Monday, June 09, 2008

Saturday Forum: Garnaut's woes

His report is due out in four weeks.

Professor Ross Garnaut is upset.

In his lecture at the ANU on Thursday night he said the public discussion of his climate change review had become “
pretty ragged”.

In his ageless book-lined office in the ANU’s Coombs Building he is more blunt, using words he asks me not to print.

The distinguished economist, former ambassador to China, former right hand to Bob Hawke as Prime Minister and now head of Australia’s “Stern Report” style inquiry into climate change doesn’t know whether some commentators are deliberately trying not to understand what he is doing, whether they haven’t read what he has written, or whether they could read but could not understand.

He probably didn’t help his case by titling Thursday’s public lecture “Measuring the Immeasurable”.

So inside the ANU office which has been his base for almost four decades he is going through it again for me one more time - one last time actually, because he is planning to say nothing else until he releases his interim report in four weeks time...

When Kevin Rudd in concert with eight state and territory Labor governments appointed Ross Garnaut to the job in April last year no-one paid too much attention.

Kevin Rudd was in opposition and Garnaut wouldn’t report until September 2008. But given funding and staff by Australia’s state governments and later by Kevin Rudd’s Commonwealth government Ross Garnaut took his responsibilities seriously.

So seriously, that Mr Rudd and his Climate Change Minister Penny Wong have been distancing themselves from Garnaut’s work describing it as an “input”. They’re preparing their own parallel green paper on emissions trading within the Department of Climate Change.

Professor Garnaut is also distancing his work from theirs.

Asked whether there was any case for exempting petrol from the costs to be imposed by an emissions trading scheme, at least right now while prices are high, he replies that he can’t see one.

“Once you introduce emissions trading the price of permits will be rising over time so you might say – why not wait and bring in transport later when the scheme really starts to bite?”

“But would it be any easier to introduce emissions permits when their price was higher? I would think not.”

“If you’re going to end up with a good system it is better to start with it,” he says.

Does he know whether the government agrees with him?

“I don’t know. But this is an independent review and our job is to work out what we think works best.”

“It’s Kevin Rudd and Penny Wong’s job to decide what they can manage. But I can’t see any good reason for excluding transport.”

Like Britain’s 2006 Stern Review (also conducted by an economist) the Garnaut Review is assessing costs and benefits.

Sir Nicholas Stern weighed up the global cost of taking action to halt climate change against the cost of doing nothing.

Garnaut is attempting to weigh up the costs and benefits of Australia taking its own action to slow climate change in order to work out how much we should do.

Unlike Stern he has an immediate focus. Kevin Rudd has promised to introduce an emissions trading scheme in 2010.

Ross Garnaut needs to work out how much restrictive that scheme should be.

His problem is that while the costs of tough action are apparent, many of the benefits are slippery.

Some can be measured .

“Climate change comes - as a result you get lower wheat yields, you produce less and that has an impact on the economy. Or water - if the costs are higher you can work out how much more that will cost you and the impact on the economy.”

“But some benefits which we should be able to measure, we can’t because we can’t get any estimates.”

“Tourism is an example. If we don’t succeed in keeping carbon concentrations down to 450 parts per million we will probably lose most of Great Barrier Reef, Kakadu, the forests of South West Western Australia.”

“There will be big impacts, but we couldn’t get any experts in the tourist industry to give us a number.

“Our neighbors are another example.”

“Almost certainly if there is a unmitigated climate change we get a big increase in the sea levels and serious disruption in the lives of our neighbors - the sort of things that we spent millions of dollars a year on in Timor and the Solomons.

“There’s not much doubt about that, but no one will give us a number to put into our modeling”.

And then there are the effects for which Garnaut can come up with an average or likely numbe,r but for which that average hides the true horror of what might happen.

“We are normally prepared to take out insurance in case our house burns down, even though the likelihood of that is very small – right out on the tale of a distribution.”
“The further you dig into these issues the more you are worried about those tails.”.

“For example, the average or likely rise in the sea level this century if we hold carbon emissions to 550 parts per million is somewhere between 50 and 60 centimetres. But there is some chance of it being very much higher than that - such that Greenland starts to melt.”

“Normally humans are prepared to pay a fair bit for insurance against extreme outcomes.”

Garnaut says he is looking at cutting edge modeling solutions.

“A lot of what we are doing is pioneering. We see ourselves as taking the first step,” he says.

And then there’s the fourth category of costs from climate change and benefits from taking actions. Those that are genuinely immeasurable – the topic of his talk.

“To give you an example, we’ve got very good modeling on health impacts. When you put into the model the costs of the extra hospitals and the extra days in hospital of old people as a result of hot weather, it doesn’t move the meter very much.”

“But there will be quite a lot of old people dying in these heat waves.” “Wouldn’t Australians value stopping that or would they only value the market effects – the cost of the hospital and so on.”

“If we do lose the Great Barrier Reef and Kakadu there will be some market impacts on the tourist industry, but there is a lost of value that most Australians would feel. Most Australians would be prepared to pay something not to have that happen.”

“Another category is the valuation that Australians put on avoiding disruption in other countries. If there is unmitigated climate change it will have a very big impact on our region. Now some of that response will be financial, but Australians actually care about what happens in other countries.”

“When there is a disaster we are prepared to make quite a big effort to help”.

And that’s only the beginning of Garnaut’s conceptual challenges.

“We are getting a bit philosophical here but one of the big questions is how we trade off the sacrifices we make now in order to help people in the future.”

“By the end of the century - and one of the reasons the work is taking so long is that we are modeling the economy out 100 years – by then Australians will have a lot of goods and services we don’t have. They’ll be better conventionally under almost any scenario.”

“Amongst Australians today we think of a dollar of income for the poor being more important than a dollar for the rich.”

“Well we are poor in goods and services compared with people in the future. Where’s the case for us sacrificing what we have in order to help them?”

“But then I introduce the awkward thought that if they materially rich and environmentally poor, they may not really be better off than us today. Which turns the calculation around again.”

“This is a diabolically rich question.”

Economists traditionally solve it in a simple way, using what is called a discount rate, often the market rate of interest, to discount benefits that spending now will bring in the future.

Garnaut won’t.

“I you use a market discount rate then you don’t value the future very much,” he tells me.

“If humanity was to go extinct at the end of 100 years it wouldn’t show up in any cost benefit analysis that used a market interest rate.”

“These are important philosophic points.”

“But we make a decision whatever we do.”

“Doing nothing would be a decision”.

“The decisions that we take will determined whether our great grand children can visit the Great Barrier Reef.

“I care about my grandchildren at least as much as my children. So I actually think about these things.”

Garnaut expects to have the results of the economic modeling being carried out in the treasury in September.

He is hoping the decisions he makes then turn out to be easy.

“If the modeling shows there is a clear case for taking tough action against climate change simply in terms of the things we can measure it will simplify things.”

“If not it’ll be more difficult.”

Garnaut Review.

Department of Climate Change.