How government modelling found net-zero would leave us better off

The government’s decision to target net-zero emissions by 2050 will leave each Australian nearly A$2,000 better off by then compared to no Australian action.

That’s what we were told in a six-point summary of the government’s economic modelling released at a press conference on Thursday October 26, days before the prime minister left for the Glasgow climate talks.

Slide from the prime minister’s October 26 press handout.

Prime Minister Scott Morrison said at the time the actual modelling would be released “in due course”, later clarifying that it might not be released for a fortnight, after which the Glasgow climate talks would be almost over.

The 100-page summary of modelling prepared by the Department of Industry, Science, Energy and Resources and the consultancy McKinsey & Company was released on Friday afternoon as the climate talks were concluding.

The document tells us both how the $2,000 figure was arrived at and the question that was asked.

The question that was asked

McKinsey and the department were asked to compare economic outcomes in 2050 after 30 years of “no Australian action” with economic outcomes in 2050 after 30 years of “the plan”.

“No Australian action” meant that every developed country other than Australia cut its emissions to net-zero by 2050, and all of the world apart from Australia did whatever else was needed to hold global warming to 2°C.

Australia would find it harder to raise money because of its reluctance to commit to net-zero (meaning its borrowing costs would incorporate a “risk premium”) and would get access to only those improvements in technology that were available elsewhere.

“The plan” involved Australia continuing “to invest in technological breakthroughs,” acting as an “enabler to support consumer choice and voluntary adoption of other technologies”.

Australia would adopt a target of net zero by 2050, escaping a risk premium.

The government would invest more than A$21 billion to support the development and deployment of low emissions technologies including clean hydrogen, ultra low-cost solar, energy storage, low-emissions materials, carbon capture and storage and soil carbon to 2030, and continue to play a “direct role” beyond that.

Otherwise, emissions would be reduced on “a voluntary basis”.

Importantly, and so the size of the voluntary action can be incorporated into the modelling, the voluntary emissions reductions are assumed to be the same as what would be expected if Australians faced a carbon price (or tax) that climbed to A$24 per tonne of carbon dioxide equivalent by 2050.

Emitters finding it hard to cut emissions as much as they or consumers or investors wanted would be able to buy international “offsets” (overseas emissions reductions) at a price that would climb to A$40 per tonne of carbon dioxide equivalent by 2050.

$2,000 per person better off

The modelling concludes that under “the plan” each Australian would be almost A$2,000 better off in 2050 compared with under “no Australian action”.

That’s $2,000 per year in so-called gross national income per capita, but it’s less impressive than it sounds. The latest stats have gross national income per capita approaching A$80,000.

That’s not what’s received by any one individual, but what’s received by businesses and all sorts of other entities averaged across the population.

Compounding economic growth means that by 2050 that dollar sum will be two to three times as big, against which (and given all the uncertainties) a projection of an extra $2,000 amounts to little difference.

A reasonable way to interpret the modelling is that, compared to “no Australian action”, the “plan” won’t impose significant costs on Australians.

Where the $2,000 comes from

Which isn’t to say that there won’t be big costs.

The world will move away from coal and liquefied natural gas – two of Australia’s biggest exports – but what is assumed is that will happen in any event, under both “the plan” and the “no Australian action” scenarios.

Unless you were to assume that the rest of the world won’t pull its weight in getting to net-zero (and the modelling does not assume this) Australia not pulling its weight does almost nothing to rescue its exports.

The $2,000 comprises two parts. $375 is the benefit to Australia of avoiding investors being less keen to invest in a country that isn’t pulling its weight.

The modelling says Australia would score an average of 5.5% less investment per year under the “no Australian action” scenario compared to under “the plan”.

The other $1,625 derives from the development of new industries, spurred in part by the government’s $21 billion, the most important being hydrogen production which by itself would lift national income per person by about $1,000 of the $2,000.

What was released Friday afternoon is not the modelling itself but a government-authored “summary”.

Although it is difficult to compare the McKinsey modelling with the Treasury modelling prepared for the Gillard government ahead of the 2012-2014 carbon pollution reduction scheme, it is notable that both arrived at a similar conclusion: that over time, action to reduce emissions will cost Australia little.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Economists back carbon price, say net-zero benefits outweigh costs

Eight in ten of Australia’s leading economists back action to cut Australia’s carbon emissions to net-zero.

Almost nine in ten want it done by a carbon tax or a carbon price – mechanisms that were explicitly rejected at the 2013 election.

The panel of 58 top Australian economists selected by the Economic Society of Australia wants the carbon price restored to the public agenda even though it was rejected seven years ago, some saying Australia’s goods and services tax was rebuffed in 1993 and then restored to the public agenda seven years later.

Among those surveyed are former heads of government departments and agencies, former International Monetary Fund and OECD officials and a former and current member of the Reserve Bank board.

Asked ahead of November’s Glasgow climate talks whether Australia would likely benefit overall from the national economy transitioning to net-zero emissions by 2050, 46 of the 58 said yes.

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The response is at odds with the previous positions of groups such as the Business Council of Australia which in the leadup to the 2019 election labelled Labor’s proposed steps towards net-zero “economy wrecking”.

This month the Business Council backed net-zero by 2050, and produced modelling suggesting it would make Australians A$5,000 better off per year.

Only one net-zero doubter

Only five of the 58 economists surveyed disagreed with the proposition that cutting Australia’s emissions to net-zero would leave Australians better off.

Of those five, only one doubted that cutting global move emissions to net-zero would leave Australia better off. The others believed that even if a global move to net-zero did leave Australians better off, it was likely to happen anyway, meaning Australia wouldn’t need to act, a stance derided by others as “free-riding”.

“The argument that we are only a small percentage of global emissions holds no water either ethically or in terms of establishing and implementing a global agreement,” said Grattan Institute’s Danielle Wood. “If rich countries like Australia won’t do their fair share, this undermines the likelihood that others will.”

Others including Reserve Bank board member Ian Harper pointed out that Australian exporters faced punitive tariffs and lending and insurance embargoes unless Australia pulled its weight in reducing emissions.

His comments echo those of Reserve Bank Deputy Governor Guy Debelle and Treasurer Josh Frydenberg who have said that unless Australia takes action it will face reduced access to capital markets “impacting everything from interest rates on home loans and small business loans to the financial viability of large‑scale infrastructure projects”.

University of Melbourne economist Leslie Martin made the broader point that Australia had a lot to lose from rising temperatures if free-riding didn’t pay off.

“Although Australia could possibly free-ride on the efforts of other larger economies, it would suffer disproportionately if other countries chose to do the same” he said.

Only one overwhelmingly preferred option

Offered a choice of four options for rapidly reducing emissions, and asked to endorse only one, the economists surveyed overwhelmingly backed an economy-wide carbon price in the form of a carbon tax or market for emissions permits.

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Of the 58 surveyed, 49 backed a carbon price, seven backed government support to develop and roll out emissions-reducing technologies, and one backed support for technologies that drew down carbon from the atmosphere.

None backed so-called “direct action” – the program of competitive grants for firms that cut emissions the government took to the last two elections.

“The less federal governments choose to involve themselves with the technical aspects of the alternatives at a micro scale the better,” said Lin Crase, a specialist in environmental management at the University of South Australia.

Crase said governments had shown themselves to be very bad at picking winners, but very good at putting in place broad settings that allowed the people and businesses closest to the action to pick winners.

Several of the economists surveyed said the government’s slogan of “technology, not taxes” set up a false distinction. Taxes could drive the switch to better technologies – ones chosen by the market rather than by government edict.

Australia’s carbon price was introduced in 2012 and abolished in 2014. Had it still been in place Australia would have at hand the tools it needed to get to net-zero.

Some of those surveyed said it was “too late” for a carbon price, partly because of politics and partly because of lost time.

Time for everything plus the kitchen sink?

Saul Eslake said Australia was no more likely to adopt an economy-wide carbon price than he was “to step in thylacine droppings on my front lawn of a morning”, the views of the OECD and the International Monetary Fund notwithstanding.

What was needed was everything possible, including the second-best option of direct action. John Quiggin said Australia needed direct action in the literal sense of government investment in renewable electricity and infrastructure.

Rana Roy said nothing should be ruled out, including the resurrection of a carbon tax or a carbon price, perhaps by a different name. An option rejected once was not rejected “for the rest of time”.

Others pointed to Australia’s natural advantages in solar, wind, geothermal energy and carbon removal via means such as reforestation and storing carbon in soil.

With the right settings in place, Australia could become a major producer of zero-emissions hydrogen, and an industrial powerhouse that used its own iron ore and green energy to export green steel to the world.

With one of the most important settings missing, Australia would find it harder.

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Detailed responses:

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Australia is at risk of taking the wrong tack at the Glasgow climate talks, and slamming China is only part of it

Buried within the prime minister’s response to the latest report from the Intergovernmental Panel on Climate Change is just about everything we’re at risk of getting wrong at the Glasgow climate talks in October.

After slamming China — whose emissions per person are half of Australia’s — for not doing more to cut emissions, Scott Morrison said the Glasgow talks were the “biggest multilateral global negotiation the world has ever known”.

If he treats the talks as just another (big) negotiation, we’re in trouble.

The way the Department of Foreign Affairs and Trade usually treats negotiations is hold something back, hold out the prospect of “giving it up,” and then only make the concession if the other side gives something in return. Even if holding back damages Australia.

Cars are a case in point. From an economic point of view, there is no reason whatsoever to continue to impose tariffs (special taxes) on the import of cars — none, not even in the eyes of those who support the use of tariffs to protect Australian jobs. Australia no longer makes cars.

Yet the tariff remains, at 5%, making it perhaps A$1 billion harder than it should be for Australians to buy new cars (although nowhere near as hard as it was in the days when the tariff was 57.5%).

The tariff seems to be in place largely to give the Department of Foreign Affairs and Trade something to negotiate away in trade agreements: for use as what the Productivity Commission calls “negotiating coin”.

Here’s how it worked in the 2014 Australia-Korea Free Trade Agreement. Australia agreed to remove the remaining 5% tariff on Korean cars, “with consumers and businesses to benefit from downward pressure on import prices”.

But Australia didn’t remove the tariff on car imports altogether, which would have given us a much bigger benefit but denied the department negotiating coin.

The next year the department did it again, agreeing to give up the tariff on imported Japanese cars in the Japan-Australia Economic Partnership Agreement (but not on other cars) so Australians could “benefit from lower prices and/or greater availability of Japanese products”.

Two years later, it did it again, with cars from China.

When the UK and European agreements are negotiated, it’ll do it there too.

Australia holds back reforms

Eventually Australians will get what they are entitled to. But the point is that rather than advancing the cause of free trade, the department has held back, treating a win for the other side as a loss for us, when it wasn’t.

The Centre for International Economics believes the much bigger earlier set of tariff cuts lifted the living standard of the average Australian family by A$8,448.

Had our trade negotiators been in charge, we would still be waiting. Instead the Hawke and then the Keating governments pushed through unilateral reductions, asking for nothing in return.

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Read more: This is the most sobering report card yet on climate change and Earth's future. Here’s what you need to know

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As former Trade Minister Craig Emerson put it, this gave Australia “credibility in international trade negotiations way beyond the relative size of our economy”.

Does that sound like the sort of thing Australia might need at Glasgow, to have enough credibility to urge even bigger emitters to deliver the kind of cuts on which our futures and future temperatures depend?

It won’t work with China

The prime minister is right to say that China is the world’s biggest greenhouse gas emitter, even though its emissions per person are low. Its high population means it accounts for 28% of all the greenhouse gases pumped out each year. The next biggest emitter, the United States, accounts for 15%

But China’s status is new. Until 2006 it pumped out less per year than the United States. Because the US has had mega-factories and heating and so on for so much longer, it is responsible for by far the biggest chunk of the greenhouse gasses already in the atmosphere: 25%, followed by the European Union with 22%.

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China might reasonably feel that countries like the US that have done the most to create the problem should do the most to fix it.

Like Australia, the US pumps out twice as much per person as China and has much more room to cut back.

On the bright side, China knows that being big means it is in a position to make a difference to global emissions in a way that other countries cannot on their own. And that’s a position that can benefit its citizens.

China’s latest five-year plan, adopted in March, commits it to cut its “carbon intensity” (emissions per unit of GDP) by 18%. If it beats that five-year target by just a bit (and it has beaten its previous five-year targets) its emissions will turn down from 2025.

It is aiming for net-zero emissions by 2060.

Australia needs China’s help

The Intergovernmental Panel on Climate Change finds that Australia is especially susceptible to global warming. We’re facing less rain in winter, longer heatwaves, drier rivers, more arid soil and worse droughts.

We are right to want China to do more, but the worst way to achieve it is to say “we won’t lift our ambition until you lift yours”.

Hardly ever a worthwhile strategy, it is particularly ineffective when we don’t have bargaining power.

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Read more: Climate change has already hit Australia. Unless we act now, a hotter, drier and more dangerous future awaits, IPCC warns

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The only power we’ve got is to set an example, unilaterally, as we did with tariffs. And to ramp up our ambition.

If Australia said it would do more, and didn’t quibble, it might just count for something.

It’s all we can do, and it’s the very best we can do.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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In fact, there's plenty we can do to make future fires less likely

One of the dominant ideas buzzing around the internet is that there’s little we can do to escape the prospect of more frequent and worse bushfires - ever.

That’s because there’s little we can do to slow or reverse the change in the climate.

Australia accounts for just 1.3% of global emissions. That’s much more than you would expect on the basis of our share of world’s population, which is 0.33%. But even if we stopped greenhouse gas emissions as soon as we could and started sucking carbon back in (as would be possible with reafforestation) it’d make little difference to total global emissions, which is what matters – or so the argument goes.

But this argument ignores the huge out-of-proportion power we have to influence other countries.

There’s no better indicator of that than in Ross Garnaut’s new book Super-power: Australia’s low-carbon opportunity.

We’re more important than we think

Garnaut conducted two climate change reviews for Australian governments, the first in 2008 for the state and Commonwealth governments, and the second in 2011 for the Gillard government.

In the second, he produced two projections of China’s emissions, based on what was known at the time.

One was “business as usual”, which showed continued very rapid increases. The other took into account China’s commitments at the just-completed 2010 United Nations Cancun climate change conference.

China’s annual emissions matter more than those of any other country – they account for 27% of the global total, which is a relatively new phenomenon.

The bulk of the industrial carbon dioxide already in the atmosphere was put there by the United States and the Soviet Union, who have been big emitters for much longer.

Egged on by the US Obama administration and by governments including Australia’s under Julia Gillard, China agreed at Cancun to slow its growth in emissions, and at the Paris talks in 2015 hardened this into a commitment to stabilise them by 2030.

The extraordinary graph

Garnaut’s 2011 projections showed growth moderating as a result of China’s commitment, which was at the time a cause for optimism.

When he returned to the numbers in 2019 to prepare his book, he was stunned. Egged on by the example of countries including the US and Australia, China had done far, far better than either “business as usual” or its Cancun commitments. Instead of continuing to grow rapidly, or less rapidly as China had said they would, they had almost stopped growing.

The graph, produced on page 29 of Garnaut’s book, is the most striking I have seen.

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Since 2011, China’s emissions have been close to spirit-level flat. They climbed again only from 2017 when, under Trump in the US and various Coalition prime ministers in Australia, the moral pressure eased.

From the start of this century until 2011, China’s consumption of coal for electricity climbed at double-digit rates each year. From 2013 to 2016 (more than) every single bit of China’s extra electricity production came from non-emitting sources such as hydro, nuclear, wind and sun.

There are many potential explanations for the abrupt change. Pressure from nations including the US and Australia is only one.

What happened once could happen again

And there are many potential explanations for China’s return to form after Trump backslid on the Paris Agreement and Australia started quibbling about definitions. An easing of overseas pressure is only one.

But, however brief, the extraordinary pause gives us cause for hope.

Australia can matter, in part because it is hugely respected in international forums for its technical expertise in accounting for carbon emissions, and in part because of its special role as one of the world’s leading energy exporters.

Garnaut’s book is about something else – an enormous and lucrative opportunity for Australia to produce and export embedded energy sourced from wind and the sun at a cost and scale other nations won’t be able to match.

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Read more: Australia could fall apart under climate change. But there's a way to avoid it

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Some of it can be used to convert water into hydrogen. That can be used to turn what would otherwise be an intermittent power supply into a continuous one that enables around-the-clock production of the green steel, aluminium, and other zero-emission products Japan, Korea, the European Union and the United Kingdom are going to be demanding.

It’s a vision backed by Australia’s chief scientist.

It wouldn’t have been possible before. It has been made possible now by the extraordinary fall in the cost of solar and wind generation, and by something just as important – much lower global interest rates. Solar and wind generators cost money upfront but cost very little to operate. Interest rates are the cost of the money upfront.

At least three consortia are drawing up plans.

There’s not much to lose

There’s much that needs to be done, including establishing the right electricity transmission links. But Garnaut believes it can all be done within the government’s present emissions policy, helping it achieve its emission reduction targets along the way.

What’s relevant here is that moving to ultra-low emissions would do more. It could give us the kind of outsized international influence we are capable of. It could help us make a difference.

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Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Why we'll have to pay polluters to stop polluting, as soon as possible

Get set for a scorcher.

None of what you've been noticing is wrong, it really is much hotter than in your childhood.

And it's getting hotter. The US National Aeronautics and Space Administration says this year will almost certainly be the hottest on record, following on from last year which was the hottest year recorded.

So far, nine out of the world's hottest 10 years on record have begun with the number 2. That means they took place after the year 2000 rather than in the 1900s, when most of us grew up.

The good news is that the Paris talks showed our leaders are on to it. Ministers including Julie Bishop committed first to holding the increase in the global average temperature to "well below" two degrees (where most of the Arctic melts) and then to "pursuing efforts" to limit it to 1.5 degrees.

It's already one degree hotter than it was before industrialisation. The emissions pledges taken to Paris would have kept the increase to only about 2.7 degrees. That's why the ministers pledged to come back every five years with new and tougher targets and to explain how they are going to meet them.

The implications are jaw-dropping. The agreement says that to just hold the line at two degrees, emissions will have to peak as soon as possible and then slide so rapidly that by the second half of the century there will be "a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases". That means zero net emissions. That's what Bishop has signed us up to: zero net emissions, by the second half of the century.

It is trite to say that the Turnbull government's $2.5 billion Direct Action program won't achieve it. A legally required update released quietly by Environment Minister Greg Hunt late on Christmas Eve shows emissions actually climbing. But it is probably also true that the Gillard government's $9 billion a year carbon tax wouldn't have achieved it either, not unless the carbon price soared to extremely high levels...

What's needed is to quickly shift most of our cars, trucks, factories and heating away from fossil fuels towards electricity and to make electricity close to emissions-free.

The Australian National University's Frank Jotzo has done the numbers in a report prepared with ClimateWorks, a privately funded think tank. It says that to meet just the two degree target we will have to close all of our brown coal power stations by the early 2020s, and all of our black ones by the early 2030s.

It isn't the sort of task Gillard's carbon tax was set up to achieve, which is why Gillard herself also set up a "Contracts for Closure" scheme under which existing highly polluting plants would be paid to close, after putting in bids. She walked away from it after she realised all of the bids would be too high.

Hazelwood, in Victoria's Latrobe Valley, is the obvious candidate. Perhaps the dirtiest power station in the world, it spews out 60 per cent more pollution a unit of electricity than the NSW black coal stations north of the border. It spews out three times as much as gas-fired power stations.

But why would its owners close it? The coal is relatively cheap because it is next to useless for anything else. Much of it isn't even dried, adding further to emissions. As things stand the NSW black coal stations are far more likely to close than Victoria's more polluting brown coal stations.

And it would cost big money to rehabilitate the site. The inquiry into the 2014 fire at the Hazelwood mine put the cost of decontamination alone at $100 million. Besides, if Hazlewood closed first, the stations that remained would grab its market share. There's a pay-off for not being first.

Paying the stations to close (as Gillard proposed) would result in politically unacceptable and unreasonably high payments to the biggest polluters (as Gillard discovered). Knowing there will be another auction down the track, and then another, they will hold out for very high prices.

So Jotzo has come up with an ingenious solution. It's a Gillard-style auction, where polluting generators put in bids for how much they are prepared to accept to close. But there's a twist. The payment comes not from the government, but from the remaining generators, in proportion to their market share and the amount they pollute. If a big polluter such as Hazelwood loses the auction by asking for too much, it'll be on the hook for big payments to whoever wins.

There would be an incentive to bid low rather than high, and none of the remaining generators would be made too much worse or better off. They would grab market share, but they would pay for it in accordance with the amount they polluted.

The winning bidders would have to use their winnings to rehabilitate their sites and pay government-specified assistance to their displaced workers.

It's by no means a complete solution. Future auctions might operate differently. The point is we are going to have to do everything we can to turn Australia electric and to squeeze most of the remaining emissions out of electricity. The old debate about a carbon price versus direct action is losing its sting. What matters now is finding something that works, and finding it quickly.

In The Age and Sydney Morning Herald

 

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Abbott's own figures show he could have done much more to fight climate change

The striking thing about Tony Abbott's attempt to balance damage to the environment against damage to the economy in choosing an emissions reduction target is how mind-bogglingly small the damage to the economy would be.

Abbott's cabinet endorsed the target last week. Whereas until now Australia has tried to lower emissions to 5 per cent below 2000 levels by 2020, at the Paris conference in December it will offer about the same as the United States". It is true the US is offering a cut of 26 to 28 per cent, but its cut is to be delivered by 2025, five years earlier than Australia's 2030.

Comparing like for like and assuming the US continued its promised rate of cuts beyond 2025, the US is offering 35 to 39 per cent, compared with Australia's 26 to 28 per cent.

Abbott might have been hoping we wouldn't notice...

On a like-for-like basis, we will offer less than Britain United Kingdom, less than Germany, less than the European Union, less than Canada and less than New Zealand; less than most of the countries with which we like to compare ourselves, including those with conservative governments.

The Prime Minister says the offer is better than Japan's target and better than China's.

But Japan has lost most of its low-emission power in the wake of the Fukushima​ disaster and China is a developing nation with living standards a fraction of ours. Its offer to cap its emissions before 2030 is more than we could have hoped for.

What's clever about Abbott's offer is that it's just enough for us to be taken seriously. We're at the bottom of a pack, we are not promising as much as needed, but at least we are in the pack.

And the Prime Minister says he has to be "economically responsible".

"We have got to reduce our emissions, but we have got to reduce our emissions in ways which are consistent with continued strong growth," he said on Tuesday.

Evoking an image of balanced scales, he said the last thing he wanted to do was to "strengthen the environment and, at the same time, damage our economy".

Which would make sense if the scales weren't so outrageously unbalanced. His own economic modelling makes the balance clear.

Abbott says it concludes that the cost of a 26 per cent cut in emissions will be "between 0.2 and 0.3 per cent of GDP in the year of 2030".

That's right, between 0.2 and 0.3 per cent of GDP. Not between 0.2 and 0.3 per cent a year, which would be noticeable, but far less than that – about 0.01 to 0.02 per cent a year, which would mean that in 15 years, the economy would be 0.2 to 0.3 per cent smaller than it would have been.

How big would it have been? By then, the projections in the intergenerational report have the economy being one and a half times as big as it is today.

Some of it will be the result of population growth – our population will be 21 per cent bigger by then – but the rest will the result of a higher standard of living, if the projections in the intergenerational report turn out to be correct.

By 2030, instead of being worth $1.6 trillion, the Australian economy will be worth $2.4 trillion; that's unless something dents that growth.

Abbott's modelling shows that the dent from an emissions target of 26 per cent would be 0.03 per cent. The dent would mean that instead of being worth $2.4 trillion when rounded to one decimal place, the economy would be worth $2.4 trillion when rounded to one decimal place. It'd be hard to see.

And hard to feel.

It would amount to $7 billion in a $2.4 trillion economy.

But by then, even with the emissions target, the economy would be growing at the rate of about $5 billion every four weeks. In six weeks, it would have made up the $7 billion it lost as a result of the emissions reduction target.

If you don't much mind feeling as well off as you did six weeks ago, you're going to not much mind an emissions reduction target of 26 per cent. Nor would you mind one much bigger.

The Climate Change Authority's assessment of what is needed works out at a 45 to 63 per cent cut in emissions on 2005 levels. It might set us back 14 weeks.

That's how small an economic price we would need to pay to do everything that could reasonably be expected to limit the increase in global temperature. That's how easy a confident government would have found it to do more.

In The Age and Sydney Morning Herald

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The prodigal nation. Australia about to blow its carbon budget

Australia is about to make one of the most important and potentially costly decisions in its history. There are signs it'll stuff it up.

We have already promised to do our part to limit the rise in global temperatures to 2 degrees. It's a commitment we can't get out of, and nor have we tried. All the nations we compare   ourself to have signed up to it, including those with conservative governments such as Britain, Canada and New Zealand.

What's at issue in the next few weeks is how we do it. Australia is being asked to make a specific commitment ahead of the Paris climate summit later this year. The US has done so. It plans to cut carbon emissions by between 26 and 28 per cent relative to 2005 levels by 2025. Europe plans to cut emissions by 40 per cent on 1990 levels by 2030. China plans to stabilise emissions by 2030.

Australia faces a choice. It can either wind back its emissions quickly, meaning it'll need to do less in the future, or it can wind them back slowly, making the future task harder. Guess which way it is leaning.

It's giving every indication of wanting to place the burden of adjustment on the next generation. It's giving every indication of wanting to do little now so that its successors have to do more later. It's an odd response from a government that (most of the time) understands accounting. It quite rightly savaged Labor for always wanting to boost foreign aid to the UN millennium goal, but 'not yet'. And it savaged Labor for promising to spend awfully big on health and education, but in the future. Labor signed up to agreements that would have given the states big grants for hospitals and schools just beyond the budget horizon, at a time when it had no idea how to fund them.

Now the Coalition is preparing to be just as reckless...

The decision to keep the global temperature increase to 2 degrees gives the world a 'carbon budget'. The budget, calculated by the Intergovernmental Panel on Climate Change, is 1700 gigatonnes of carbon dioxide and equivalents. If any more than that is emitted between 2000 and 2050, global temperatures are likely to climb by more than 2 degrees. If less is emitted they will climb by less. Australia's share of that budget beyond 2013 is 10.1 gigatonnes, around 1 per cent of what's left.

We've got a choice. We can use up that budget quickly and then plan to emit next to nothing in future years, or we can wind back emissions now and use up our budget more slowly.

The Climate Change authority has recommended big action upfront and big action later. It says that's what we will need to keep within our budget. It wants a 30 per cent cut in emissions relative to 2000 levels by 2025. It says that's broadly compatible with what Australia's peers are pledging. Beyond that it wants a further cut of 10 to 30 per cent by 2030.

"If Australia were to pledge the recommended 30 per cent target at the Paris conference this would likely be considered the behaviour of a good global citizen, and go some way to answering those who have questioned Australia's commitment to climate change policy," it said in its report in April. "It would also give Australia the right to expect other countries to behave in like fashion."

Anything less would be the prodigal option. It would give Australia an easy life now in the knowledge that when its budget was spent, life would become tough. It would impose a burden on our children we are not prepared to wear ourselves. It would be the kind of behaviour the Coalition says it abhors when it comes to government debt.

As it happens, the actions we would need to undertake now aren't that scary (just as the actions needed to stop government debt climbing aren't that scary). What is scary is what will be needed if we wait. The Melbourne consultancy ClimateWorks has just launched a web-based calculator. You can visit it at 2050pathways.net.au/calculator and play with the sliders.

My own experiments on the website show that nuclear power would do little to keep us within our budget. That's because it wouldn't produce much electricity by 2050. Switching from coal to renewable energy would do a lot. In fact in my experiments I couldn't keep within the budget without doing it.

Australia's commitment at Paris will have to be credible. It won't be enough to say: "yes we have a plan to keep within our budget, but we are not going to wind back our use of coal, at least until we have to stop". The other nations attending the talks know about calculators. They know what's profligate and what's not.

Australia is expected to announce its decision in July at the major economies forum in the United States. It is still able to get it right. It is still able to show the rest of the world it governs responsibly.

In The Age and Sydney Morning Herald

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Climate change. Why some of us won't believe that it's getting hotter

What is it about the temperature that some of us find so hard to accept?

The year just ended was one of the hottest on record. In NSW it was the absolute hottest, in Victoria the second-hottest, and in Australia the third hottest.

The measure is compiled by the Bureau of Meteorology. It dates back to 1910. A separate global reading prepared by the World Meteorological Organisation has 2014 the hottest year  since international records began in 1880. Not a single year since 1985 has been below average and every one of the ten hottest years has been since 1998.

That it's getting hotter is what economists call an empirical question - a matter of fact not worth arguing about, although it is certainly worth arguing about the reasons for the increase and what we might do about it.

But that's not the way many Australians see it. I posted the Bureau of Meteorology's findings on Twitter on Tuesday and was told: "Not really". Apparently, "climate-wise we are in pretty good shape."

If the Bureau had been displaying measures of the temperature on a specific day or a cricket commentator had been displaying the cricket score, there would be no quibbling. The discussion would centre about the reasons for the result and its implications.

But when it comes to the slowly rising temperature some of us won't even accept the readings. And that says something about us, or at least about those of us who won't accept what's in front of our faces...

I am not prepared to believe that these people are anti-science. Some of them are engineers, some mining company company executives. Like all of us, they depend on science in their everyday lives.

Nor am I prepared to believe they've led sheltered lives, although it's a popular theory. In the United States a survey of six months worth of coverage on Rupert Murdoch's Fox News Channel found that 37 of its 40 mentions of climate change were misleading.

The misleading coverage included "broad dismissals of human-caused climate change, disparaging comments about individual scientists, rejections of climate science as a body of knowledge, and cherry picking of data".

Fox News called global warming a "fraud", a "hoax" and "pseudo science".

Rupert Murdoch's Wall Street Journal fared little better. 39 of its 48 references were misleading.

In Australia it's not as bad. Rupert Murdoch's The Australian gives more space to climate change than any other newspaper. Its articles are 47 per cent negative, 44 per cent neutral and 9 per cent positive according to the Australian Centre for Independent Journalism.

It's impossible to read The Australian's articles without feeling at least a bit curious about climate change.

Another theory is that it's to do with psychology. Some people are more threatened by bad news than others, making them less able to accept that it's real.

And now a more sophisticated theory suggests that it's not about the facts at all. It's really a debate about the implications, disguised as a debate about the facts. Troy Campbell and Aaron Kay, a researcher and associate professor in neuroscience at Duke University in North Carolina find that belief in temperature forecasts is correlated with beliefs about government regulation and what those forecasts would mean for government regulation.

They assembled a panel of at least 40 Republicans and 40 Democrats and asked each whether they believed the consensus forecast about temperature increases. Half were told that climate change could be fought in a market friendly way, the other half that it would need heavy handed regulation. Of the Republicans, the proportion who accepted the temperature forecast was 55 per cent when they were told climate change could be addressed by the free market and only 22 per cent when they were told it would need regulation.

(Democrats were around 70 per cent likely believe the temperature forecast and weren't much swayed by how climate change would be fought.)

The finding is important. It means that that the first step in getting people to at least agree that it's getting hotter is to stop talking about how to prevent it. Muddying the two, as we do all the time, gets people's backs up.

It is getting hotter. Seven of Australia's ten hottest years on record have been since the Sydney Olympics. Last year was 0.91C hotter than the long-term average. Last year's maximums were 1.16C hotter than long-term average maximums.  Warming is a fact. The Bureau of Meteorology accepts it, the government accepts it and it shouldn't be beyond our abilities to accept it.

Then we can talk about what to do.

In The Age and Sydney Morning Herald


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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

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How Tony Abbott made the carbon tax work

Happy second birthday carbon tax

For six glorious wild and wet days last week South Australia sourced 67 per cent of its electricity from wind. Needless to say it’s an Australian record. So fast were the turbines turning between midnight Monday morning and midnight Sunday that the entire national grid sourced an extraordinary 14.5 per cent of its electricity from wind.

The grid spreads from Queensland in the north to Tasmania through to South Australia.

With hydro electricity contributing almost as much the entire arc was making 30.7 per cent of its power without burning fuel. At one point early on Friday morning South Australia sourced 99.6 per cent of its needs from wind pushing wind’s share of the national grid to 20 per cent.

That’s how far we’ve come since the introduction of the carbon tax two years ago today.

And we’ll go further, thanks to Clive Palmer’s decision to keep the renewable energy target and possibly the bones of the emissions trading scheme.

South Australia is about to open another wind farm at Snowtown near the top of the Yorke Peninsula. It’ll be Australia’s second-biggest, producing enough electricity to power 230,000 homes. That’s as many as Canberra and Hobart combined.

South Australia has mothballed one of its massive base load coal-fired power stations and operates the other for only six months each year.

None of it would be happening without the renewable energy target and the tax. The target imposes enormous penalties on power companies that don’t source renewably. Using wind is cheaper than paying the penalties. The tax has made coal generators in Queensland and New South Wales uneconomic.

And it’s done something else - something so strange it only begins to make sense when seen through the prism of politics.

For well over a century through two world wars and the great depression Australia used more electricity each year than the year before. Then in 2010 something changed.

Ever since 2010 we’ve been using less each year than the year before. Just as important as switching to renewables we’ve been switching out of electricity altogether, replacing megawatts with ‘negawatts’...

Energy expert Hugh Saddler of pitt&sherry sees four things at work. (Dr Saddler calculated the wind share figures I just quoted.) One is energy efficiency programs. Non-political in nature, they’ve required freezers, refrigerators and even light bulbs to perform better. Another is deindustrialisation. Between October 20-11 and September 2012 three major users of electricity partially or closed down. They are a steelworks, an aluminum smelter and an oil refinery, all in NSW. Yet another is rooftop solar. In the statistics it shows up as grid energy not produced - negawatts.

And then there’s reason number four, what Dr Saddler describes as an “abrupt change in consumer responsiveness to higher prices after 2010”.

“It is surely not a coincidence that 2009-10 was the year in which the possible effect of a carbon price on electricity prices became a major national political issue, and in which increasing political attention was also paid to the rapid increases in electricity prices already occurring,” he writes.

Tony Abbott took over leadership of the Coalition on December 1, 2009.

Ever since we’ve heard repeated horror stories about electricity prices retold regardless of the fact that gas and electricity account for just 2.6 per cent of a typical household’s spending (and gas and electricity are about the only things whose price was going to rise).

Dr Saddler’s graphs suggest it is the Coalition’s talk about electricity price rises rather than the the rises themselves which changed consumer behaviour.

It could be called the ‘Abbott effect’.

Australian Bureau of Statistics data shows spending on electricity growing strongly until 2009-10 and then barely increasing despite continuing strong increases in electricity prices.

“It appears that residential electricity consumers have

managed to completely offset the effect of higher prices on their household budgets by reducing consumption,” Dr Saddler writes in a paper commissioned by the Australia Institute.

When the carbon tax goes this month and is replaced by either an emissions trading scheme with a zero price or nothing, much of that changed behaviour will continue. We are unlikely to rip out the insulation or rip up the solar water heaters and solar panels Abbott helped encouraged us to install.  With the future of the renewable energy target assured more and more of our power will be sourced from wind and possibly large scale solar.

Energy prices will come down in the coming months. Each household will be about $10 per week better off. But there’s no especial reason to think they are going spend that saving on power. We’ve changed, and thanks to the continued presence of the independent Climate Change Authority and the profit-making Clean Energy Finance Corporation our electricity is likely to be increasingly clean.

Our environment, if not the dirtiest of our power generators, has a lot to thank Clive Palmer for, along with prime minister Gillard who pushed through the carbon tax and defended the renewable energy target. And prime minister Abbott. He made it scary.

In The Age and Sydney Morning Herald





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Carbon trading. How Clive Palmer saved the furniture

Clive has saved the furniture.

If he gets his way (and he is almost certain to) the architecture of Australia's emissions trading scheme will stay in place.

Negotiated over seven years and running to hundreds of pages, the design of Australia’s scheme was a massive intellectual effort about to be rendered useless. Firms had already set up their accounting systems to be prepared for when the carbon price morphed into the trading scheme on July 1, 2015

Destroying it and then reviving it might have taken another decade.

Palmer Senator’s will bring forward the start date of the scheme by twelve months, an idea put forward most recently by Labor’s Kevin Rudd who wanted the scheme in sooner because it would be linked to the international carbon price which is a lot lower than the present carbon tax. Palmer’s twist is to set a carbon price of zero until such time as Australia’s major trading partners come on board with schemes of their own.

The trading partners he names are China, the United States, the European Union, Japan and Korea. The European Union already has a scheme. The US and China are on the way. It is far from unlikely that they all five have trading schemes within a decade.

When they are, Australia will be ready. It won’t need to reinvent its wheel.

And the related mechanisms will remain in place...

Australia’s Climate Change Authority advises on targets and Australia’s progress in meeting them. With Palmer’s help it’ll keep doing that all through the years the trading scheme is in hibernation, advising the government on whatever other means it chooses to meet its target of cutting emissions to 5 per cent below 2000 levels by 2020. That target remains Coalition policy. The Authority has advised the government to move faster, cutting emissions by 19 per cent. Its chief is former Reserve Bank governor Bernie Fraser. Whether or not the government accepts that target he’ll be happy to give it advice on how to meet any lesser target it adopts and to let it know if it's falling short.

The profit-making Clean Energy Finance Corporation remains in business too. It’ll continue to lend to money to worthwhile emission reduction prospects and continue to turn a profit. Rather than frightening away private sector investors, as government ministers suggest, it brings in private sector investors by doing the due diligence and lending its endorsement to worthwhile projects. At of July 2013 it had leveraged $36 million to support projects worth $2.2 billion.

It’ll need to stay in place because renewable energy targets will remain in place as well, at least until after the 2016 election according to Palmer. Their continued life should take few by surprise. Tony Abbott promised in the 2013 election that they would stay.

Abbott will still get a lot of what he wants. The “wrecking ball” that he kept saying would destroy the Australian economy will go. Two years into its life the carbon tax will be replaced by a carbon price of zero. Energy prices will fall in July. Palmer wants a legislated guarantee that prices will fall and the environment minister Greg Hunt will give it to him.

Abbott’s got what he wants, and Clive has saved the furniture.

In The Age and Sydney Morning Herald

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Plea from the edge of the abyss. Why we need the Climate Change Authority

If we were sleepwalking towards catastrophe would we know?

The UN Intergovernmental Panel on Climate Change is about to release frightening projections for the impacts of the climate change that is already unstoppable. Among the projections for the next five years is the displacement of hundreds of millions of people, a slide in crop yields and increased deaths from heatwaves.

Few dispute that it is happening. Australia’s environment department has a whole division dealing with adaption - how to cope with what we can’t stop.

Bernie Fraser heads the Climate Change Authority. The man who ruthlessly bore down on inflation just as Australia was recovering from the early 1990s recession, he knows everything about acting in the country’s long-term interests.

But few others seem to.

“I am not out to scare the pants off anybody here and I don't want to insult your intelligence with suggestions that climate change is a load of crap,” he told the National Press Club this month.

“But if policymakers accept the science and its implications, you would expect them to follow through.”

The science says any increase in global average temperatures of more than two degrees compared with pre-industrial levels is “getting into the dangerous category”. We are already halfway there, and there’s only a limited amount of carbon and equivalent gasses we can release before we get there, our so-called our “carbon budget”.

We are using it up at too fast a rate to hold the increase to two degrees. All isn’t lost, if we can pull back. The sooner we pull back gently, the less sharply we will have to pull back later.

That was the message in the Climate Change Authority’s report on targets released on March 5. Its finding was that Australia should lift its target for cutting emissions from 5 per cent below 2000 levels by 2020 to 19 per cent. Making that steeper cut now will avoid a much steeper cut later.

Much of what it suggests is easy. Adopting tougher motor vehicle emissions standards of the kind already in place elsewhere would cut running costs as well as emissions. And there will soon no longer be a local vehicle building industry to object.

Another is to simply buy extra emissions reductions from other countries. They are going cheaply at the moment, and 2020 is looming too soon to bring about all of the cuts on the Australian continent. The globe doesn’t mind where they take place. So far the Coalition has been unaccountably hostile to the idea, presenting buying cuts from overseas as a sort of moral failing. But we trade with other nations all the time and for the moment it’s the only way to do what’s needed.

It’s the reactions to the suggestions in his report that shocked Fraser.   ...

He is not surprised by the reactions of business, except by their scale and brazenness. But he is surprised by those of the government. “It is the Government's job to protect community interests,” he says. “Every politician pledges to do just that in the lead-up to every election campaign that I have heard.”

The government plans to abolish the Climate Change Authority. While not disputing the science, it shows no interest in lifting Australia's emissions reduction target. It wants to remove the carbon tax and is prepared to underfund the Emissions Reduction Fund that will replace it. It wants to axe the Clean Energy Finance Corporation and to wind back the renewable energy target.

If it believes the science - and it says it does - its thinking is unaccountably short-term, unless you consider the three-yearly electoral cycle.  If an entire nation was sleepwalking towards catastrophe it’d be politically risky to wake it up.

Could an entire nation, perhaps the entire globe, sleepwalk towards catastrophe?

Al Bartlett thought so. He was Professor Emeritus in Nuclear Physics at University of Colorado at Boulder. Before he died last year he spoke to the BBC’s More or Less radio program. <i>More or Less</i> deals with statistics, as did the interview.

Bartlett was an expert on what happens when constant growth comes up against a hard limit. A YouTube video of one of his lectures is entitled: The Most Important Video You'll Ever See.

“Steady growth means doubling over a certain period of time,” he explained to More or Less.

“Suppose you have bacteria that doubles in number every minute. Now suppose you put one of these bacterium in an empty bottle at 11.00 am and then observed that the bottle was full at midday.”

“At what time was the bottle half full?”

The surprising answer is 11.59 am - just one minute before midday, because the bacteria are doubling every minute.

“Now if you were an average bacterium in the at bottle, at what time would you first realise that you were running out of space?” he asked.

The answer mightn’t even be one minute before it was too late.

“After all, at one minute before twelve the bottle was half full, at two minutes before twelve it was only a quarter full and at five minutes before it was only 3 per cent full with 97 per cent of open space just yearning for development.

“At five minutes before twelve how many of you would realise that there was a problem?”

How many of us would realise we were sleepwalking towards catastrophe?

In The Age and Sydney Morning Herald

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Clipping peaks. Why we'll allow power companies to turn off our air conditioners

It'll save us a fortune

Productivity Commission

Only an idiot would turn off their air conditioner during near-record heat. But the economics of electricity mean that’s what we’ll have to do if we want our power bills to stop rising.

Last week’s extraordinary heat was unusual. One estimate says Melbourne hasn’t had a run of days like it for 100 years. But the generators and the cables had to be build to handle it (they nearly failed).

In NSW the rare spikes of extreme electricity use last for just 40 hours a year when added up. That’s a mere half of one per cent of each year. But the Productivity Commission says the cables, substations and generators built to handle them account for around 25 per cent of each electricity bill.

It’s a financial cost that dwarfs the carbon tax. And the physical cost of generators we otherwise wouldn’t need and rarely-needed maximum strength cabling is enormous.

Sometimes the peaks last just minutes.

Twelve years ago extreme peaks were only an emerging problem. Australia had half as many air conditioners as it does today. In NSW 65 per cent of homes are now air conditioned, in Victoria and Queensland it is around 75 per cent, in Western Australia 86 per cent and in South Australia more than 90 per cent.

Queensland estimates suggest that each 2 kilowatt air conditioner imposes a cost of up to $7000 on the entire system. This isn’t the cost of running it. It’s the cost of building otherwise unneeded capacity to be able to run it on those rare occasions when nearly everyone else is running their’s.

The Productivity Commission says the $7000 figure is an overestimate...

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Many new air conditioners simply replace older ones. And they are getting more efficient (although although more powerful).

Its calculation, allowing for the fact that even in peak periods some air conditioners are not fully used, is a one-off cost of $2500. It says that’s amounts to an extra cost of $350 per year per air conditioner, paid by all electricity users, whether or not they cool their homes.

Productivity Commission

It’s even more unfair than it seems. It isn’t just the few Australians without air conditioners who are paying money they needn’t to build up the system for those with them, it is also Australians with only small air conditioners who are paying far more than they should to support houses with massive three-phase ducted systems.

Rarely has there been a problem in economics to which so many inappropriate solutions have been offered.

A decade back South Australia imposed a higher electricity charge in summer than it did in winter. It was meant to impose greater costs on users of air conditioners. But all it did was impose greater costs on everyone in summer, even those who couldn’t afford to or didn’t need to cool themselves.

The Electricity Supply Association suggests imposing a larger fixed supply fee on those households with double the usual electricity consumption (typically those houses with lots of air conditioning). But the main effect would be to lumber them with a fairly inescapable cost. Already being liable for the fee, they would have every incentive to run their systems at full bore in extreme heat.

In December the Commonwealth government issued an issues paper proposing greater time-of-use pricing. The idea is that high prices at times of high use would encourage people to move their use to other times, as happens with variable road tolls.

It’s an idea that seems to have promise because Australians are indeed price sensitive when it comes to electricity. Energy analyst Hugh Saddler of pitt&sherry says that as electricity prices took off from 2008 household electricity use steadied. As prices soared still higher from 2010 household electricity use fell for the first time in a century. Houses use less electricity now than they did five years ago.

But that doesn’t mean they will use less in a heatwave.

"No one is going to avail themselves of time-of-use pricing on a 45 degree day,” he tells me. “No one is going to turn off their air conditioner when it gets extremely hot just because of time-of-use pricing. The only time you would need them to respond to time-of-use pricing is the time they won’t.”

Economists, conditioned to believing that prices always change behaviour, find this hard to accept - unless they themselves have been locked inside a building during five straight days above 40C.

The economic problem of finding a way to avoid massive infrastructure costs brought on by mere days or hours of extreme peaks is probably best solved by turning away from economics.

Queensland is showing the way. The government-owned Energex offers customers cheaper electricity if they install “PeakSmart” air conditioners. PeakSmart means remotely controlled. As peaks approach, the electricity supplier sends a “ripple” down the line which can switch the cooler off or into a less cold method of operation (the fan stays on so it still feels cool). At test sites in Perth and Adelaide most of the users couldn’t tell the difference. The switch-off might last just minutes, not much longer from what happens automatically when the system is operated by a thermostat. But because different suburbs are powered down at different times, PeakSmart can eliminate extreme system-wide peaks.

Eight manufacturers are already providing machines that are PeakSmart ready. You might have bought one yourself without even knowing. Australian ministers will meet soon to decide whether to make PeakSmart readiness compulsory. After that it’ll be up to us and whether we are prepared to have our machines turned off remotely.

It’s less scary than it sounds, extraordinarily simple, and urgently needed.

In The Age and The Sydney Morning Herald


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