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POSTED: Tue 2 February 2010

RAPID ROUNDUP: Coalition's climate change policy - Experts respond

The Coalition today have announced their climate change policy under the leadership of Tony Abbott. Below, Australian experts respond.

Feel free to use the quotes below in your stories. Any further comments will be posted here. If you would like to speak to an expert, please don’t hesitate to contact us on (08) 7120 8666 or by email.

Peter Cosier is Director of the Wentworth Group of Concerned Scientists

“The good news is that the Coalition has recognised that climate change is a problem. Until now they have been sending confusing messages. The Wentworth Group strongly support the important role of terrestrial carbon, including soil carbon but this alone has no chance of solving the world’s climate change problem.

If Australia is to make its contribution to managing carbon pollution we need to reduce our net emissions by at least 25% by 2020 (and by between 80% and 95% by 2050). This policy doesn’t get us anywhere near those targets.
If we are to avoid dangerous climate change, we need to effectively eliminate all carbon pollution from transport and energy generation within the next 40 years. The only way this can be achieved without causing major economic damage is to drive economic incentives into the energy and transport sectors, so that they begin the urgent transition into a carbon pollution free industrial system. This requires deep emission targets and a price on carbon to achieve such targets with the least short term economic cost and greatest long term economic benefits.”

Professor Barry Brook is Sir Hubert Wilkins Professor of Climate Change and Director of Climate Science, The Environment Institute, University of Adelaide

“Frankly, there’s not much in the coalition’s new emissions reduction policy with any real meat. They propose a type of baseline and credit scheme for rewarding emissions reductions (which at least tries to reward voluntary measures). They place a huge amount of faith in soil sequestration of carbon, which no doubt has potential, but is also hugely uncertain at this stage (especially on the question of whether it can be implemented on a large scale).

The 100,000 rebates for household solar panels of $1,000 each is a useless gesture -- subsidising an uneconomic way to generate electricity at a level that won’t be enough incentive for almost anyone to buy one (with the full cost of a 1 kilowatt system being more than ten times that amount). Instead, it will almost all go on solar hot water systems, which already have a subsidy.

If the coalition was really serious about reductions in carbon emissions, they’d be opening the floor to an informed public discussion on introducing nuclear power to Australia.”

Dr Frank Jotzo is Fellow and Senior Lecturer at the Australian National University’s Crawford School of Economics and Government

"A price on emissions, via emissions trading or a tax, remains the most cost-effective way to cut back on emissions. Subsidies and grants may be necessary in some cases, but they invite bureaucratic inefficiency, and even more profit-seeking by industry than we have seen under the CPRS process. And of course someone will always have to pay. Under emissions trading, industry pays first and recoups the costs by raising prices for consumers. Under a subsidy approach, the taxpayer pays for grants to industry.

Soil carbon improvements and research on bio-sequestration are worthwhile investments if implemented well, but they are not the answer to Australia's rising emissions from energy use. Neither are subsidies for more roof-top solar panels, which are one of the most expensive ways of saving carbon. What is needed is a strong and pervasive price signal to emitters, through an emissions trading system, perhaps starting with a fixed price to provide certainty in the start-up phase.

Excluding the financing climate action overseas would be a mistake. The lowest cost options are in developing countries, and funding mitigation there is an essential part of any cost-effective global mitigation strategy. Climate change is a global problem, and dealing with it requires an international perspective."

Professor Ian Lowe is Emeritus professor of science, technology and society at Griffith University, Qld and President of the Australian Conservation Foundation.

“The most disappointing aspect of the Coalition’s policy is that it aims only to reduce our carbon dioxide emissions by five per cent. So it has effectively accepted disastrous climate change. The Bali Road Map set targets in the range of 25 to 40 per cent for countries like Australia to give the world a fighting chance of avoiding unacceptable impacts.

We should be at the top of that range, since we haven’t done the easy cost-effective things to cut emissions. As the alternative government, the Opposition has a duty to consider the long-term impacts of its policy. It appears constrained by its denial faction to propose only measures that are manifestly inadequate.

It is reasonable to propose incentives for the big polluters to reduce their emissions. That is a welcome change from the Coalition’s insistence during the 2009 negotiations that public money be handed out to insulate big polluters from carbon price signals.

We need to be clear whether ‘business as usual’ means current pollution levels or self-selected targets based on projections of possible future growth. There must be real reductions in carbon dioxide production, not increases that are claimed to be smaller than ‘business as usual’. That would be creative accounting rather than responsible policy.

I welcome the proposed measures to stimulate improvement of soil carbon levels and the planting of an additional 20 million trees in urban areas. A million solar roofs by 2020 is better than the present situation, but still an unambitious target. We need a serious commitment to phase out dirty coal-fired power stations and invest in renewables.”

Dr Helen McGregor is an AINSE Research Fellow in the School of Earth and Environmental Sciences at University of Wollongong

"Cuts to emissions of far greater than 5% by 2020 are required to tackle the climate change issue - this policy does not appear to have any long term plans for deeper cuts into the future."

Professor Andrew Blakers is Director, Centre for Sustainable Energy Systems and Director, of the ARC Centre for Solar Energy Systems at The Australian National University

“Strong explicit support for research, development and manufacturing of renewable energy in Australia is critical to obtain deep cuts in carbon emissions. The solar, wind and other renewable energy industries will be mega industries in the future, replacing coal and other fossil fuels, and Australian needs to be a significant player in these industries.”

Professor John Foster is from the School of Economics at the University of Queensland and is Vice-President of the Economics Society of Australia (Queensland Branch)

“Any policy that does not penalise ‘base line’ growth in emissions by firms and does not have a cap is very unlikely to achieve a 5% reduction target by 2020.

Some of the incentives to encourage carbon reduction in power generation, land use and other areas are laudable but, given that complex tendering processes are involved, the bureaucracy and associated costs of managing schemes in such a wide range of areas will be difficult and more expensive than suggested.

This is a policy that pivots around the palatable ‘business as usual’ case and that is why it’s so cheap.

There is no indication of how the estimated carbon dioxide reductions in the different areas were modelled. It looks very much like guesswork and, since there are very new aspects to the policy, such as large scale increases in carbon content in the soil, this is not surprising.

The ‘penalties’ for going above base-line emissions have not been detailed. These are, in effect, like a carbon tax and we need to know if this is a ‘great big’ tax or not. The Coalition is also very coy in discussing where the funding for the policy is coming from: new ‘great big’ taxes or just cuts in health and education?

It is very encouraging to see that the Coalition has recognised, in a policy document, that carbon emissions are a problem, despite the presence of a number of climate change skeptics and deniers in the Party. However, the document looks suspiciously like a carefully constructed bit of politics in the run up to an election. For a range of practical and political reasons, I am very doubtful that this policy, as it stands, would or could be implemented in July 2011 if the Coalition was elected to govern. Effective climate change policy is difficult to design and implement - it must involve the introduction of an emission trading scheme and/or a significant carbon tax. So the suggestion that it can be done easily and cheaply is unconvincing.”

David Pearce is Executive Director of The Centre for International Economics in Canberra

“It’s good to see debate about alternative climate policy instruments. This is a genuinely difficult policy area, and a broad debate will ultimately increase the community’s confidence in policy measures. It is interesting that politicians from across the spectrum have now canvassed most of the possibilities for climate policy that have been discussed in the economic literature for the past couple of decades. The Opposition’s ‘direct action’ approach falls into the camp of subsidies rather than taxes to achieve abatement objectives. Like any climate policy — including the governments — the Opposition’s policy involves a set of trade-offs. It’s important to be very clear about this, there is no single policy that is ‘ideal’ and doesn’t involve trade-offs: all do. What’s important is to be very clear about what these trade-offs are.

The Opposition seems to consider that there are low cost abatement opportunities available — around $15 per tonne or less. In contrast, under the CPRS, by 2020 the cost of abatement is around $35 per tonne. This is a significant difference, however we don’t really know which will be correct until either scheme actually starts: the true cost of abatement could be higher or it could be lower. The cost of abatement in the CPRS comes from economic modelling, and the cost of abatement for the Opposition comes, apparently, from discussions with various industry groups. It is important to note that if it turns out that the cost of abatement is around $15, then the cost of the CPRS will also turn out to be lower than currently estimated.

An advantage of the Opposition’s approach is that it does not involve the sorts of transfers of income involved in the CPRS as currently specified. In particular, firms in effect only pay for emissions beyond their ‘business as usual’ level rather than for all their emissions. In terms of emissions trading, this is equivalent to having free initial allocation of permits. Rather than a large amount of revenue going to government (for redistribution) the resources remain with firms. Because of this, it is likely that the Opposition’s approach will have smaller trade effects than the CPRS — at least for as long as our trading partners do not have a carbon price in place.

On the disadvantage side, the Opposition’s approach does not establish an explicit price of carbon. Theirs is a market based approach, that is true (firms will bid based on commercial considerations) but the price of carbon will be implicit in the bid prices put forward by firms (and in the penalty to be charged for firms going beyond their business as usual emissions). The implicit price will not be directly transmitted through the economy. Indeed, it’s a feature of the policy that consumers will never have to face it. This is perhaps politically sensible, but from an economic point of view it does not capture the myriad of small abatement opportunities available to households. Some of these may be very low cost, but they are much less likely to be captured by the Opposition’s scheme. Similarly, it is not clear whether the scheme will be able to establish a long term price of carbon — allowing it to provide incentives to firms making decisions today about long lasting assets.

Perhaps the most significant difference between the Opposition’s approach and the CPRS is the large reliance the Opposition place on low cost abatement through soil carbon. This is a possibility absent from the analysis of the CPRS, so it is likely that were it included, the cost of the CPRS too would appear significantly lower. Soil carbon does offer a genuine abatement opportunity, but it is one that also carries risks (how will the policy deal with unexpected emissions of soil carbon from bush fires, for example?). There is, of course, no reason why soil carbon could not be included in an emissions trading scheme — the difference is probably one of emphasis and relative confidence in potential abatement outcomes.

Hopefully it will be possible to have a constructive debate about these different approaches to climate policy so that the public has an opportunity to understand — and make choices about — the tradeoffs involved.”

Adjunct Prof Alan Pears AM is a Senior Lecturer, School of Global Studies, Social Science and Planning at RMIT University. Alan is also on the Board and Policy Committee of the Voluntary Carbon Markets Association.

“The Coalition’s policy includes a number of useful measures. However, it rejects a key element of any long-term transition to a low carbon economy - placing a price on carbon emissions. The present failure to require emitters to pay for polluting in the form of releasing greenhouse gas emissions is a serious distortion. It leads to market failure in the form of over-use of the global atmospheric commons.

So the Coalition is effectively supporting an ongoing subsidy to emitters, rather than avoiding a ‘great big tax’. Further, the claim that the CPRS will cost $40.6 billion over its first four years is a misrepresentation of a scheme that, the Government claims, will feed back all of its revenue through assistance to households and business and incentives for abatement activity. (Maybe they have learned from Paul Keating's successful use of misleading claims about the GST against Mr Hewson in the early 1990s...)
The policy relies heavily on encouraging farmers to increase soil carbon. However, this measure is not yet internationally recognised as an abatement action, and there are some scientific uncertainties about aspects of the approach. Fundamentally it does seem to have substantial potential, but this must be carefully managed. In any case, the present Government’s recently announced NCOS (National Carbon Offsets Standard) provides a method for formal recognition of voluntary actions such as bio-char production, which could underpin sale of credits into a voluntary market.
The claims of major job losses resulting from the Government’s policies are seriously overstated. Indeed, growth in industries such as renewable energy and energy efficiency offer potential for net increases in employment. The reality is that the potentially affected industries employ a tiny proportion of Australian workers. In any case, the government’s over-generous allocation of free permits means these industries face small impacts for many years.
Many of the proposals are similar to measures either already existing or under development by the Government. Others could easily be incorporated into the Government’s approach, which includes a range of compensatory and complementary measures funded from the CPRS, as well as regulations (eg the recently announced building code changes).

The effective cost of abatement of the Coalition’s measures (p.22 of their paper) seems to lie in the range of $10-15 per tonne of CO2 avoided for a total of 140 Mt pa in 2020, giving an annual cost in 2020 of $1.4 to $2.1 billion pa. This money has to come from somewhere. So if it is not funded through a tax increase it may come from a reduction in delivery of government services, or increases in prices passed on by business to consumers.
The Coalition’s emphasis on local abatement (in contrast to the Government’s proposal that up to 100% of CPRS abatement could be sourced overseas), and its proposed support for voluntary additional abatement schemes such as Greenhouse Friendly (p.27) are positive features.”

Professor John Quiggin is an Australian Research Council Federation Fellow in the school of economics at the University of Queensland

“The Liberal Party plan relies primarily on wishful thinking about the potential for near-costless gains from soil carbon. In the absence of adequate accounting systems, this proposal is vulnerable to massive rorting. The rest of the proposal consists if picking winners that seem likely to appeal to focus groups, rather than providing incentives to find the most cost-effective ways of reducing and offsetting carbon emissions. Taken as a whole, the package and its costings lack credibility.”

Professor Wasim Saman is Professor of Sustainable Energy Engineering and Director of the Sustainable Energy Centre at the University of South Australia

“The plan includes a number of practical common sense measures for supporting energy efficiency, renewable energy and emission reduction by a number of key sectors. However, in total, it is merely tinkering around the edges and fails to clearly signal Australia’s long term commitment to reduce carbon emission. Furthermore, it fails to provide certainty for industry to plan for a carbon constrained economy"

Professor Peter Kenyon is Professor of Economic Policy in the Graduate School of Business at Curtin University, Western Australia

“To reduce green house gas emissions, people need to change their behaviour. Industry needs to use less emissions-intensive ways of producing goods and services and consumers need to switch purchases of goods and services from emissions-intensive goods and services to those that are cleaner and greener.

Economists see the price mechanism as a way of changing behaviour. If something costs more, we will use less of it. If it costs less, we will use more of it. Resources flow in the direction of price signals. Behaviour changes.

Which works better, the stick of higher prices and costs or the carrot of lower prices and costs? There is no clear answer to this, both work in theory. However, recent work in behavioural economics suggests that the stick of higher prices is somewhat more mind-focussing than the carrot of subsidies.
The Rudd government wants to utilise the sticks approach. An Emissions Trading Scheme will increase the cost of emitting green house gasses and thus change behaviour by giving firms and consumers the incentive to avoid emissions charges by switching away from emissions-intensive ways of doing things.
On the other hand, the Liberals want to use a carrots approach. The Liberal’s policy is, broadly, give people subsidies if they change their behaviour towards less emissions-intensive ways of working and consuming.

Both approaches will deliver emissions reduction. So the question is what’s the best way? There are two reasons to favour the Emissions Trading route.

First, recent research in behavioural economics reinforces the theory that price rises will change behaviour more quickly and thoroughly than subsidies. Just think of speeding reduction for a minute. Would speeding on the roads be less if drivers were to be subsidised to reduce speeding? It sounds like a great idea - until you are in a hurry! A speeding fine, however, is likely to be far more persuasive.
Secondly, subsidies have to be paid for. Under a subsidy approach, it might appear that the government is giving money away to be cleaner and greener. But where does the money come from? It has to come from us, the taxpayers. The government is not a magic pudding. As Nobel Prize winning economist, Milton Friedman used to say ‘There is no such thing as a free lunch.’ It will cost citizens at least as much as an equivalently effective Emissions Trading Scheme.

The Liberals have costed their scheme at $3.2b over four years, a cost that will be borne by taxpayers. An ETS will cost considerably more and is almost certain to deliver greater emissions reduction per dollar cost. The real question is, therefore, how much are we willing to pay to change our behaviour and what will be the greatest ‘bang for our buck’ in terms of emissions reduction? My bet is on an ETS.”

Dr Nathan Steggel is one of the founders of Windlab, a global wind energy development company. Before Windlab, Nathan was employed as a post-doctoral fellow at UK research institute, EnFlo, and CSIRO in Australia.

"Tony Abbott would like to reduce emissions at least cost - wind energy is scalable and the fastest growing form of electricity generation in most of the major industrial regions of the world - as the cheapest of all the renewable technologies it should be a major part of any carbon solution here in Australia as well."