6. Managing Environmental Capital: The Case of Climate Change

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.