Monday, June 04, 2007

Who do you trust with the challenge of climate change?

That’s what Australia’s Prime Minister John Howard asked yesterday, when announcing his Government’s policy on climate change for the next election:

We must get this right. If we get this wrong, it will do enormous damage to our economy; to jobs and to the economic wellbeing of ordinary Australians, especially low-income households. The question I pose to the Australian people, quite directly, is this: who do you trust to take the vital decisions about our future?

Howard announced yesterday that his government would introduce emissions trading by 2012:

I announce specifically that Australia will move towards a domestic emissions trading system, that’s a cap and trade system beginning no later than 2012.

Secondly, we will as a nation set a long term aspirational goal for reducing carbon emissions but we need to assess very carefully with detailed economic modelling the impact any target will have on Australia’s economy and Australian families, this target will be set next year 2008.

Thirdly, the scheme will be national in scope and as comprehensive as practicable, designed to take account of global developments and to preserve the ompetitiveness of our trade exposed emissions intensive industries.

Fourthly, Australia should not pay higher energy costs than necessary to achieve emissions reductions, in other words, governments need to let the market sort out the most efficient means of lowering emissions with all low emissions technologies on the table and that of necessity must include nuclear power.

First, credit where credit is due. The PM has now committed his government to introducing a domestic emissions trading scheme by 2012. In effect that’s a commitment to reduce our emissions unilaterally even if it’s not required under the next round of Kyoto after 2012 (or some other international agreement). On the other hand, he has deferred setting a target for reducing emissions until next year, ie, after the election. That’s really half a policy. It’s like announcing that you’ll introduce a goods and services tax but you haven’t worked out what the rate will be. Or you intend to give a huge boost to health spending, but you haven’t worked out how much or where it will be spent. (Trust us).

Trust on climate change action is a double-edged sword. We need effective action but at a reasonable cost to the community. The Liberal Government enjoys the community’s trust that it will have broadly sensible economic policies, but I don’t think the community trusts it to deal with climate change effectively. It has spent the last 10 years taking only modest action on climate change and at the same time has damaged the cause of effective action by rejecting the Kyoto Protocol, supporting the world’s biggest polluter - the United States - in its stance to take no effective action on climate change, and publicly expressing its scepticism that climate change is even a problem.

We’re starting to get some reasonable modelling on the costs of emission reduction pathways. Strong targets will impose costs on businesses and households, but are entirely consistent with strong economic growth. Indeed, they make relatively little difference to overall projections for growth. Leaders that we can trust will be those that tell us the truth:

  • It’s true we’re a small player in all this. Adopting a strong domestic target won’t in itself save us from the risk of dangerous climate change.

  • However, it’s a likely prerequisite for getting our neighbours to play their part.

  • Strong targets will mean that we’re not as wealthy in 50 years as we would be with no targets. But we’ll be much wealthier than we are now. The economic chaos that Howard fears the ALP’s “reckless and irresponsible” target may inflict is being 169% wealthier on average than we are now compared to 184% wealthier if we don’t set a target.

  • Of course, that doesn’t take into account the dangers that climate change presents to our wealth. I reckon being only 169% wealthier in 50 years is worth it to avoid the (small) risk that climate change will make us much poorer, in nasty ways.

  • Nevertheless, the flipside is also true. On the best estimates, climate change will make people in 50 or 100 years poorer than they otherwise would be – but (unless things go really wrong) still substantially wealthier than we are right now. So don’t be too worried about the people of 2100 – they’ll probably be better off materially than you or me.

  • To a large extent, climate change is an economic issue. Some of the problems of climate change will be dealt with better by spending money on adapting than by spending money on reducing the severity of climate change. For example, we could invest billions on reducing the severity of climate change to reduce the spread of malaria that it will cause as warmer regions expand. But we might save millions more lives by investing that money in research into malaria treatments.

  • But, most importantly of all, climate change is not just an economic issue. It will destroy or radically alter species, ecosystems, landscapes, and communities. The extra wealth we’ll gain from inaction won’t compensate us for that. I hope our leaders can show that that’s something they understand.

I’m working my way through the PM’s task group’s report and in the next couple of weeks, I’m going to outline what it means, where we are in terms of climate change policy in Australia, and some of the things you need to understand to make some sense of it all, including:

  • What is emissions trading?

  • How does it differ from a carbon tax?

  • What are the main political parties proposing?

  • How does Australia fit into the global challenge?

  • What are the economic effects of imposing a cost on emissions?

  • How do you choose an emissions target?

Are there any other questions you’d like answered? Let me know: leave a comment or email me at ozelaw [at] yahoo [dot] com.


kathryn said...

Thanks for all this information David, I'm finding your summaries very useful (and understandable). Certainly more understandable than the Sydney Morning Herald - which seems to be at it's indecipherable best on this subject.

Anyway, you may have covered it already, but I don't really understand the basics of a cap and trade system. How are the caps set? And how does it lead to a reduction in emissions, not just under current levels, but into the future.

Basics I know, but I seemed to have missed out on the first level of information.

Cheers, Kathryn

laura said...

why wouldn't we trust howard after tampa, iraq, awb, and ten years of inaction on climate change?

David Jeffery said...

Thanks Kathryn. Good questions and I'll make sure I cover them.

Eilleen said...

FANTASTIC post David! Thank you!

Verdurous said...

".... So don’t be too worried about the people of 2100 – they’ll probably be better off materially than you or me."

Dave perhaps we could add the proviso - past returns are no guarantee of future performance. We ought to worry greatly about the people of 2100.

"To a large extent, climate change is an economic issue. Some of the problems of climate change will be dealt with better by spending money on adapting than by spending money on reducing the severity of climate change.."

MMmmm, not really. It's fundamentally an ecologic issue. But we should use economic principles in our efforts to implement solutions that maintains social cohesion and avoids chaos. Be careful not to discount the future. Mitigation and adaptation are of course important and we'll have to work on both. Don't forget that spending on mitigation helps avoid spending on future adaptation.

Otherwise, keep up the good work !