RBA Publishes Surprise Pre-election Analysis Of CC

Is RBA Preparing for a Labor Government

I was surprised yesterday to see a report on a speech made by the RBA’s Dep Gov, Guy Debelle, on climate change and the possible implications for the economy and monetary policy (see RBA Dep Gov Says CC Has Trend Effects). I judged that, with just a few weeks until the election, it would be wrong to publish an analysis on how to treat changes in climate when that subject is probably the most controversial between the political parties. Statements by  government bodies which can influence attitudes, add to the controversy and possibly favour one party, should not be made at this time. This generally accepted rule applies to the Reserve Bank notwithstanding its claim to be “independent” and the more so as Debelle claims climate change influences monetary policy.

I wrote a letter to The Australian pointing out the foregoing and adding that “Debelle enhances the problem of analysis by claiming that “we need to think in terms of trend rather than cycles in the weather” and “to reassess the frequency of climate events”. Yet he provides no evidence to justify this claim and he omits an important conclusion by the IPCC that cyclones do not exhibit a trend, that is they occur but infrequently. Analysis by Australian experts, not quoted, suggest the same as regards droughts. I call on the Governor of the RBA to state that his deputy’s speech does not necessarily reflect the bank’s official view” (see Climate Change). My letter was not published today.

In addition to having potentially improper political influences, it is concerning that this speech by Debelle was made at a forum run by the Centre For Policy Development (CPD) in Sydney. This organisation was started in 2007 and its stated objective is “long-term policy development” (as distinct from what it describes as “short term fixes and political gains”). While such an objective is obviously acceptable , and the CPD claims to be “independent and non-partisan”, it was started by John Menadue who was private secretary to Gough Whitlam for 7 years from 1960 to 1967. Although Menadue also later worked at News Ltd and for Malcolm Fraser, his public comments today remain strongly left-inclined (he publishes a public affairs blogsite). Menadue also continues as a “Fellow” of CPD, which also has several Fellows with stated Climate Change “expertise” and its publications on that subject adopt the dangerous warming thesis. The current  Board Chair is Terry Moran who was appointed Secretary of PM&C by Kevin Rudd (and continued there under Julia Gillard) from March 2008 to September 2011 (Gillard continued as PM until 2013). I have not been able to establish whether it has government funding but it would  not be surprising if it has. It names Julian Burnside and Fred Chaney as its Patrons.

In short, it is clear the CPD is Labor-inclined and supportive of the alleged threat from dangerous warming. Also, Labor supporters naturally recognise the importance of having senior Labor-inclined public servants. While Tony Abbott appointed a “conservative” head of PM &C (Michael Thawley), he resigned soon after Turnbull became PM and we now have his appointee, Martin Parkinson, as head of PM&C (Parkinson was the inaugural head of the Climate Change Department). It seems likely that Parkinson will remain head of PM&C if Labor wins the election. Debelle’s speech might have had this in mind.

Debelle’s Analysis

I judge there are serious questions about the analysis by Debelle in his speech (see Debelle on Climate Change). The essence of his analysis is that changes in climate not only affect the economy around the time they occur but they have trends and therefore have effects which continue over time. This means, he says, we need to reassess how to handle such changes both generally and in regard to monetary policy. Specifically, Debelle says the following on page 2:

“We need to think in terms of trend rather than cycles in the weather. Droughts have generally been regarded (at least economically) as cyclical events that recur every so often. In contrast, climate change is a trend change. The impact of a trend is ongoing, whereas a cycle is temporary.

We need to reassess the frequency of climate events. In addition, we need to reassess our assumptions about the severity and longevity of the climatic events. For example, the insurance industry has recognised that the frequency and severity of tropical cyclones (and hurricanes in the Northern Hemisphere) has changed. This has caused the insurance sector to reprice how they insure (and re-insure) against such events.

We need to think about how the economy is currently adapting and how it will adapt both to the trend change in climate and the transition required to contain climate change. The time-frame for both the impact of climate change and the adaptation of the economy to it is very pertinent here. The transition path to a less carbon-intensive world is clearly quite different depending on whether it is managed as a gradual process or is abrupt. The trend changes aren’t likely to be smooth. There is likely to be volatility around the trend, with the potential for damaging outcomes from spikes above the trend.

Both the physical impact of climate change and the transition are likely to have first-order economic effects.

Debelle then devotes a considerable proportion of the rest of his lecture to considering examples of possible climate occurrences which may have what he classifies as trend effects. He refers in particular to reports by the IPCC and Australia’s BOM and CSIRO, viz

“The United Nations’ Intergovernmental Panel on Climate Change (IPCC) report documents that 1 degree of warming has already occurred from pre-industrial levels as a result of human activities.[2] It provides strong evidence that another half degree of warming will occur in the next 10 to 30 years if warming continues at the current rate. That is the average outcome, with some areas experiencing greater warming.

There is also likely to be significant volatility around that outcome, with an increase in the frequency of extreme temperatures. This volatility is highlighted in the first graph in the recent Bureau of Meteorology (BoM) and CSIRO report, State of the Climate. The report states that ‘Australia’s climate has warmed by just over 1 degree C since 1910, leading to an increase in the frequency of extreme heat events’, and expects further warming over the next decade.[3] These extreme events may well have a disproportionately large physical impact.

There is also a greater possibility of compound events, where two (or more) climatic events combine to produce an outcome that is worse than the effect of one of them occurring individually. Combined with the increased volatility, this increases the likelihood of non-linear impacts on the economy.

Both the IPCC and the BoM/CSIRO reports highlight the changed environment that the economy will need to adapt to. They also provide evidence on what change is predetermined and what can be affected by actions to strengthen the global response to the threat of climate change.

These analyses of climate and its effects from changes by Debelle are highly controversial and are subject to extensive queries. For example, while there is general agreement that temperatures are higher than they were in pre-industrial levels, there has been at least one considerable period (from the late 1940s to the mid 1970s) when official temperatures used by the IPCC fell at the same time as carbon emissions were increasing. This suggests there is no trend in temperatures and that there is no evidence suggesting that predetermination of temperatures can be effective from a policy viewpoint.

Further, future periods predicting warming need to be examined to see whether some may be due to unpredictable natural events (as has sometimes been the case) or to human activity involving the production of greenhouse gases from usage of fossil fuels. Debelle refers to models in his speech but he makes no mention of the failure of the existing predictive models to even get close to actual temperatures.  More questions can also be raised about the assertions by both the IPCC and BOM quoted by Debelle, including in regard to the accuracy of temperature measurements. In effect, Debelle is simply accepting the view of dangerous warmists without examining the detail of what happened.  and his thesis of trends does not stand up.

Importantly, Debelle also provides no explanation of the large benefits from the considerable agricultural and forest growth having occurred under existing policies.  In other words, while we and others have had  droughts, these have been more than offset by the growth in output from agriculture and forestry.

Debelle’s thesis of trends does not stand up to close examination.