Thursday, 16 June 2011

Has the nation lost its confidence when it comes to carbon policy?

6 June 2011, Page: 14

Australia is wrong to think it is too small to matter in the greenhouse abatement stakes.

AFTER a recent visit to Australia discussing international developments on climate change, I think three things stand out in the national debate: the extent to which virulent rhetoric is pushing out reasoned analysis; the belief that doing nothing is an option without serious cost; and the apparent loss of Australia's confidence in itself.

The first is the most immediately damaging to Australia and its industry, the second is plain wrong and restoring the third holds the key. The atmosphere is finite and we are dumping more than 30 billion tonnes of CO₂, each year into it. The physics by which this warms the planet's surface is a scientific fact, not a political football. Global warming is proving robust in both theory and observation; each year traps more energy in the lower atmosphere.

Australia's recent tragic pattern of extreme weather events has included both temperature extremes and wildfire conditions way above the historic range: does it really make sense to bet a nation's future on hoping this to be a coincidence? Yet I was consistently told that even mentioning the probable link was considered impolite, somehow distasteful, and risked vicious abuse.

European industry faced up to the basic realities after unprecedented heatwaves in Europe. Business leaders accepted that industry's best bet is to have a price on carbon rather than a barrage of central government interventions in individual investment and technology choices, that industry would be best served by having a seat at the table of a coherent and long term strategy for building a low carbon economy, with carbon pricing through the EU's emissions trading scheme at the core.

All participating sectors in the EU ETS have to date profited from it. The price was at first volatile but has in the past two years stabilised as the system has matured. The next phase, out to 2020, has been adopted with the power sector cooperating with the move to end free allowances to this sector after accepting the reality that carbon costs are anyway passed on.

To argue that one of the world's highest per capita emitters, Australia, is too small to matter and that free riding on the actions of others is an acceptable policy approach without consequence is delusional. Australia's fossil fuel emissions are close to those of Brazil, a country with some nine times the population.

Brazil is leading the world in renewable energy and the state of Sao Paulo, its industrial powerhouse with about 30 million people, has adopted a fixed cap on its CO₂ emissions. South Korea's stimulus package focuses on green technology and it plans emissions trading. India, with per capita emissions about one-tenth of those of Australia, is introducing an efficiency based, target and trading scheme across power and heavy industry. China is adopting low carbon development zones that cover a population comparable with Australia's and has built pilot trading schemes and a focus on key low carbon sectors into its five year plan.

Australian politics seems unable to keep up with the pace of developments in the emerging economies; Europe is building low carbon collaboration with them. Within a decade, I would guess, the resulting coalition of decarbonising economies will be charging carbon on the imports of carbon intensive commodities. Australia needs to decide which side it wants to be on.

Which brings me to the third observation. Two decades ago, when I cut my teeth in research, Australia was at the forefront of many developments in clean energy technology. Now there seems a fateful sense of helplessness. An assumption that Australia's future is as Asia's quarry, not a strategic partner with common cause in addressing one of the defining challenges of our era. There are so many technology options in energy efficiency, smart grids, low carbon steel and cement processes.

Australia has contributed some key ideas but the gains will go to those countries and companies that innovate, both in response to a carbon price and with government backed funding using some of the carbon revenues.

Instead, during my time in Australia the headlines were all about industries demanding to be exempt from the challenge and union demands that not a single job should be lost. If that's net jobs, fine: there are plenty of opportunities for expanding employment in decarbonising economies. The most exposed sectors do have a case for assistance to help them manage the transition. But it sounds like resisting all change, never a good economic strategy.

Opposing carbon pricing while Europe and Asia forge a decarbonising path looks like a Faustian bargain. Of course Australia has cheap coal, but as the recent Grattan Institute report on options for Australian electricity noted, it also has world class resources in all of the major low carbon electricity options as well as massive natural gas resources.

That report charted immense potential for innovation and cost reductions. To plan industrial development on coal based power instead of its unrivalled renewable resources to bet the economy on high carbon exports in a world where its major consumers are moving over to a low carbon road risks being on a road to ruin. It is for Australia to make its choice. Just don't do so with earphones plying false stories and a blindfold to the consequences.

Michael Grubb is senior research associate in Cambridge University's faculty of economics and chairman of the international research organisation Climate Strategies. He holds a number or senior advisory positions with the British government on climate change and energy policy.