Regime Uncertainty and Climate Change

A leading article on the BBC News website covers the report by the Environmental Audit Committee, which suggests that the government has developed a "schizophrenic attitude" to climate change, and that this is starting to impact investor confidence in low-carbon industries. It quotes committee chairwoman Joan Walley saying that

Unfortunately, the government's somewhat schizophrenic attitude to climate change seems to be undermining that confidence. The chancellor's comments last week show that five years on from the Stern report, the Treasury still doesn't get climate change - or the risk it poses to global stability and economic prosperity.

And, this being the high church of global warming, the report wheels on additional fire-power to make the point, including Zac Goldsmith and Nick Molho, head of energy policy at WWF-UK. Molho states that:

Failing to clearly endorse the fourth carbon budget now will not only slow down urgent action on addressing climate change, it will also seriously undermine investment certainty in the UK's low-carbon sector and result in the UK missing out on the opportunity of creating hundreds of thousands of UK jobs in low-carbon manufacturing.

This is standard BBC fare of course, right down to a reference to the thoroughly discredited Stern report. And let's ignore the fact that a lot of these investors are just exploiting government subsidies - they're worried that the gravy train might slow down just a little. Ignore too the mythical green jobs that end up costing real jobs...




However, the underlying point that the apparent uncertainty about government policy is causing a knock-on effect in investor confidence is worth exploring. This is an example of what some economists term 'regime uncertainty', and we are seeing a lot of it at the moment. There is a good argument for suggesting that regime uncertainty was a key driver of the great depression (see the paper by Robert Higgs here: http://www.independent.org/publications/tir/article.asp?a=430). And, thanks to the dithering over the collapse of the Euro we are seeing it in the slow motion disaster of Europe's financial meltdown.

We see it at home too, all around us. Families are hesitating about spending - rising fuel and energy prices, uncertainty about jobs and salaries and so on mean that belts are being tightened all round. Fuel poverty is on the rise, as has been reported several times recently. All of this feeds into contracting the economy, creating yet more uncertainty.

One way round this is to lessen the uncertainty of course. Perhaps by trying to put a lid on those fuel price rises, perhaps by stopping the waste of money on windfarm and renewables subsidies, perhaps by scrapping the entire climate change act completely and diverting the funds into things we actually want and need.