A carbon price and current renewables won't be enough to tackle climate change. We need a massive investment in new technology, ANDREW CHARLTON argues

The inescapable conclusion is that our current approach to climate change isn't working and that we need to rethink it. We need a Plan B. The objective of climate policy needs to be turned on its head. Our goal should not be to raise the cost of energy, but to reduce it. Instead of seeking to make fossil fuels expensive, we should focus on making clean power cheap. And instead of trying to reduce energy use, we should be trying to increase it in developing countries.

Our goal should be to create a world with abundant, clean and cheap energy for all. This is an objective that reconciles progress and planet. This is a challenge that can bring rich and poor countries together in a common goal. If we are to address climate change, we must turn to humanity's familiar benefactor - technological innovation - and apply it to developing better clean energy.

Second, we need a complete reversal of our relationship with poor countries. Rather than trying to force them to accept unpalatable caps on their emissions, we should be trying to help them gain access to new and greater sources of energy. Poor countries are natural allies in the clean-energy challenge because they know that fossil fuels will not be enough to meet their development needs - they are already too expensive. To bring power to their populations, these countries will need abundant and inexpensive energy alternatives. Rich and poor countries should work together to develop breakthrough technology to deliver cheaper energy for the world. Only when clean energy is more efficient and cheaper than fossil fuels will it be embraced by poor countries.

Third, we need to prepare back-up plans to help us cope with the worst eventualities, which are terrifying indeed. Most fall under the category of ''geoengineering,'' the intentional modification of the earth's climate. Geoengineering proposals include schemes to pump sulphates high into the stratosphere to reflect sunlight (this idea is sometimes referred to as a ''synthetic volcano,'' because there is evidence that sulphur dioxide from volcanic eruptions can have a powerful cooling effect on the planet); using ocean spray to generate artificial clouds; fostering oceanic plankton to absorb more carbon; turning carbon from agricultural waste into charcoal and burying it in the ground (biochar); and global dimming using reflective mirrors in space. The field of geoengineering needs much more work. Currently the list of ideas is long, risks are high and research is thin.

Many environmentalists dismiss geoengineering as highly dangerous at best and an excuse for inaction at worst. They have a point. Geoengineering should not be a substitute for cutting emissions, but, given the unpredictable risks humanity faces, it may have a role to play.

What government policies will be required to achieve Plan B? The conventional wisdom asserts that pricing carbon through ''market mechanisms'' is the best and lowest-cost way to reduce greenhouse gases. This view is backed by a tide of political rhetoric about the ability of such pricing to ''unlock'' investment in new technologies and deliver a ''clean-energy future.'' Unfortunately, both the political rhetoric and the conventional wisdom are wrong. Emissions trading schemes will find the most efficient way to reduce emissions from existing technology, but they are not particularly effective in bringing forward the technologies of the future.

The International Energy Agency says without exaggeration that ''a global revolution is needed in ways that energy is supplied and used'' if we are to reach our emissions targets. It estimates that every year between 2010 and 2050 the world will need up to 14,000 new onshore wind turbines (more than twice the current rate of installation), 215 million square metres of solar panels (more than eight times the current rate), 32 nuclear power plants (twice as many as have ever been installed in a single year), up to 3750 offshore wind turbines (more than 30 times the current rate), 55 fossil-fuel plants fitted with carbon capture and storage (none have been successfully done yet at scale), as well as more geothermal, solar thermal, biomass and hydro power. To achieve this will require a phenomenal policy push by governments worldwide, including massive support for investment in development, demonstration and deployment of clean-energy technologies and the infrastructure that will enable them.

But a carbon price will not be enough to bridge the wide cost gap between clean technologies and coal. Most of the scalable clean options are so expensive that the carbon price required to encourage genuinely commercial investment would need to be in the range of $100-500 per tonne. The energy consultant Andrew Dyer notes that the Australian carbon price may not generate ''any meaningful change in our generation portfolio mix towards renewable energy''. Even the Australian Greens agree. On July 1, their deputy leader, Christine Milne, told the Climate Spectator: ''Well, I think I'm realistic enough ... to know that to get the investment into solar, thermal and geothermal and so on, you would need a very high price, which we are unlikely to be able to negotiate in the current political climate, if you like, in Australia ... it's clear to me the carbon price alone will not drive the investment in the renewable industry sectors fast enough to get large-scale renewables up and running in the time frame we need.''

In addition to direct investment in clean-energy technology, we need massively increased support for research and development of new technologies because our current technologies are not good enough to deliver clean-energy infrastructure at scale at an acceptable price for the rich countries, let alone the poor ones.

But a carbon price won't be particularly effective in encouraging new technological advances. Some might argue that schemes to raise the price of fossil fuels will encourage investment in new technologies. This argument is half right and half wrong. Emissions trading schemes and renewable energy targets do create an incentive to invest in clean energy, but there is an important distinction between roll-out investment - such as building wind and solar plants with today's technology - and investment in research and development - putting resources into new breakthrough technology. This is a crucial distinction. Since better technology is the only chance we have of effectively tackling climate change, it is essential to give primacy to policies that foster innovation rather than policies that subsidise the roll-out of existing technology.

Unfortunately, many governments around the world are focusing too little on basic research and too much on deployment. Bill Gates believes that the emphasis is wrong: ''We're putting 90 per cent of the subsidies in deployment ... not in R&D. And so unfortunately you get technologies that, no matter how much of them you buy, there's no path to being economical.'' We will need massive direct public support for energy technology research, with some estimates in the order of $US10-100 billion per year in additional research funding.

Carbon pricing will not by itself lead to the infrastructure investment and technological innovation we will need to reach our long-term targets. But this is not to say that such a scheme doesn't have benefits. By increasing the cost of fossil fuels (especially coal-generated electricity), the carbon price encourages energy efficiency, as higher bills nudge consumers and businesses to reduce their power use. It also tilts the balance away from coal and towards ''near commercial'' technologies such as gas-fired power stations. In this way it can deliver incremental reductions in rich countries' emissions over time.

Around the world, national climate-change policies are slowly moving towards Plan B. The focus now is less on a global treaty and carbon market and more on efforts to improve clean-energy technology.

The United States has abandoned its emissions trading legislation and is instead devoting resources to clean-energy research and technology as well as to investment in new nuclear reactors. India has implemented a carbon tax at a low price of around $1 per tonne of coal for the purpose of financing its National Clean Energy Fund. The low tax is less about making energy more expensive and more about raising money to support research and extend energy infrastructure to poor areas. Corporations should be (and are) getting involved. Google is investing in clean-energy technology: it calls the initiative ''RE C'' (renewable energy cheaper than coal), which succinctly conveys the goal we should all be focused on.

China is perhaps the world's best example of this new ''climate pragmatism.'' China's climate policies often confuse Western observers. On the one hand, China is constructing hundreds of new coal-fired power stations and belching ever-greater quantities of greenhouse gases into the atmosphere. On the other, it is investing billions in renewable energy, setting serious targets to reduce the emissions intensity of its economy and trialling a limited emissions trading scheme in some provinces. What explains the alternate green and brown hues of China's energy policy?

China's energy priorities are very different from those of the West. Its first priority is development. A Chinese IPCC contributor, Jiang Kejun, says, ''The fundamental homework for the Chinese government is still to make people richer ... With such a huge population and living standards still low, we can see emissions still need to keep going.'' That explains China's roll-out of the coal (and nuclear) generators needed to rapidly increase the supply of power to its growing economy. China's second priority is energy security. As a large country with limited domestic resources, China is worried about the security of its energy supply. The development of renewables is a way for China, over time, to strengthen its domestic supply sources and reduce its reliance on imported fossil fuels. Third, China is increasingly concerned about the environmental impact of its development. Fourth, China wants where possible to contribute to the global emissions reduction effort. These four objectives explain China's seemingly confusing energy policy.

In Copenhagen the West tried unsuccessfully to force China to accept binding targets. Instead the West should work harder to understand China's objectives and find solutions that meet mutual goals.

The United Nations is also moving towards a more pragmatic approach. The failure in Copenhagen has buried, at least for now, attempts to achieve a top-down binding global agreement. This need not be a permanent stumbling block. The Copenhagen Accord, widely seen as a failure because it was not a legally binding treaty, may actually represent a step forward towards a more flexible framework that allows countries to formulate their own strategies. More recently, global negotiations have focused on developing countries, technology transfer and investment in new technology.

On December 31, 2012 the first commitment period of the Kyoto Protocol will come to an end. Kyoto has manifestly failed. It has failed to deliver significant emissions cuts. It has failed to attract the world's largest historical emitter (the United States) or any of the developing countries that will be the biggest future emitters.

That doesn't mean that there is no solution, just that we need a new approach. More often than not, our success has come from technological innovation - the human ability to imagine a better world and to bring it into being through scientific endeavour. The point is not that technology is the easiest solution; it is that technology is the only solution. Only when clean energy is as cheap and reliable as fossil-fuel energy will it be adopted at scale in the poorest countries. Only when carbon capture and storage technology is mastered will China's newly built coal-fired power stations stop belching carbon into the atmosphere. Only with better energy storage can we ease our reliance on dirty transport fuels. Our efforts to develop the technology to deal with climate change must be unremitting and ever-increasing.

  • Andrew Charlton was senior economic adviser to the Prime Minister from 2008 to 2010. During that time he served as Australia's senior official to the G20 summits and the Prime Minister's representative to the Copenhagen Climate Conference. This an edited extract from Man-Made World: Choosing between Progress and Planet, published recently in Quarterly Essay.