The politics of dealing with climate change would be a lot easier for the Rudd government if it had not been so eager to distance itself from the prominent economist, Ross Garnaut, who was originally its main adviser on the subject. In his final report released last Tuesday, Garnaut argues that cutting greenhouse gases, such as carbon dioxide, could open up tremendous entrepreneurial opportunities, and create exciting new job possibilities, at a cost that is likely to be so low as to be barely noticed by most people and firms.
But Kevin Rudd and his senior minister ministers have gone in the opposite direction. They do nothing to combat exaggerated claims about the terrible pain involved, yet insist they won’t run away from what Rudd has described as the greatest moral, environmental and economic challenge facing the nation.
Instead of heeding Garnaut’s early warning not to grant free emissions permits, or cash compensation, to firms only marginally affected by the proposed carbon cap and trading scheme, Rudd invited executives to queue up outside ministers doors to demand compensation. Rather than accept Garnaut’s point in his first report that some prices have to rise for the scheme to be effective, Rudd promised in July to cut the fuel excise by five cents a litre when the scheme starts in 2010. Since July, the price of petrol has dropped by well over five cents, as the international price of oil has fallen.
If an international agreement can be reached on tackling climate change, Garnaut’s final report sees this as creating “a congenial world for continued Australian prosperity”. Because of the available gains, Garnaut is confident international cooperation will eventually occur, even if consensus may not be easy to achieve in the next couple of years.
He says that the development of the modern global economy during its first 150 years was built on “the genius of a small corner of humanity”. With big changes around the entire globe, he says, “The whole of the genius of humanity will be contributing to innovation in the global economy”.
One upshot is that technological advances could occur faster than his economic models assume. Garnaut says biosequestration, using algae to convert carbon dioxide to stable carbohydrates, could be much more successful than assumed in the modeling — “The upside here is so large that it has the potential to transform both the Australian and the international mitigation tasks”.
Even if low emissions techniques for using fossil fuels don’t emerge, he says, “We seem to have exceptionally low-cost resources in abundance for most renewable energy: deep hot rocks (geothermal), solar, wind, wave, biomass and second-generation biofuels”.
The overall quality of the report is a tribute to the team that helped Garnaut. One weakness, however, is that Garnaut seems to believe that carbon capture and storage (CCS) is the only was to cut emissions created by burning coal or natural gas to make electricity. It is hard to see how CCS will be financially viable, given that the cumbersome process consumes a large proportion of a power plant’s energy production.
There are other possibilities. A pilot project underway in California captures carbon dioxide by bubbling a power plant's flue gases though seawater. Rather than huge volumes of waste for burial, this creates a valuable commodity, cement, without the high level of emissions normally involved in its production. Another, medium term, possibility is to use coal in carbon fuel cells that only produce only small quantities of carbon dioxide.
There is one aspect of Garnaut’s report that would be particularly helpful to the government if ministers gave it some publicity — his projections show that cutting emissions will not impose a huge cost burden. The initial impact of putting a price on carbon in the emissions trading scheme is estimated to add about one percentage point to the CPI in the start up year. Prices increases after that will only be about 0.04 percentage points a year, before fading to nothing. As with the GST, which added well over 4.0 percent to prices, everyone is likely to get a tax cut or other compensation.
Likewise, Garnaut projects there will be an initial drop in gross national product of 0.8 percent in the first year — the sort of movement than regularly occurs in Australia. Then growth is restored to the point where it averages 0.1 percentage points less a year until 2050 compared to business as usual. Net gains occur after 2050.
These outcomes are roughly the same, whether Australia cuts its emissions to 5 percent, 10 percent or 25 percent below its 2000 levels by 2020. Garnaut recommends that the size of the cuts should depend on whether a limited or comprehensive international agreement, or none, is reached by 2010.
Although the Rudd government worries about how high the price of a carbon pollution permit might go, it shows no sign of acting to take the pressure off this price. They key is to promote the more efficient use of energy on the demand side and to invest heavily in low emissions technologies on the supply side. But the government is yet to take simple steps on the demand side, such as tightening up energy efficiency standards for household appliances or cars. Nor does it let show any willingness to invest the $3 billon a year on low emissions technology which Garnaut recommends should occur from 2013.
Money that should go into making it easier to reduce emissions looks like going instead to compensate companies that make the most noise in a minister’s office and the media.