Greenhouse cuts to hit lucrative sectors

The Australian
04dec06
Matthew Warren, Environment writer

AUSTRALIA'S farm sector and multi-billion-dollar metals processing industry risk decimation if deep cuts in domestic greenhouse gas emissions are put in place by 2050. The grave warning is the result of modelling by the CSIRO and ABARE to be released this week.

Renewables rather than nuclear or clean coal are projected to be the big winners from significant emissions cuts in the future, with wind and biomass providing up to 41 per cent of power by 2050.

The modelling forecasts cuts in greenhouse emissions up to 50 per cent lower than 1990 will result in reductions to domestic output in metals processing of up to 74per cent and farm output of 44per cent by 2050.

Acknowledging the disproportionate impacts such cuts would have on regional employment, the report signals a role for government intervention to manage the transition to a low-emissions economy. The report also constructs a range of scenarios that may help drive change in Australia based on the success or failure of international agreements, environmental politics and technological developments.

While not a formal policy document, the CSIRO report singles out agriculture, aluminium, iron and steel industries as the most affected by responding to climate change, and flags the risk to Australia's balance of trade. These sectors make up only 5per cent of total domestic output but 30 per cent of the value of Australian exports.

"Some regions reliant on trade ... and carbon intensive industries may be disproportionately impacted if measures to protect those industries are not implemented," the report says.

"While these industries and regions may comprise relatively small proportions of the Australian economy, measures may need to be developed to assist them with the transition to new forms of production or to new industry." The report - The heat is on: the future of energy in Australia - by the Energy Futures Forum, will be launched tomorrow by the CSIRO after more than two years of development with input by ABARE, as well as industry and environment groups.

The risk of energy intensive industries shifting to other countries - carbon leakage - is found to be much greater if Australia attempts to impose higher emissions cuts than other nations.

The report says such leakage is plausible under these scenarios and flags exempting energy intensive and trade exposed industries from a carbon tax - an idea raised in the state-based emissions trading blueprint released in August.

Carbon capture and storage and nuclear energy may play a greater role in the future energy mix, along with solar energy and geothermal energy depending on their ability to reduce costs and, in the case of nuclear energy, manage public perceptions and regulatory risk.

Origin Energy spokesman Tony Wood said the report highlighted the importance of governments not picking specific technologies, but rather setting the right policy and price signals and letting the market deliver the most effective outcome.

"This whole debate about geosequestration and nuclear is really important to be able to make the transition over the long term," he said. "If neither of these turn out to be successful, that's a big issue for Australia. "What this work shows is that provided you start reasonably soon you can turn this ship without wrecking the economy."

The report also finds the economic cost of the impacts of climate change are likely to be higher than the cost of mitigation in all scenarios - a finding consistent with the report prepared for the British Government by former World Bank economist Nicholas Stern last month.