Policy, positions and commentary

Climate change and the economic recession need to be seen as the one issue (May, 2009)

No-one can deny the severity of the world economic downturn and the urgent need to respond, which is the reason why many developed nations have moved into disaster recovery mode with unprecedented levels of money being placed in their economies. Additionally, there is very strong evidence that the world is moving into a profound environmental disaster, an issue which also requires an unprecedented and urgent response.

In developing the CPRS, the federal government has largely put all their eggs in one basket, with the CPRS being the major means of reducing greenhouse gasses, although the Mandatory Renewable Energy Target of 20 per cent of energy generated by 2020, will also make a contribution. The Age journalist, Michelle Grattan reported recently that Heather Ridout from the Australian Industry Group as well as other business groups (such as Alcoa), have been heavily lobbying the government to delay the introduction of the CPRS and to gain more concessions. They have been very successful.

The CPRS has now been postponed for 12 months, followed by a low fixed price for carbon ($10) during the first 12 months of operation. Coal power generators have received an additional $750 million over five years to the original $3.9 billion, plus additional concessions. Additional free permits will be provided to Emission Intensive Trade Exposed Industries in the first year of the scheme. Positive sides of these changes are the potential (subject to international agreement) to reduce emissions by 25 per cent by 2020, the agreement to instigate an independent review of assistance to trade exposed industries as soon as an international agreement is reached, and the provision of greater certainty for industry.

Now is the time to link climate change and the economic recession. As noted in a recent report from Germany, Investments for a Climate-Friendly Germany, since the publication of the Stern Report (Stern 2006) it has become clear that climate protection can be viewed not only as an environmental political necessity but also as an economically wise investment in the future. However, the industries lobbying to delay and dilute the CPRS are really arguing against change. They are talking about the loss of jobs due to the recession which will be exacerbated by the CPRS. They fail to see the opportunities for the evolution of production methods and associated job changes and creation.

Obama has recognised these opportunities. He states he will provide $150 billion to support private sector efforts to develop and commercialise wind, solar, geothermal and other renewable energy generation. Such investments will reduce domestic reliance on imported oil and improve national security and trade balances. It will also create millions of green-collar jobs, this being variously reported as 2.5 million and 5 million jobs. Similarly, Germany has recognised the opportunity. It plans to create 500,000 new jobs by 2020 in the green industries. According to the German State Secretary Mr Machnig, who recently visited Australia, Germany is planning an investment of 30 billion Euros annually in changing the energy capital stock to a renewable energy base.

With the delay in the CPRS, the federal government now needs to bring in other policy as a target of 25 per cent will be more difficult to achieve. Now is the time to use the funds ear-marked to boost the economy by targeting capital investment for low energy emission and other investments such as in public transport, which will also reduce greenhouse gas emissions. The federal government needs to facilitate the passage with policy on mandatory targets enforced by regulation, such as on vehicle emissions which, unlike Europe and Japan, have showed no real improvements in Australia for the last 18 years. Many regulations can be spread across industries to spread the load – building standards, appliance standards, industry standards….

In addition, transition planning to move to renewable energy generation is needed for the energy sector and should be an obligation which is tagged to money paid to coal power generators. Funding for research on renewable energy is urgently needed, for example to compliment the approximately six researchers only dedicated to brown coal research (other than carbon capture and storage) in Australia. Research to provide alternative pathways as well as carbon capture and storage is vital.

Brumby’s announcement of a $925 million social welfare package is good news. Significantly more could be achieved if the Victorian government’s recently announced fast-tracking of half a million new dwellings were built to high sustainable standards and all within the present urban boundaries of Melbourne, rather than the 280,000 new dwellings planned on the urban fringe. This would assist low income earners through energy efficiencies and therefore lower energy costs, thus putting in place prevention measures in order to reduce future welfare expenditures. The massive spending on road infrastructure including the Frankston by-pass should be diverted to improvement in public transport and passive transport, again with additional values in assisting low income households and reducing greenhouse gasses as well as boosting the economy.

We have not only an economic problem, but also a failure of insight, creativity and responsiveness to changed times. It is a failure of the ability of some parts of the industry sector to guide their company and their workforce through a changed environment and see the new opportunities. It is a political failure in not producing good policy to reduce greenhouse gasses as well as take up this opportunity to stimulate the economy to move to a long-term sustainable position. Germany has decided that a win win position is possible, where a reduction in emissions can be achieved through the triggering of investments. This is not only a realistic goal but the German economy will prosper under a scheme of well planned climate change emission measures. Australia needs to do likewise.

PS. The federal government is still talking about a 450 ppm (parts per million) target for greenhouse gasses as one which will prevent a 2 degrees rise in temperature and prevent the destruction of the Great Barrier Reef. Let’s be clear about what is needed. Greenhouse gas stabilisation at 450 ppm would result in about a 75 per cent chance of the temperature rising above 2 degrees Celsius and about an 18 per cent chance of rising above 3 degrees Celsius. To achieve 450 ppm developed countries would need to reduce their 1990 levels of greenhouse gases by 25 to 40 per cent by 2020. Part of the developing world would also need to have achieved ‘substantial deviation from baseline’ (IPCC 2007).

Dr. Janet Stanley, Chief Research Officer, Monash Sustainability Institute.

Commentary on the Carbon Pollution Reduction Scheme (CPRS) White Paper (December, 2008)

Reading through the White paper, one is struck by the incongruity between the stated aims around ‘tackling’ climate change and the declared policies which seem to fall far short of this ambition.

The paper proposes an extremely low target of 4 per cent reduction of greenhouse gases by 2020 from 1990 figures (5 per cent from a 2000 baseline). The possibility of this rising to 14 per cent reduction on 1990 figures, subject to international agreement, still leaves the targets very low.

In an unprecedented international response, about 3,000 climate scientists combined their knowledge and opinions to produce a series of reports about climate change. This included advice on the likely outcomes from various concentrations of greenhouse gases in the atmosphere. The higher the concentration, the greater the chance of adverse climatic conditions: rises in temperature and sea levels, adverse climatic conditions such as cyclones and droughts, and the associated occurrence of wildfires and insect invasions (IPCC 2007). By way of example, the rise of global temperatures above 1.5 degrees Celsius to 2.5 degrees Celsius (relative to 1980-1999 temperatures) will lead to an increased risk of extinction of 20 to 30 per cent of plant and animal species (of those assessed to date by the IPCC).

In Australia, water security problems will intensify, significant biodiversity loss will occur by 2020, including the Great Barrier Reef, Queensland Wet Tropics, Kakadu wetlands, south-west Australia and alpine areas (IPCC 2007). Most corals will experience bleaching between a 1 degrees Celsius and 2.5 degrees Celsius temperature rise and there will be widespread coral mortality between 2 degrees Celsius and 3.5 degrees Celsius. Agriculture and forestry production is projected to decline over much of southern and eastern Australia, and coastal urban centres such as Cairns and South-east Queensland will experience sea-level rise and an increase in severity and frequency of storms and coastal flooding, by 2050.

Geenhouse gas stabilisation at 450 ppm (parts per million) would result in about a 75 per cent chance of the temperature rising above 2 degrees Celsius and about an 18 per cent chance of rising above 3 degrees Celsius. To achieve 450 ppm developed countries would need to reduce their 1990 levels of greenhouse gases by 25 to 40 per cent by 2020. Part of the developing world would also need to have achieved ‘substantial deviation from baseline’ (IPCC 2007).

Australia’s target of 4 per cent reduction by 2020 on 1990 levels not only falls short of achieving the 450 ppm target, it also falls short of the 10 to 30 per cent reduction on 1990 levels by 2020 which is estimated by IPCC to be needed to keep greenhouse gases at 550 ppm. At 550 ppm it is virtually certain that the temperature rise will be above 2 degrees Celsius temperature and there is a two-thirds chance of a 3 degrees Celsius rise. Australia’s targets are certainly inconsistent with the 450 ppm or lower target, which the White Paper states, is ‘in Australia’s interests’ (Federal Government 2008).

The decision taken by the Australian government is one where they are prepared to accept a very high risk of major adverse impacts on many Australians and much of the environment. This is a moral choice not an economic one. While it would appear that President-elect, Senator Obama, has set a target of no increase in greenhouse gas emissions beyond 1990 levels by 2020, Australia’s target is out of step with those countries with an existing Emissions Trading Scheme, the UK and Europe. UK is planning for at least a 34 per cent reduction in greenhouse gases by 2020 on 1990 levels, with a short term target of 20 per cent below 1990 by 2010.

Prime Minister Rudd’s defence of such a low target rests on the circumstances of the current global financial crisis. However, Treasury modelling has shown that ‘strong action on climate change is unlikely to have a large impact on Australia’s long-term rate of growth’ (Federal Government 2008). The Summary Report also notes that under a CPRS and international agreements to combat climate change, many of Australia’s industries will maintain or improve their competitiveness. Work done by the National Institute of Economic and Industry Research (NIEIR) (2007) has shown that at a carbon price of $25 (estimated to be the initial 2010 price) the average Australian household will experience a 0.7 per cent rise in their Household Disposable Income (this figure is utility adjusted for equivalised households) (NIEIR 2007). Again the rhetoric appears inconsistent, as ‘strong action’ has been found in the modelling work by Australia and the UK, to have little economic cost.

Prime-Minister Rudd argues that Australia’s targets are favourable when viewed on a per capita basis. However, as Colebatch eloquently shows, this argument has little merit (2008). If both Australia and Europe achieve their lower end targets in 2020, each Australian will still produce twice the emissions of each European. Indeed, it is important to reflect on the moral position of such a huge growth in Australia’s population (including the fertility and immigration mix) in the context of climate change and world poverty – a growth of almost 50 per cent by 2020 on the 1990 population size. Work by Monash researchers, Birrell and Healy (2008) point out that 25 million tonnes of greenhouse gases will be added for every one million of population, an issue which may have added to the pressure to keep Australia’s greenhouse gas reduction targets very low.

Rather than seeing each issue in isolation, it could be argued that the CPRS could have provided an opportunity to address the economic downturn. This is an opportunity that President-elect, Senator Obama says he is planning to take. He states he will provide $150 billion to support private sector efforts to develop and commercialise wind, solar, geothermal and other renewable energy generation. Such investments will reduce domestic reliance on imported oil and improve national security and trade balances. It will also create millions of ‘green-collar’ jobs, this being variously reported as 2.5 million and 5 million jobs.

In the Australian context, the $3.9 billion hand-out to the high-polluting coal power generators should have been associated with a requirement to invest in renewable energy generation. The opportunistic links seem not have been made by the federal government. The COAG meeting in November 2008 gave attention to the need for skills and workforce development but no mention was made of the requirement for climate change related skills and jobs.

In the context of such a low emission target, the role of other greenhouse gas reduction measures become even more important. California has achieved significant reduction in greenhouse gases through wide ranging measures in the energy and manufacturing sectors as well as through mandatory building and appliance standards. Australia should follow similar policies. For example, transport accounts for about 13.7 per cent of Australia’s greenhouse gas emissions, a proportion which is growing rapidly, yet vehicle emission standards have shown no real improvements in Australia over the past 18 years. The best Australian manufactured car has vehicle emissions of 210 grams per kilometre, a one-third above European standards. Europe is canvassing a reduction of vehicle emissions to 130 grams per kilometre by 2012. Mandatory fuel economy targets, with an associated mix of government assistance to achieve standards and penalties for non-compliance, need to be established.

Many policies proposed in the White Paper appear to risk creating disincentives to carbon reduction, to the point that even a 4 per cent reduction may be very difficult to achieve. Compensation on equity grounds has been extended to middle income families. This compensation is only in monetary terms rather than programmatic assistance to enable households to achieve greater energy efficiencies and lower energy costs: that is, lower emissions and improved well-being. Programs such as assistance with home insulation, would also reduce the need for recurrent payments.

Monetary compensation also risks leading to a rise of carbon-based energy use in many low income households, a re-bound effect, as a result of prior energy rationing.

The small increase in household consumption costs arising from the CPRS (0.7 per cent), together with the ‘equity’ payments, is unlikely to generate behaviour change in the average household. High income households, which have the highest carbon footprint (for example, 57.8 tonnes annually per capita of direct and embedded carbon usage for tertiary educated households, compared to an average household per capita usage of 32.2 tonnes), will only lead to an increase in consumption expenditure of 0.4 per cent. Thus, the market price of carbon arising from a CPRS is not likely to be an incentive to change behaviour in higher income households, the extra costs simply being absorbed.

The policy of monetary compensation direct to households, business and industry has excluded other measures to assist low income households and the provision of critical money for research and technological development around alternative technologies. Australian businesses and households need information and advice about the most cost effective ways of reducing greenhouse gas emissions, for which no budgetary allowance has been made. Considerable improvements in public transport would greatly assist those low income households on the outer fringes on major cities and in rural areas who are in transport poverty, as well as reduce total vehicle emissions: sustainability and social inclusion outcomes being achieved.

There is still a window of opportunity to correct these mistakes and omissions in the White Paper before the legislation is debated in Federal Parliament.  It is important that all Australians use this opportunity to create a far better outcome for Australia and other nations, and the natural environment.  

References

Birrell, B.and Healy, E., 2008, ‘Labour’s Greenhouse Aspirations’, People and Place, vol.16, no.2, pp.1-15.

Colebatch, T. 2008, ‘Rudd's defence of target contains some telling omissions’ The Age, 17 December.

Federal Government, 2008, Carbon Pollution Reduction Scheme: Australia’s Low Carbon Future: White Paper Volume 1, December.

IPCC, 2007, ‘Summary for Policymakers’, In Climate Change 2007: Impacts, Adaptation and Vulnerability: Contribution of Working Group 11 to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, M.L. Parry  et al., Cambridge University Press, Cambridge, UK, pp.7-22.

NIEIR, 2007, The Impact of Carbon Prices on Victorian and Australian Households, NIEIR, May.