Government Fiddles While Australia Burns

Government Fiddles While Australia Burns

A leading pollster says hardline climate change sceptics within the Coalition are “out of step” with the majority of Australian voters, while the “conservative pitchfork revolt” has sent business groups scurrying for cover, but whatever they say in the bush, the city folk want politicians who lead on climate change. And David Karoly says good government requires urgent and substantial action to rapidly transform to a low-carbon, sustainable society.

Michael Stutchbury, Economics editor, The Australian (28 November 2009): 

THE Rudd-Turnbull greenhouse gas emissions deal is supposed to give business the certainty it needs to pour billions of dollars into transforming Australia into a low-carbon economy. But, like the conservative political revolt it has triggered, the course of Australia’s biggest policy upheaval in a generation is anything but certain.

As Penny Wong yesterday told the Senate, the politically constructed emissions trading market needs broad community support to provide business with confidence that it will last beyond the multi-decade horizon for expensive low-carbon investments. But this confidence will be undermined by the pitchfork revolt against the threat to Australia’s carbon-intensive resource and regional economies, the upstream source of the nation’s wealth.

Next month’s Copenhagen summit is considered unlikely to nail down a credible deal to substantially reduce global emissions, given Barack Obama does not have congressional authority to deliver much of substance. That could leave Australia in front of comparable countries such as the US, Canada and New Zealand.

As well, no one is sure what will happen when Australia pushes the button on full permit trading from mid-2012. The price of permits could swing sharply, as in Europe, potentially eroding low-carbon investment confidence. Amid rising electricity prices, any disruption to coal-fired baseload power supplies would politically shake the system.

Finally, the stain left by Rudd-Turnbull deal includes a precedent of concessions extracted by industries seeking protection from the new carbon impost. If the scheme stumbles, business lobbies will figure the government is receptive to demands for more favours.

Economist and Reserve Bank of Australia board member Warwick McKibbin warns the Carbon Pollution Reduction Scheme is “fundamentally unstable”, the price of permits will be “inherently volatile” and the Copenhagen agenda is in “total disarray”. “The political fallout from this is going to lead to changes,” he says.

For geographical and political reasons, Australia does not have the hydro or nuclear alternatives to replace coal-fired baseload electricity. That makes it more costly for us to cut emissions compared with the US, Europe and Japan. That increases the risk of “leakage” of our carbon-intensive industries offshore to developing economies, such as China, where emissions restrictions are less stringent.

The Rudd and Wong concessions to Turnbull and Ian Macfarlane this week aimed to shore up the CPRS against the risks of forcing a growth-oriented economy reliant on cheap coal-fired electricity to reduce its carbon emissions ahead of most of the rest of the world.

The key concession buttresses so-called emissions-intensive and trade-exposed industries such as electricity-hungry aluminium smelting, cement, steel and liquefied natural gas.

It extends a “recession buffer”, which initially will hand out 94.5 per cent or 66 per cent of annual permits free to high or moderate EITE industries. And it limits the previous gradual withdrawal of this protection to 90 per cent and 60 per cent of permits if a 2014 review finds less than 70 per cent of Australia’s competitors have imposed comparable “carbon constraints”. Given that China accounts for a large proportion of global production in the relevant industries, this could protect exposed Australian industries until Beijing effectively matches Canberra’s emissions controls.

It means that nearly $42 billion worth of the $114bn of permits budgeted to be allocated until 2019-20 will be handed out free to the EITE industries, putting more of the emissions-reduction load on other industries.

LNG, the epicentre of Australia’s renewed resources boom, won “supplementary” free allocation permits worth an estimated $600million.

Food processing, including dairy, meat and malt, won a special $150m allocation to fund lower-carbon technology.

Rather than being included in the scheme from 2015, agriculture won an ongoing exemption. Moreover, farmers will be eligible for valuable “offsets”, including for storing more carbon in soil.

Mining and manufacturing businesses scored a $1.1bn “transitional” subsidy to compensate for up to 50 or 25 per cent of increased electricity costs for the first two full years of the scheme.

Coal companies got a doubling of a previous $750m subsidy for the cost of permits required for their most “gassy” coal mines. The mostly foreign-owned coal-fired generators had compensation for the loss of their asset values hiked from $3.3bn to $7.3bn, partly in return for agreeing to keep the lights on over the next decade.

The deal pays for the $7bn extra worth of handouts to threatened industries by cutting back nearly $6bn in household compensation for higher electricity prices. This was possible because a higher Australian dollar has lowered the forecast increase in the global carbon price, a sign of the rubbery budget figuring behind the CPRS.

Straddling his mining, heavy industry and service sector membership, Business Council of Australia president Graham Bradley says the Rudd-Turnbull bipartisanship would “enable Australian businesses to plan for and make the required decisions about investments to transition Australia to a low-emissions economy”.

Australian Industry Group chief executive Heather Ridout says the government and the Liberals “deserve praise” for forging “significant advances” for manufacturing. Aluminium smelters say they can now “better plan” their investment. The National Farmers Federation recognises the “political reality” of a carbon price and says the exclusion of agriculture gives it “some confidence”.

Oil and gas lobby APPEA’s head Belinda Robinson says the deal will reduce carbon constraints on LNG exports. “There is no doubt that this package provides the market signal necessary to see more investment in less carbon-intensive electricity generation,” she says.

But this is code for displacing coal-fired electricity with gas. Australian Coal Industry executive director Ralph Hillman expresses “profound disappointment”, complaining Australia has not followed the EU and the US in excluding the coal companies from having to buy permits for “fugitive” gas that escapes from their mines.

Minerals Council of Australia chief executive Mitch Hook claims “Australian exporters will be saddled with the highest carbon costs in the world” if the Copenhagen summit fails. And Australian Chamber of Commerce and Industry chief executive Peter Anderson complains that the deal still does not shield small to medium-sized business from electricity price increases of up to 24 per cent.

The conservative pitchfork revolt has sent these business groups scurrying for cover. Yet the Rudd-Turnbull consensus retorts that there really is no certainty principle for the CPRS opponents. Yes, it will be costly for our economy to cut emissions. But this same economic structure makes us vulnerable to green trade retribution if we lag on cutting emissions.

And, whatever they say in the bush, the city folk want politicians who lead on climate change.


Government fiddles around the edges while Australia burns


November 27, 2009

In 1992, in response to the threat of global warming, the governments of the world agreed to “stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous human interference with the climate system”.

Recently, the G8 nations agreed to an objective of limiting global warming to only two degrees above pre-industrial temperatures. The best estimate of what is needed to have a 50:50 chance of avoiding two degrees of global warming is to stabilise greenhouse gas concentrations in the atmosphere below 450 parts per million of carbon dioxide and other long-lived greenhouse gases.

To do that, global emissions must peak before 2015 and fall by 50 per cent to 85 per cent by 2050.

How can global emission reductions be distributed between different countries? A fair way of distributing a limited resource among a group of people is to give everyone an equal share. Children understand that this is a fair approach, even if politicians don’t.

All governments in the world agreed in 1992 to the underlying principle that “developed countries should take the lead in combating climate change”. Per person emissions of greenhouse gases in developed countries are four times higher than in developing countries. Australia has the highest emissions of carbon dioxide per person in the world, six times higher than the average for developing countries and even higher than the US.

For Australia, a fair share of the global emissions reduction needed to stabilise long-lived greenhouse gas concentrations at about 450 ppm would be 25 per cent to 40 per cent emissions reductions by 2020 and 90 per cent to 97 per cent reductions by 2050.

The Federal Government’s carbon pollution reduction scheme (CPRS) is an ambitious attempt to introduce an emissions trading scheme as a market-based approach.

Such a scheme has the potential to introduce short-term and long-term targets for emissions reductions, such as 25 per cent emissions reduction by 2020 and 90 per cent emissions reduction by 2050.

However, such a scheme can only be effective if it is comprehensive in including all emission sources, such as transport and agriculture, and if there is minimal compensation for the highest emitters. The principle of “the polluter pays” seems to have been reversed in the proposed CPRS, as the biggest emitters are likely to receive the largest financial hand-outs.

The recent negotiations between the Government and the Liberal Party have led to some improvements to the CPRS. The expansion of terrestrial carbon offsets is likely to drive profound improvements to the way we farm in Australia and how we manage our land. It will put a price on carbon and create new market opportunities to protect and restore degraded land at an almost unimaginable scale. Of course, the additional compensation to the worst emitters also puts more costs on to all taxpayers.

Australian governments’ policies on population growth, encouraging immigration and an increasing birth rate, also make it more difficult to reduce emissions. This encouragement for increasing population in Australia is completely at odds with the claimed aims of tackling climate change. Every additional person in Australia is likely to emit greenhouse gases into the atmosphere at the highest per person rate in the world, making the problem much worse.

The Victorian Government’s ambitious green paper on climate change includes discussion of many important actions to respond to climate change through both adaptation and emissions reduction.

But the Government appears unwilling or unable to accept that an urgent whole-of-government approach is needed, with limits on population growth, a strategy to phase out brown coal power stations, huge investment in low-carbon energy sources and public transport, and regulations requiring dramatic improvement in energy efficiency.

The CPRS and its market-based mechanisms need to be complemented by regulations that overcome the likely market failures over the coming decade. Victoria has benefited from cheap energy from brown coal, which is the worst energy source in the world in terms of greenhouse gas emissions per unit of energy produced. The sooner that electricity production from brown coal is phased out, the better off the world will be.

If government is to deal seriously with climate change, it should separate quality of life and economic growth from growth of greenhouse gas emissions by moving rapidly to zero-carbon energy sources. There are many opportunities for new green jobs and green industries.

Australia has tremendous resources of energy from a wide range of renewable sources, with more total solar energy input received by Australia than any other country in the world, and more potential sources of wind power, wave power and geothermal power per person than any other country.

Good government requires urgent and substantial action to rapidly transform to a low-carbon, sustainable society. Delaying a decision is to make climate change worse, and more difficult and more costly to combat. History will judge our governments’ responses. So far, they have been inadequate.

David Karoly is a professor in the school of earth sciences at the University of Melbourne and played a key role in a report of the Intergovernmental Panel on Climate Change.


By Simon Santow for The World Today on ABC:

A leading pollster says hardline climate change sceptics within the Coalition are “out of step” with the majority of Australian voters.

As the political temperature and debate over the proposed emissions trading scheme (ETS) rose dramatically this week, Coalition MPs spoke of phones melting down and email inboxes being swamped by an angry public.

Within the Coalition, both ETS opponents and those in favour of the scheme claimed to have the support of the public.

But can both sides be right when both claim to represent a constituency and have public opinion behind them?

Newspoll’s Martin O’Shannessy says the most recent poll on the topic, in September this year, showed that two-thirds of those asked were still in favour of the Government’s proposed carbon reduction scheme.

That was before the amendments, which excluded agriculture, were agreed on earlier this week.

Coalition supporters did not back the scheme to the extent Labor supporters did, but there was still a clear majority in favour.

Mr O’Shannessy says the polling is very clear on whether people believe climate change is happening.

“The vast majority of the electorate, which must include some Liberal voters as well, does believe it is happening and some action’s required,” he said.

“So the hardline of complete refusal within the Liberal Party is probably a little bit out of step with the mainstream of Australian voters at the moment.”

Mr O’Shannessy says his polls show a clear majority of people backed a national emissions trading scheme, but views are mixed on whether to implement it before the world climate summit in Copenhagen.

“We’ve done a series of polls that have shown us that about three-quarters of the population, seven in 10, over the period of the last few years since 2007, see that climate change is happening, [and] that on the whole they believe that we need to act in the form of a carbon pollution reduction scheme,” he said.

“The idea of going it alone had sort of softened up. We find that at the moment about 45 per cent of voters in total feel we should wait till after Copenhagen, 41 per cent saying we should go it alone, the rest are undecided.

“So there’s a bit of a split in the population there and I think if you look at Coalition supporters, about six in 10, 58 per cent, say we should wait whereas almost the opposite – 51 per cent of Labor supporters – say we should go for it now.

“So [it's a] very interesting situation for the body politic and our political leaders where waiting seems to be favoured by Coalition supporters, but again they are in the electoral minority as well.”


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