Thursday, July 10, 2008

Way to go?

Tim Colebatch 
The Age, July 10, 2008 - 3:40PM

ROSS Garnaut was not born to climate change: rather, it was thrust upon him. An economist with a commanding mind and an unusually diverse CV, his specialty was China and Asia- Pacific economies, until Prime Minister Kevin Rudd and the premiers asked him last year to review Australia's policies on climate change.

Their model was Sir Nicholas Stern, the British economist whose report to the Blair government on climate change in 2006 gave the world a new sense of urgency on tackling the problem. But Rudd and the premiers could not have been sure how Garnaut - an academic entrepreneur with a formidable business career including stints as chairman of BankWA, Lihir Gold and Lonely Planet, - would handle an issue as complex as this.

"Diabolical" is Garnaut's word for it. "It is harder than any other issue of high importance in living memory", he told the National Press Club last week. In the letters pages, on talkback and internet blog sites, passionate believers and non-believers berate this professor for being unaware of this or that vital truth. Well, don't worry, he knows it. Read his 548-page draft report, and there's not many relevant points left out. But it's complex.

"Climate change presents a new kind of challenge," Garnaut told the Press Club. "It is uncertain in its form and extent rather than drawn in clear lines. It is insidious rather than directly confrontational.

"It is long term rather than immediate in both its impacts and its remedies.
Any effective remedies lie beyond any act of national will, requiring international co-operation of unprecedented dimension and complexity."

Garnaut admits that the science cited to justify action on climate change is tentative, has significant gaps, and cannot be proved. He knows that Australia emits just 1.5% of the world's greenhouse gas emissions, so what happens to icons such as the Great Barrier Reef will be determined by what the rest of the world does about global warming more than by what we do. He concedes that if firms in Australia have to pay for their carbon emissions when overseas competitors do not, it could force production to shift offshore.

And he knows that while there is public support for action on climate change, that support could evaporate when the public finds that it is paying for it. Polling published this week by Essential Research found that while 58% of people think emissions trading should be introduced by 2010, 54% said they were not willing to pay higher energy bills to tackle climate change. But that's exactly what emissions trading will force them to do.

Garnaut knows all that. Yet he believes strongly that Australia should introduce emissions trading by 2010, before a global agreement, and with few companies to get compensation for the carbon charges they will face while overseas competitors will not.

How could he reach those conclusions? Let's look at the criticisms.

The belief that our emissions of carbon dioxide and other gases are generating global warming is disputed by many scientists. Rather than impose costly carbon charges on our firms, we should wait until there is consensus on the science.

This assumes that consensus is normal, and possible. The reality is that any new scientific theory with political consequences will be contested. Garnaut argues that we have to decide what to do "on the balance of probabilities, and not as a matter of belief".

He points out that most Australian and international climate scientists believe that human activity is changing the climate, and that if not tackled rapidly, those changes could be irreversible. Do we ignore that opinion because it is not unanimous? Or act on the assumption that the majority is more likely to be right?

Garnaut had to assume that the mainstream is right. He did, however, submit it to one test. It is a fact that the nine years between 1999 and 2007 included seven of the hottest 10 years on the planet since records began in 1850. He asked two Australian National University statisticians who specialise in time series, Trevor Breusch and Farshid Vahid, whether this could be just due to random chance. No, they said, there is a warming trend, and no significant evidence that (as some claim) it ended in 1998.

Garnaut warns that delay has its own costs. "The issue is whether delay would be a good decision," he says. "The opportunity costs of delaying decisions are high." Cheap options disappear. Decisions are made that add to the cost later if action becomes inevitable.

Even if subsequent scientific advances make us more relaxed about carbon emissions, he argues, it is unlikely that reducing them will have cost us much - whereas the costs of delaying action that is needed could be severe. It's a bit like taking out insurance.

If we have to have emissions trading, we should not rush into it. There is no need for it to start in 2010, and it is more important to get it right.

Garnaut argues that the problems of introducing emissions trading will be much the same whether it is introduced in 2010 or 2012. "Whenever a major reform is introduced there is immediate resistance," he told the Press Club. "The sooner the structures are put in place, the sooner the process of learning and adjustment takes place. I think the critical question is: would it actually help to delay?"

This is the problem for these critics, led by Opposition Leader Brendan Nelson: as yet, none of them have produced any evidence that it would help. Which decisions would be better taken in 2010 than now? Why?

After all, Australians have been debating emissions trading for a very long time. Former environment ministers Robert Hill and David Kemp took submissions on it to cabinet, where it was vetoed by John Howard. The Garnaut review is the third major inquiry in as many years into how it would work. Overseas, emissions trading is already a reality.

Those in the know say the main problems ahead are political, not technical: 2010 is an election year. Perhaps that is why Garnaut has proposed, as "a second-best option", that emissions trading could begin with permits being issued at a fairly low fixed cost from 2010 to 2012, with the free market taking over in 2013. The Government, however, appears to see little advantage in that, and would rather get on with it.

What matters is not what Australia does to reduce emissions, but what the world does. Australia should not get out too far in front of the world. We should wait until all the major polluters - including China, Russia and India - commit to reducing their emissions before we take action ourselves.

This is the most important issue of all, and the one that it is essential for us to get right. From his first speech in the role last November, Garnaut has emphasised that it is the world's response to climate change that will decide whether or not our environment deteriorates beyond repair. And it's a bit like getting the washing up done: for each member of the house, the ideal solution is that someone else does it.

Garnaut has suggested that China and the US, each emitting 18.7% of global emissions in 2005, are the only emitters big enough for their own actions to have significant benefits for their own economy. For the rest, including Australia, the financial pain they take on yields little direct environmental gain - unless others do the same. And even Presidents Hu Jintao and George Bush describe their own countries as relatively small emitters!

Everyone agrees that global action is essential to solve the problem. The question is how we get it. Would it help get global agreement if Australia took action to cut its emissions - or would it help more if we refuse to take action, as Dr Nelson suggests, until China and India are ready to do the same?

It is relevant to keep in mind that on a per capita basis, Australia is among the biggest emitters in the world. In 2005 we produced 18.41 tonnes of carbon dioxide per head, as against 6.19 tonnes per head in France, 3.88 tonnes in China, and 1.05 tonnes in India. China and India see economic growth as their top priority, and if that requires increased emissions, given existing technology, so be it. China has pledged to significantly reduce the carbon intensity of its economy - that is, ensuring that emissions grow far more slowly than economic output - but even that is proving elusive.

Garnaut points out, first, that there is no risk of Australia getting out in front of the world. Emissions trading already exists in the European Union, which produces 13% of global emissions. Europe introduced the first version of its emissions trading scheme in 2005, replaced it with a much improved Mark II model last January, and now has Mark III on the drawing boards. New Zealand will introduce an emissions trading scheme more or less simultaneously with ours. In the US, both Barack Obama and John McCain have promised to introduce emissions trading if they win office. Japan and Canada are examining it. The developed world either has emissions trading already or will have it within five years or so.

Garnaut says it is generally accepted in the international treaty negotiations that the first step has to come from the developed countries. "What we are doing is, as it should be, a step as one of the developed countries," he says. "There will not be a next step, there won't be progress (into) the developing countries unless the developed countries have done what they said they would do.

"It's partly a question of historical responsibility. It's partly a question of capacity, but most importantly, it's a practical necessity in getting others to take the next step - and they need to follow quickly."

The global negotiations are due to end in Copenhagen at the end of 2009, but few see that as likely. They could drag on, and since Australia is a middle power with no ability to compel the big players to adopt our views, the question is what course would give us most influence.

Of the weapons of diplomacy - persuasion, example, prevarication, threat, veto - Australia normally assumes that we will get furthest by using the first two. That's probably true for this issue, too.

Tim Colebatch is economics editor.

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