Friday, October 31, 2008

Act soon or face $15 trillion climate bill, Treasury warns

Adam Morton 
The Age, November 1, 2008

THE world could face a bill of more than $15 trillion if it chooses to let atmospheric carbon dioxide concentration reach a dangerous level before trying to wind it back, Treasury modelling suggests.

Conversely, it could cost $610 billion to soften a more aggressive global climate change target if it proved too ambitious.

The stark contrast adds weight to claims by environmentalists and climate scientists that it makes economic sense for Australia to commit to deep emissions cuts by 2020 while pushing for a strong global climate deal.

Spelt out in modelling on the impact of emissions trading released this week, the figures support setting a bold short-term greenhouse reduction target to stabilise carbon dioxide levels at 450 parts per million (ppm).

It throws a question mark over the economics of government climate adviser Ross Garnaut's recommendation that Australia signal it would accept a 550ppm target — the only global deal he believes is possible in the short-term — as a pathway to 450ppm.

Climate Institute policy director Erwin Jackson said the modelling reinforced that the costs of stalling on climate change were not just environmental and human, but economic.

"The longer we delay action, the more likely it is that future governments and our kids will have to decide to massively restructure the economy very quickly, as opposed to the choice we can make today to take decisive, smooth action to reduce emissions," he said.

Like all economic modelling, the projected costs of changing stabilisation targets turn on contentious assumptions — in this case an ethical assessment of how the welfare of future generations should be balanced against that of people living today. Known as the social discount rate, there is little agreement between economist on how it should be valued.

Former World Bank chief economist Lord Nicholas Stern put it at 1.4%, a rate that puts more weight on the welfare of those yet to be born than anything modelled by Treasury.

A discount rate of 2% puts the cost of strengthening the stabilisation target from 550ppm to 450ppm at $15.1 trillion. Weakening the target from 450ppm to 550ppm would cost only $610 billion.

Prime Minister Kevin Rudd yesterday warned that Australia could face tariffs from more climate conscious nations if it failed to cut emissions.

"You don't want to get to a stage in 10, 15, 20 years' time where suddenly you have to make a massive transformation," he said.

The Opposition is calling for the Government to delay emissions trading, saying the modelling failed to factor in the global financial crisis or the possibility no global deal would be struck.

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