Saturday, April 28, 2007

Saturday Forum: Climate Change wars. Labor vs the Coalition vs the Greens.

Within months at the ballot box we will be asked to choose between competing environment policies that are almost impossible to compare. How for instance do you compare Labor’s promise to cut Australia’s greenhouse gas emissions to 60 per cent below year 2000 levels by 2050 with the Greens' promise to cut them to 80 per cent below 1990 levels?

How do you evaluate the Prime Minister’s promise that Australia is on track to meet its obligations under the Kyoto Protocol (which it hasn’t signed) when those obligations involve an increase, not a decrease in emissions?

And what guarantees do we have that any of the policies put forward would be effective in meeting the desired targets, and what do we know about the likely economic cost?

The parties themselves are not helping.

On Monday The Greens put forward by far the most comprehensive of the environment policies released to date. It contained not a word about the likely economic cost.

On Lateline on Tony Jones asked the Greens'Christine Milne why she had commissioned no economic modeling whatsoever.

She replied that was the job of the government.

He asked her whether she would be prepared to guess at the likely cost of what she was proposing.

She replied, “I don't think this is about a guessing game and I think a political football is not a good idea when it comes to climate change and oil depletion”.

She later put out a statement claiming that California’s Governor Arnold Schwarzenegger had also set targets for cutting emissions without examining their impact, implying that made it a good idea.

Labor has been little better.... Until its change of leader and environment spokesman late last year it refused to acknowledge that its policy of targets and emissions trading would involve any economic cost.

The Prime Minister pounced on both opposition parties on Monday noting that “you cannot commit yourself to reduce greenhouse gas emissions by a specified amount unless you know what you are doing, unless you know the consequence of that commitment, unless you know what that target means to each and every industry”.

“The decision taken on a long term target will be the most important economic decision that Australia takes in the next decade. And I want to ensure that any decision is made very carefully in a way that takes full account of jobs and investment in Australia, of climate change action by others and of global technology developments,” Mr Howard said.

It is hard to take issue with the Prime Minister’s point that it is better to look before acting. But the Treasury’s admission to a Senate Committee earlier this year that it has carried out no economic analysis of the effects of climate change, and its virtual exclusion from the preparation of this year’s $10 billion water plan suggests that the Prime Minister himself is not altogether keen on thorough economic analysis when it comes to preparing his own environmental policy.

Behind the scenes though the Prime Minister is much better informed that these recent disclosures suggest.

In 2003 his department actually approved a proposal for an emissions trading scheme that would have forced polluters to pay $5 for every tonne of greenhouse gas they emitted in excess of an allowance.

The plan was presented to Cabinet as a joint submission from four departments: Prime Minister and Cabinet, Treasury, Foreign Affairs and Environment. Two other departments - Finance and Industry - were also consulted. They had concluded that the proposed impost would not have unacceptably damaged Australian industry and would have set up the framework for a putting a price on carbon that could be adjusted up later.

The reason that the proposed price of $5 per tonne would have caused little disruption is that is that it too low to make alternatives to coal-fired power economic. It would have lifted the price of price of power by just half a cent per kilowatt hour.

The Cabinet rejected the proposal. The joke being told in official circles at the moment is that the Prime Minister’s emissions trading taskforce, set up in December and due to report at the end of May, will find the work easy. It is chaired by the head of the Prime Minister’s department and has on it the heads of Environment, Industry and Treasury. They have already done the work.

One of the reasons that the Cabinet decided against the very modest scheme given a tick by its top officials in 2003 is that at the time Australia seemed on track to meet the obligations imposed on it by the Kyoto Protocol regardless.

Although the government says it will not sign Kyoto and is wary of the targets adopted by Labor and the Greens it itself has undertaken to meet the Kyoto target.

As recently as this week the Prime Minister boasted that “unlike many of the European countries who regularly lecture us on this issue, we are in fact on track to meet that target by our own efforts”.

But the Kyoto target is slippery, and the latest information suggests that it is slipping out of Australia’s grasp. Kyoto requires Australia to limit emissions to 108 per cent of 1990 levels by the loosely-defined time period 2008 – 2012.

Some people think the target requires those emissions by 2008; some adopt a middle course, assuming they are meant to apply by 2010; the Prime Minister thinks they require compliance by 2012.

The bad news, contained in calculations using the government’s own methodology released by the environmental umbrella group the Climate Institute, is that with between one and four years to go Australia is already bumping up against that target. Kyoto limits Australian annual emissions to 596 million tonnes of carbon dioxide equivalent. The Institute calculates that by February this year Australian emissions had probably climbed to 588 Mt – just 8 Mt short of the target.

The Kyoto target is mild and easily achieved compared to those now adopted by Labor and the Greens. Translated into million tonnes this is what Labor is proposing by promising a 60 per cent reduction in year 2000 levels by 2050 – emissions of just 223 Mt, compared to the present 588.

The Greens are proposing even less - 110 Mt, with an interim target of 386 by 2020.

Both Labor and the Greens are propose an emissions trading scheme in order to achieve their targets. Neither has hazarded a guess as to how high the price of per tonne of emissions would have to rise in order to do the job. It would certainly be long way north of the $5 once considered by the government.

Gas-fired power stations are thought not to begin to become competitive with coal until the cost of producing electricity from with coal increases by 2 cents a kilowatt hour, implying a carbon tax of $20 per tonne. Wind farms would not begin to become competitive until the carbon tax hit $30 to $40 per tonne.

At that level the retail price of electricity in the ACT would climb from its present level of around 10 cents per kilowatt-hour to 14 cents. And in order to achieve Labor’s or the Greens targets it would have to climb much higher still. No-one knows how high, in part because it would depend on what other measures were put in place to curb emissions.

The Greens are proposing a raft or other measures, all of them with unspecified economic costs.

They would set up a national energy efficiency targets, impose mandatory renewable energy targets to ensure that renewable electricity contributes at least 15 per cent of national demand by 2012 and 25 per cent by 2020, and remove the GST from public transport.

Labor is promising a raft of financial supports to assist coal-fired power stations become “clean” by burying their emissions, support explicitly rejected by the Greens on the ground that the technology is unproven. It will also require all power stations built after 2030 to produce near-zero emissions.

The other reason why it is impossible to tell how high the price of power would have to rise in order to meet Labor and the Green’s emissions targets is inherent in the nature of most emissions trading schemes: the government sets caps on emissions and lets a market - similar to the share market - determine the price of emissions. All markets are unpredictable.

That’s why the Prime Minister’s emissions trading task force, beavering away with just one month to go until it reports is thought likely to shy away from targets or caps and go for a price instead. That price, expected to be $10 per tonne of carbon dioxide emitted, would be low enough to easily absorbed (it would push up each ACT power bill by about 10 per cent) but would do little to make alternatives to coal attractive to generators.

But the report will be important. If, as looks very likely, its recommendations are adopted by the Prime Minister, it will put in place an emissions trading scheme that Labor could adjust later (or Labor with the Greens, should the Greens hold the balance of power in the Senate). It will also provide the kind of information that Labor, the Coalition and the Greens will need to refine their policies further, and the kind the information that we will need to decode those promises.

Whatever its recommendation, its central message is certain to be that Australia can not cut greenhouse gas emissions without pain, most of it in the form of higher power prices. It’s a message to date all three political groups have shied away from.