded at The Australian National University on Wednesday 11 July 2012. Continued economic turmoil globally raises the question of how well the emerging global climate architecture and the current Australian climate policy approach can withstand major global economic disruptions. A well-designed climate regime needs to be resilient to large and unexpected shocks because climate policy must endure indefinitely in order to stabilise atmospheric concentrations of greenhouse gases. Such shocks include changes in economic growth, technology, energy prices and other factors that drive costs of abatement and emissions and most will occur doing the life of the climate policy. Ideally, the climate regime would not exacerbate macroeconomic shocks, and would possibly buffer them instead, while withstanding defaults by individual members. This lecture will draw on recent research to demonstrate that the usual policies of either cap and trade or a carbon tax work differently under different macroeconomic shocks and both can accentuate economic volatility perhaps even leading to abandonment of the climate regime altogether. An alternative Hybrid Approach can achieve the same outcome for global carbon concentrations but with less economic volatility and therefore greater resilience. Professor Warwick McKibbin is a non resident Senior Fellow at the Brookings Institution in Washington DC; a Professorial Fellow at the Lowy Institute for International Policy; and president of McKibbin Software Group. Professor McKibbin was until July 2011 a member of the Board of the Reserve Bank of Australia. He has worked at the Reserve Bank of Australia, Japanese Ministry of Finance, US Congressional Budget Office and World Bank, and advises governments and corporations globally.