Saturday, April 7, 2007

The economics of climate change

I find it worrying that policy makers are rushing headlong into the climate change hype without considering the serious ramifications of what they are doing to us and future generations. Instead of spending (ie. losing) billions on reducing emissions or going for energy sources that are intrinsicallly uneconomic (read inefficient), we should be building wealth to mitigate against any future catastrophe. I know from personal experience how important wealth is to mitigate against what life throws at you - the same principle applies on a global level.
Current approaches include paying billions for wind farms, which are inherently unreliable as a continuous source of power, building solar power stations in the South of Germany (which having lived there I can attest to the fact that the sun is not something you normally see there), funding corn-based ethanol in the US even though it is still considered vastly inefficient, requires imported natural gas to produce, and artificially raises the price of corn, a staple food for many people around the world. Another approach is the use of taxation, which is gaining traction among some economists. This makes very little sense as well. Taxation of energy means that we pay more for everything. Paying more for something that is delivering the same value is equivalent to inflation. Furthermore, the money goes to the government - not exactly the pinnacle of efficiency. What will the government do with the winfall from a fuel tax? Fund more billion dollar roads to nowhere?
A more sensible approach is to build a hedge against a future crisis - and what better hedge than wealth?

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