Tuesday, November 18, 2014

China is ahead of us on climate change. Let's not belittle its commitment

China must hate the things that were being said about it as it closed its free trade deal with Australia.

Interviewed at the G20 as Chinese and Australian officials were fine-tuning the details of the announcement, Treasurer Joe Hockey belittled its commitment to turn back its tide of rising carbon emissions.

"I mean, you just look at China," he told the ABC's Barrie Cassidy. "China is going to continue to increase emissions Barrie, until 2030, it is going to continue increasing emissions."

Earlier he had told Sky News that: "To put it in perspective we are in the business of trying to reduce our emissions off a base load and China actually is increasing emissions and said in 2030 it will start to reduce them".

The perspective missing from Mr Hockey's account is that Chinese living standards are a fraction of Australia's. China is lifting its emissions because it is rapidly industrialising as its citizens move from the country into cities, something ours did a long time ago.

To slow and stop emissions growth while industrialising would be an achievement of unimaginable proportions.

It has never happened before.

To do it the White House believes China will install an extra 800 to 1000 gigawatts of emission-free technology by 2030 -  "more than all the coal-fired power plants that exist in China today and close to total current electricity generation capacity in the United States"...

China's use of coal for electricity climbed 13 per cent a year as its economy roared into life between 2000 and 2011. Since then it has climbed just 3.25 per cent per year and looks likely to have stabilised in 2014. China expert Ross Garnaut expects its use of coal for electricity to slip 0.7 per cent per year from now on before sliding sharply after 2020.

Mr Hockey said he "didn't hear the United States or the Chinese saying they were going to introduce a carbon tax", but China's vice finance minister Zhu Guangyao mentioned emissions trading in a briefing to journalists on the sidelines of the G20 summit Mr Hockey attended. China has seven pilot schemes in operation and is preparing for a China-wide scheme by 2020. China's vice finance minister seemed serious.

Yet on Thursday Prime Minister Tony Abbott mocked China's plans as "hypothetical" and "down the track".

"It is all very well to talk about what might happen in the far distant future but we are going to meet our five per cent reduction target within six years," he said. "We are talking about the practical; we are talking about the real. We are not

talking about what might hypothetically happen 15, 20, 25, 30 years down the track. We are talking about what we will do and are doing right now."

Aside from any offence caused to Australia's newest free trade partner, the problem with Mr Abbott's statement is that the commitments announced by China and the US on Thursday will force Australia to do much more than five per cent within six years.

And Mr Abbott's preferred mechanism, his "direct action" Emissions Reduction Fund is incapable of doing much more.

That isn't just because the $2.55 billion he has set aside over four years for grants to polluters to cut pollution wouldn't be enough to meet the bigger target (it's almost certainly not enough to meet the present target).

It's also because of something else, something of a dirty secret among proponents of direct action grants:  they are not directly scalable.

The bureaucracy that would be needed to hand out enough grants to get a 5 per cent reduction on Australia's 2000 emissions by 2020 wouldn't be able to handle a 30 per cent reduction by 2025 - and that's what the Climate Institute believes will be required if Australia is to match the US commitment.

The red tape that's tolerable when you are using a system of bookkeeping and grants to achieve something small becomes intolerable when you are attempting to achieve something big.

That's what the Treasury advised the Coalition in the change of government document it prepared in 2010. In its words then, "a market mechanism can achieve the necessary abatement at a cost per tonne of emissions that is far lower than alternative direct-action policies".

It's what Prime Minister John Howard's emissions trading taskforce told him in 2007. It said "by placing a price on emissions, trading allows market forces to find least-cost ways of reducing emissions by providing incentives for firms to reduce emissions where this would be cheapest, while allowing continuation of emissions where they are most costly to reduce".

Once emissions permits are sold or given away it is up to the firms that own them to decide whether to use them or whether to cut their pollution and sell them to firms that need them more. This automatically ensures that the firms that can most cheaply cut emissions cut them first (pocketing income along the way) and that the firms that can't afford to do it cheaply do it last (paying to buy permits).

Emissions trading is "set and forget", and infinitely scalable.

The Coalition's "direct action" system of grants attempts to achieve the same goal but will do it less perfectly because the grants its bureaucrats will administer can't be traded among polluters to ensure that the lowest cost methods of cutting pollution are tried first. And its cost scales up with the size of the task.

The Coalition has said often that Australia will lift its emissions reduction target beyond 2020 if other major nations lift theirs. China is doing so, making an unprecedented promise to cut its emissions growth to zero while industrialising. The US has made a commitment that when applied to Australia would require us to cut our emissions by 30 per cent on 2000 levels by 2025. Last month, European leaders agreed to cut their emissions by 40 per cent on 1990 levels by 2030.

Australia will need to stump up with something in time for the Paris climate change summit due late next year. As Mr Abbott and Mr Hockey well know having just organised Australia's G20 summit, the reality is that Australia will need to show its hand well before the Paris summit.

A bigger commitment is no longer hypothetical, and it's not down the track.

In The Age and Sydney Morning Herald

Tuesday, November 11, 2014

Truth in promises. A policy worth voting for in the Victorian election

Now noone knows where the money is coming from.

Usually governments are restrained in what they offer in election campaigns. Their promises are already in the budget, already accounted for. It's the opposition that appears reckless, making promises that by definition aren't in the budget and aren't funded with savings.

Unless the government is in imminent danger of losing. Then it'll throw out money like an opposition on steroids, announcing unfunded promise after unfunded promise like a squid under attack squirting out ink.

Denis Napthine announced new promises worth $4.2 billion in his 33-minute campaign launch speech on Sunday. Something of a record, it works out at $127 million per minute which is more per voter per minute than John Howard promised in his final desperate pitch to get re-elected in 2007.

Most of it was for trains and trams, which is odd because just two days before, the Prime Minister Tony Abbott defined the election as a "referendum on the East West Link".

When you're facing political death it's wise to cover bases. Which means scrambling to find money.

We don't yet know where he would get the $3.9 billion for public transport, the $100 million to spend on regional cities, the $23 million to give to parents of kindergarten children and so on and nor do we really know how he would find the $8.5-$11 billion he promised in the budget to pay for the Melbourne Rail Link. Most of it is beyond the budget's four-year forecasting horizon...

And we are not likely to know until just before the election. "At a later stage" are the words used by the treasurer's office. If history is any guide we'll be told on the Wednesday or Thursday before the vote; or even on the Friday, election eve. It'll be too late for the Victorians who've voted early (more than half a million are expected to) and effectively too late for debate and discussion about what Napthine has in mind.

It'll be the same for Labor, although at least it has come up with a date. It'll outline the costs of its promises and how they will be funded >on the Thursday before the poll - that's 40 hours before we vote. Labor will outline these promises in a press conference attended by a representative of Moore Stephens, the private accounting firm that has been going over its numbers.

It's an appalling way to treat the people who are meant to be deciding how to vote, not to mention the press which is meant to be giving those people the information they need to decide.

"The big reveal" two or three days before the election can and does result in voters being misled, with no time to check the truth of what they are being told.

In the 2010 federal election the Coalition's treasury spokesman Joe Hockey released 12 pages of costings (with no explanation of how they were derived) late on the pre-poll Wednesday. They were covered by a one-page note from a Perth-based accountancy firm that said it was "satisfied that based on the assumptions provided, costed commitments and savings have been accurately prepared in all material respects".

But the costings weren't accurate, as the Treasury discovered after they were released after the election. Among other basic mistakes the Coalition had booked as a gain the interest it would save by banking the proceeds of selling Medibank Private without booking as a loss the dividends it would no longer receive after selling Medibank Private.

Four years later in 2013 the Coalition delivered an eight-page document that was no more informative. It did it on the Thursday, 40 hours before voting began. This time a post-election review by the Parliamentary Budget Office found it was mistake-free, but voters weren't able to know that at the time, and they weren't able to see the assumptions that lay behind it until after they had voted.

Victoria doesn't have a parliamentary budget office.

The Commonwealth has one, NSW has one, and the Victorian Coalition promised one when it was in opposition. Ideally a PBO works with political leaders to fine-tune and cost their policies and then makes public the final document when the policies are announced. The Commonwealth's has a major flaw. It is not allowed to make the documents public until the leader says so. In 2013 Abbott didn't say so. That meant the Coalition was able to claim the endorsement of the PBO without letting the public see how that endorsement was arrived at.

Victoria's wasn't going to have that flaw and the Baillieu government was going to write it into law on taking office. It didn't, for three years. Then under Napthine it introduced legislation for a cut-down "temporary recurring" PBO. Rather than working all year round it would accept costing requests only for the three months before each election and then shut down. (The NSW office is also temporary recurring but it accepts requests for many more months than three). Opposition Leader Daniel Andrews said he wouldn't cop it and Napthine dropped it.

Now Labor's putting forward a proper model that would work all year round. It would cost $3.3 million per annum. It's the least we deserve.

In The Age and Sydney Morning Herald