Keep to emission cuts, say economists

Age
Saturday 3/1/2009 Page: 11

ECONOMISTS have given a lukewarm response to Kevin Rudd's carbon emission reduction targets, but have urged the Federal Government not to be spooked by the global economic downturn. Last month, the Government revealed it would be seeking to reduce carbon emissions by 5% on 2000 levels by 2020 unless an international agreement on carbon trading could be reached. In that case, the reduction target rises to 15%. The 2050 target is a 60% reduction.

"There's never going to be a good time to introduce this, so the current crisis should not be used as an excuse to delay," said Chris Caton from BT Financial Group. So far, the timing of the carbon pollution reduction scheme (CPRS) does not appear to have been affected, with the Government committed to a 2010 start date. University of Queensland academic John Quiggin argued that the pursuit of environmental policies could in fact bolster the economic recovery. "Use green jobs programs as a focus of expansionary policy," he said.

ANZ's Saul Eslake said he would have preferred less compensation for heavy emitters because it would result in clearer "price signals for households and businesses to modify their behaviour. Heather Ridout from the Australian Industry Group called for protection for trade exposed industries. "There should be strong measures for businesses that are exposed to competition from countries that do not impose additional costs similar to those imposed under the Australian CPRS," she said.

Monash University academic Jakob Madsen, said steep price increases on carbon were needed to encourage the development of alternative fuel sources. In Denmark, 40% of the energy will come from renewable resources by 2020. Australia should easily be able to meet that target." The Scandinavian social democracy will be in the spotlight in December when world leaders gather in Copenhagen in an attempt to nut out a global agreement on emission reductions beyond 2012. "The world is watching Australia and we can use this opportunity to help broker an international agreement," said Austrade's Tim Harcourt.

Some economists backed the Government's plan to make deeper emission cuts conditional on agreement at Copenhagen, including former government consultant John Edwards from HSBC, Paul Brennan from Citi and Brad Crofts from the Australian Workers Union. 'Australia should calibrate its response in line with what happens in other countries and in a manner that does not put at risk Australia's ongoing competitiveness and economic prosperity," Scott Thompson from the Business Council of Australia said.

Bill Evans, at Westpac, cautioned against ploughing ahead with pre-slowdown emission reduction plans, saying "disruption will be particularly risky at this stage of the cycle". Siwei Goo, from the Australian Chamber of Commerce and Industry, urged the Government to go one step further. "The possibility of delaying the CPRS should be on the table and thorough cost-benefit analysis should be conducted to examine the effect of delaying CPRS for another 12 months."