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Comment: 1 July 2008
Why carbon trading and why now?
This is an abridged and updated version of our
editorial from January this year
Kevin Rudd calls climate change one of the greatest moral challenges of
our time. He may regret raising the bar so high. In choosing this style
of language, the prime minister takes his cue from the environment
movement, which insists on framing the issue in terms of moral
culpability. They never tire of carping about Australia’s high emissions
per capita and ‘inaction’ over the last twelve years. As the public will
come to understand, neither of these mean much. The volume of our
emissions is too small.
To date, higher emitting countries have adopted a consistent approach to
the climate agenda. This can best described as pussyfooting around. The
outcome in Bali was more of the same. None are prepared to inflict real
pain on their peoples for the sake of global warming. The big-talking
Europeans are short of their Kyoto targets, and it’s easier for them
than places like the US and Australia. Many EU states switched to
cleaner energy sources, like nuclear, decades ago (for reasons unrelated
to climate) and they’re not major energy exporters. The Americans are
entitled to doubt their bona fides.
Much of Europe’s cuts, such as they are, accrued from dismantling
clapped-out industrial plant in the former eastern bloc. Still,
Europeans as a whole are making a meal of it, and their emissions
trading scheme is a joke. As for the British, while they claim to have
met their Kyoto targets, unlike the continent, a team of Oxford
economists led by
Dieter Helm dismisses
such claims as ‘illusory’.
In the meantime, China and India, leading the developing pack, cling to
the UN’s ‘common but differentiated responsibilities’ formula. They plan
to take a back seat, however much their rocketing emissions exceed ours.
Stuck on the moral pedestal, they blame the developed world. Naturally
enough, the US refuses to play on an uneven field or pay what amount to
green reparations. The Americans also rightly draw a distinction between
developing countries advanced on the path to industrialisation like
China, and others mired in misery like most African states.
Nor can it be assumed that the US position will change easily after
Bush’s term. No matter who enters the White House in January, the next
UN protocol needs to get past the senate (where
Republicans have issued a
strongly greenhouse-sceptical report). Indeed, legislation to introduce
emissions trading foundered in the Congress just last month. Even many
Democrats were cool on the idea.
And in Bali a core of other important countries, including Canada, Japan
and Russia were grudging on any kind of targets.
Agitation over climate change resembles a parallel universe. In the
first place, while delegates sweltered in Bali, the European Central
Bank joined the US Federal Reserve in pumping billions of dollars into
the world’s banking system to stave off a downturn in the American
economy (on which world growth depends) and, here, Treasurer Wayne Swan
lambasted port infrastructure constraints impeding coal exports from
In the second place, European and Australian delegations in Bali
favoured (only in principle) near-term developed country targets which
would hobble the American economy and put a dent in the international
coal market. The first of these actions happened in the real world; the
second on fantasy island.
It‘s easy to explain this outbreak of foot-dragging. Consider that UN’s
panel on climate change forecasts global average temperatures rising by
a range of 1.8 degrees to 4 degrees over the coming century, and its
worst case scenarios are based on
about growth rates and the world’s adaptive capacity. Political leaders
are left weighing up a remotely possible chance of climate cataclysm
against an absolutely certain prospect of damage to their economies.
Make no mistake, the sort of targets pushed by the UN entail economic
pain. Hence the big talking and pussyfooting around. Since coming to
office, the Rudd Government has deferred everything until economist
Ross Garnaut delivers his
report. This was a useful let-out in Bali. Garnaut laid it on the line
from the start. The world’s response to climate change, he says, could
‘Platinum Age’ of
accelerated world growth over recent years.
Repeated claims by the Climate Institute and
others that we can enact deep cuts - even achieve carbon neutrality -
while barely noticing are nonsense. Worse, they’re a cruel hoax. The
pain will be felt most deeply by blue-collar workers, and other
riff-raff who don’t seem to matter.
Dr Philip DAdams of Monash
University estimates that an emissions trading scheme will cost us 1.3
per cent of GDP by 2030, ‘equivalent to a reduction of around $21.5
billion a year in today’s dollars’. And as reported by Alan Mitchell in
the Australian Financial Review (12 December 2007), former ABARE
director Dr Brian Fisher says Labor’s renewable energy target alone,
aside from anything else, will cost the economy $1.5 billion and 3600
jobs in 2020.
Rosy scenarios ignore the danger of sectional dislocation, even if the
aggregate growth outcomes look benign.
The Climate Institute calls on Australia to step up as a world ‘leader’
in emissions reductions.
Conceding that this
entails slower growth for some industries, they typically fail to
quantify these impacts or express any concern for the losers. Such
adjustments will hurt real people, even if they live beyond the golden
Green flacks may demand that Australia set the pace. These shadowy
fanatics would happily cut a swathe through some of our most important
industries. But our minuscule share of global emissions - only 1.4 per
cent and set to fall in relative terms even if we do nothing - ill
befits us for an avant garde role. It’s a bit like expecting
Luxembourg to have led the recent EU treaty negotiations. There’s no
reason why we should take the plunge while the world just dips its toes.
Nor should our workers be offered up as guinea pigs.
Our touchstone should be prudent and cautious engagement.
Fear-mongering, abetted by political opportunism, however, have now spun
the energy industry into a state of uncertainty and investment
paralysis. In the interests of certainty, prudent and cautious
engagement are about to be tossed aside for early action. We have been
collectively frog-marched down this dubious route. Despite bipartisan
commitment to carbon trading in the form of a
‘cap and trade’ scheme, a
deal of respected opinion is ebbing away from this approach. Some prefer
carbon taxes or hybrid trade-tax schemes, others old-fashioned research
and development subsidies.
Last November, for instance, the venerable Committee for the Economic
Development of Australia (CEDA) published a
collection of papers
which ‘questions the common view that a carbon trading system is better
than alternatives such as a carbon tax or a hybrid scheme.’ The
contributors include world authorities on climate economics from here
When Kyoto’s agenda took off more than a decade ago, the objectives were
to cut energy consumption in absolute terms and induce shifts to cleaner
sources. Carbon trading was thought to achieve both. Time has brought
the first objective into sharper relief, however. As climate change
policy moves from the fringes to the mainstream, concerns about the
implications for growth and living standards have come to the fore.
Hence the surge in scepticism about carbon trading.
There is rising interest in ways to stimulate cleaner technologies
without the accompanying clamp on consumption. Contributors to the CEDA
collection propose different ways to price carbon, but some creative
thinkers are challenging the need for any type of carbon price.
Writing in the Harvard Law and Policy Review, authors
Michael Shellenbergerand Ted Nordhaus, and
others, explain in detail why carbon trading won’t induce the new
technologies we need. They argue instead, putting it simply, that public
investment in clean technologies, on a large enough scale, will trigger
similar investments from the private sector. The carrot of public
investment makes the stick of a carbon price redundant. Not only is this
course more compatible with dynamic growth, they say, but it’s saleable
Power generation produces around 36 per cent of Australia’s carbon
emissions. Suppose we chose to secure our energy industry with a plan
combining public investment in research and development with a phased
timetable, consistent with technological progress, for the retro-fitting
or replacement of old plant and the deployment of new sources. Would
this approach damage our growth prospects less than carbon trading?
Would it have a less dislocating impact on vulnerable workers? We will
never know. The idea won‘t get a hearing. We’re saddled with an agenda
conceived by ponderous UN bureaucrats and green ideologues.
Sleepwalking to carbon trading may turn into a rude awakening if the
shockwaves reverberate through critical suburban and regional
electorates. Then voters will ask why their communities are losing jobs
while higher emitting countries do nothing. They’ll ask why they’re
paying higher energy and petrol prices. They’ll question what any of
this has to do with the world’s climate, drought and water shortages.
Ultimately, they’ll demand to know why their government sold out their