For a country which just 25 years ago which poor record of economic growth and where industry shelters behind prohibitive tariff walls (thinking only of the domestic market), and the exchange is fixed every morning by officials of the central bank and the Treasury and international trade is an afterthought, Australia has undergone a veritable metamorphosis.

From regulated shopping hours are regulated, domestic monopolies run most industries, and foreign entrants (in areas such as banking) are prohibited the Australian economy has progressed to (near) seamless global engagement with the world through trade and investment. Reform was the transformative lever and throughout the 80s and 90s delivered prosperity to millions of Australians.

Climate change and trade

We can attribute much of our present awareness n the effects of climate change to British economist Sir Nicholas Stern, raised the profile of climate change in Australia.  He has said that climate change as the biggest market failure or externality of all time. An area which had been left to scientists became a front and centre issue for economists as well.

Senior economist with the Austrade, Tim Harcourt has said that in many ways, the issue of climate change reform is similar to trade reform. He says “In both cases, the global economy and the Australian economy, has to undergo significant structural adjustment.

“In both cases, market mechanisms are needed to reflect scarcity and to offer incentives for investment.

“In both cases, Australia will rely on its competitive advantage in its natural endowments and expertise in professional services rather than being a mass producer of low value goods and services. Australia will export high value good and services – particularly to the developing world – whilst attracting investment in R and D from the developed nations.

“In both cases, there are governance issues – particularly across international borders – that require multilateral and bilateral responses.

“In both cases, there are winners and losers, especially in the labour market, as new jobs will emerge in new employment creating sectors, with a decline in other areas.”

The views are significant to the advancement of trade. In many ways, in generational terms, the baby-boomers carried Australia from being a closed economy to an open one, and now Generation X and Generation Y will have to carry us through to be open and green.

It is true that ideology can skew opinion. But, a middle way will be found between ideological standpoints – extreme global-advocates versus global-sceptics in the trade debate or green fundamentalists versus climate sceptics in the climate change debate. Economists can play a constructive role in tempering both sides in these debates.

Harcourt and others believe that, whilst the political economy debate will rage, export capability will and is being built up by the Australian exporter community. In fact, as Professor Nicholas Stern said in The Stern report, Australia has great capability in environment technology and will be able to assist the emerging economies like China and India to reduce emissions and put their economies on a more sustainable footing.

Mr Harcourt says “I see this as an ‘airport economist’ everywhere all over the world. A great example is the Water Cube swimming arena at the Beijing Olympics in 2008, designed by leading environmental Sydney architects PTW and the energy and water recycling technologies used in the Olympic Village in Beijing that were originally designed for Sydney 2000. Similarly, if you travel like me, you’ll see Australian expertise visiting a water treatment plant in Israel or a wind farm in Denmark.”

Our capabilities

Australia has extensive export capability in key areas such as renewable energy (solar, wind geothermal, marine energy, biofuels), carbon capture and storage, carbon market services, clean technologies and services (water technologies and services, green buildings and sustainable urban design, environmental technologies and services, waste management and energy and efficiency services). The list goes on. The opportunities are endless. And as we’ve seen in the last quarter century of global economic engagement, when Australia transformed itself from a closed, isolated economy to an open market, they’ll be plenty of emerging industries taking the reins as a source of growth and employment.

But how is climate change policy different from trade policy? Some trade economists like Ross Garnaut himself, have pointed out that it is different. Some economists believe that if Australia had reduced tariffs on our own, regardless of what the rest of the world had done, we still would have been better off. But in climate change, the solution is a bit more complicated.

A strong national brand drives demand for our exports. And as all economists know, especially during the GFC, it is all about demand. The national brand surveys consistently show that how a country treats its environment is important in how the world perceives it, especially with climate change being such a hot topic. Things like ratifying the Kyoto Protocol are noticed globally and do affect environmental exporters success in promoting their capabilities on the world stage. Australia’s environmental credentials and capabilities will matter as we derive demand for our exports and attract investment. We must always be conscious that we must put green back into the green and gold.

As Tim Harcourt from Austrade points out, “Australia is a different place than it was twenty five years ago and trade played an important role in structural adjustment. We can mark the float and the reduction of tariffs as landmark reforms. It was a time when we developed a strong export culture in industries we hadn’t considered as being ready for the world stage.” Perhaps in 25 years time, we may well look back to the current arrangements we are pursuing in terms of climate change, and find that, again there were many companies and sectors that emerged to help Australia.