Towards a realistic climate change policy

‘Don’t blow it – good planets are hard to find’
TimeRecent reports on climate change have confirmed what has been intuitively and practically evident for many years, namely:

Carbon emission from human activity is leading to increased atmospheric carbon concentrations. This is very likely to be causing major climate change which will become dangerous and potentially catastrophic if carbon concentrations are allowed to continue rising.
The evidence is sufficiently clear that urgent precautionary measures should be taken to reduce human carbon emissions if dangerous consequences are to be avoided.
The cost of doing nothing far outweighs the cost of acting to mitigate and adapt to climate change.

In response to community concerns over climate change, the Prime Minister set up a Task Group on Emissions Trading in December 2006, to report by end-May 2007. Its Terms of Reference state:

‘Australia enjoys major competitive advantages through the possession of large reserves of fossil fuels and uranium. In assessing Australia’s further contribution to reducing greenhouse gas emissions, these advantages must be preserved.
Against this background the Task Group will be asked to advise on the nature and design of a workable global emissions trading system in which Australia would be able to participate. The Task Group will advise and report on additional steps that might be taken, in Australia, consistent with the goal of establishing such a system.’

In the circumstances we now face, these requirements are dangerously anachronistic:

It is impossible to ‘preserve Australia’s major competitive advantages which we enjoy through the possession of large reserves of fossil fuels and uranium’ in moving from a carbon-intensive to a low carbon world, and we should not pretend otherwise.
There is no reference to the scale of emission reductions required and the design of an emissions trading system is dependent on this requirement. Emissions trading, by itself, will not lead to emission reductions. It will only do so when set in the context of an overall climate change policy containing binding emission reduction targets. We have no such policy.

The Task Group Issues Paper released in early 2007 ignored the substantial body of knowledge on climate change and emissions trading built up over the last two decades in Australia. This paper might have been appropriate as a primer in the early-1990s, but to put it forward today as a serious contribution on this critical issue, suggests that the Federal Government either does not understand, or does not want to understand the seriousness of the challenge we face, and is intent on delaying effective action yet again.

Having crossed the threshold from denying to accepting that climate change is a serious issue, which the government now claims to have done, sensible policy becomes mandatory. Time is of the essence, for the longer it takes to implement solutions, the harder they become, particularly given growing evidence of non-linear climatic responses to increasing CO2 concentrations and rapidly accelerating emissions both here and overseas.

Current piecemeal initiatives are totally inadequate. Emissions trading is now, reluctantly, under discussion but it is only one component of the comprehensive policy required.

While the Federal Government has no coherent policy, I do not believe that the ALP really understand the extent, and urgency, of the challenge we face. Only the Greens are coming anywhere near it, as demonstrated by the Re-Energising Australia policy paper released by Christine Milne in April.

So what constitutes sensible climate change policy? It would look something like this:

Set targets to avoid dangerous climate change:

There must be rapid implementation of measures to stabilise atmospheric carbon concentrations by reducing emissions substantially. This requires clear, binding, deliverable targets to be agreed globally and nationally, best achieved by committing to a modified Kyoto Protocol in the immediate future:

The primary target should be to stabilise global atmospheric carbon concentrations at no greater than 450ppm CO2e, which is considered the maximum acceptable level to avoid dangerous climate change.
This would be achieved by contracting annual global carbon emissions from 8 gigatonnes carbon today to 3.5 gigatonnes carbon by 2050, a reduction of 55%
The contraction task must be allocated equitably between nations. The developed world, having created the bulk of the problem, has a moral obligation to take the lead, but the developing world, in its own interests, must rapidly join in seeking solutions. This poses the fundamental question of global equity. It is morally indefensible and unrealistic to expect that the developed world can continue to emit at current levels, with the developing world absorbing the bulk of the climatic impact and being asked to constrain its own growth. The simplest, most equitable and practical solution is for each nation to agree to converge linearly from today’s unequal per capita emissions to equal per capita emissions globally by a date to be negotiated, say 2040.
This means Australian emissions would have to reduce by 50% by 2025 and 90% by 2050. This would be administered via a national carbon reduction budget, comprising year-by-year emission reduction targets, which inter alia provide certainty for long term investment decision-making, for example for power generation, resource development, urban planning, transport etc.
The national carbon reduction budget could be achieved in various ways. Market-based instruments are preferable and emissions trading is arguably the most efficient, provided it is properly designed and administered. However the schemes so far discussed at State and National level are not sufficiently comprehensive for the task we now face. The simplest, most practical variant, which overcomes their flaws, is a system of Tradeable Energy Quotas (TEQs):

About Tradeable Energy Quotas

Also known as ‘carbon rations’ or ‘personal carbon allowances’, TEQs are an electronic system for rationing energy, which includes every energy-user and energy-provider in a national economy in the task of reducing carbon dioxide released into the atmosphere from fossil-fuel energy.

TEQs are defined in terms of carbon units, that is one kilogram of carbon dioxide, representing the carbon emissions produced by use of the energy itself, plus the combustion of the other fuels that were used in its extraction, refining, generation and transport. All energy and fuel carry carbon rating in this way. Other greenhouse gases such as nitrous oxide and methane, are rated in CO2 equivalents – the number of kilograms of CO2 that produce the same global warming effect.

At the outset, a TEQ Registry is established. This is a computer database which holds individual carbon accounts for all participants in the scheme, similar to credit-card accounts. The number of TEQ units issued and credited to these accounts initially is set equal to emission levels from current energy use, derived from the national budget for that year. The number on issue will then be reduced year–by-year in line with the national budget.

To allocate the TEQ units, the proportion of energy consumed directly by households, for example fuel and electricity, is first assessed. TEQ units representing this share of all emissions are then issued free to all adults on an equal per capita basis. The remaining share would be issued through a tender process to all other users – companies, small businesses, government etc.

When energy-users make purchases of energy or fuel, they surrender units, drawing on their TEQ account. There is embodied energy in every good and service we buy, and all uses of energy are covered by TEQs. Thus no consumer purchase is excluded from the scheme.

When any purchaser no longer has TEQ units in their account, units have to be purchased on the market. If you use less than your quota of units, you can sell the surplus. If you need more, you buy them. Thus a market price for carbon is established which depends on the success of the community at large in reducing emissions.

Every week an additional number of units is issued and allocated, equivalent to one week’s supply, so that at any time there is full year’s supply in circulation. The scheme can be largely automated using existing financial services infrastructure.

The process is overseen by an Emissions Policy Committee, with a mandate to achieve the national carbon budget determined by the Contraction and Convergence process. It operates at arms length from government, much in the way the Reserve Bank sets interest rates.

The government is itself bound by the scheme. Its role is to live within it and assist the rest of the community to do likewise with appropriate directional policies. The scheme is thus insulated from the political process, and the government is relieved of the political need to defend the emissions reduction budget.

TEQs are quantity-driven, ensuring that emission reduction targets are met. The price of units, and thus carbon, is ultimately under the control of the community, since the faster we are able to reduce emissions, the lower the price. A common purpose is created as everyone has an incentive to reduce emissions and to encourage others to do likewise. Thus the process becomes a positive, collective experience for the community to restructure and rebuild the economy on sustainable principles

Directional incentives

Directional incentives are essential to speed the transition to a low-carbon economy and to capitalise on new business opportunities. For example we need to:

Increase the Mandatory Renewable Energy Target (MRET) to 30%
Introduce congestion taxing on vehicles in capital cities
Invest in high quality, efficient public transport, cycling
Stop further major expansion of freeway systems to constrain expanding vehicle use
Eliminate subsidies encouraging carbon emissions.
Emphasise energy efficiency and resource conservation
Mandate world best practice vehicle emission standards
Emphasise high-speed broadband access Australia-wide to speed de-materialisation and reduce travel burdens
Completely re-think the consumer society and related business models (e.g. transport, aviation, infrastructure, urban and rural environments, financial services, supply chains, marketing, recycling) in line with sustainability principles.
Redesign and simplify the market economy, corporate and investment regulation, governance and reward systems to deliver long-term sustainability
Increase policy consistency across government.

Fossil Fuel Exports

Fossil Fuel Exports are a substantial source of carbon leakage from the global carbon emission reduction effort unless the recipient country is part of the global reduction program.

There may well be justification for higher quality Australian coal, for example, to be used for power generation in preference to poorer quality coal in other countries. However, without carbon being fully priced, there will be substantial distortion of the future energy market if carbon-intensive projects become locked into the energy mix before global negotiations are completed.

The Australian coal industry has belatedly acknowledged that clean coal technology and carbon sequestration is essential if coal combustion is to continue. However, despite the industry having been on notice for more than 15 years, the R&D investment devoted to this task is miniscule compared with the challenge ahead. Further, whilst carbon sequestration may work in specific circumstances, it is by no means clear that it will be generally applicable or that timely solutions will be available.

Accordingly, no further fossil-fuel export projects should be approved until either all exported carbon can be securely sequestered on a long-term basis, or it is accounted for in the importing country by global carbon reduction agreements. This will ensure that investment decisions are not distorted, and spur technological and diplomatic innovation.

Domestic Carbon-Intensive Investment Projects

No further domestic carbon-intensive investment projects should be approved until the market structure outlined above is in place, with full carbon pricing. This would apply, for example, to any new coal-fired power generation, water desalination plants, industrial plant etc. Given Australia’s dependence on existing coal-fired power generation and its associated high emissions, all existing power plants should be phased out by 2020 unless retro-fitted with clean coal technology and carbon sequestration to acceptable standards.

Airlines and International Sea-Freight

At present airlines are not included in emissions trading systems. Airlines account for around 3% of global emissions, although this may be an underestimate as some types of emission may be particularly damaging, the total impact being perhaps 2-4 times as great. Airline emissions are growing rapidly, spurred by cheap air travel and increasing wealth, and will become a much more significant component of overall emissions. Accordingly aviation must be included in the global and national emission reduction programs. International sea-freight is also not included in current emission trading schemes and must be incorporated.

International Emissions Trading

International emissions trading will be essential to achieve the optimal, least cost emission reduction strategies. This should be provided for by nation-to-nation emissions trading under the auspices of the modified Kyoto Protocol. It would allow nations with quotas in excess of their needs, as determined under contraction and convergence, to sell to those requiring additional quotas, in the process easing global inequity by transferring wealth from the developed to the developing world. Technology transfers from the developed to the developing world, to achieve low-carbon outcomes, must also be part of the process.

There remains the possibility that the science is wrong and that climate change currently being experienced is primarily due to natural causes rather than being human-induced. The mounting evidence suggests that the probability of this is low, and declining. Nonetheless, in committing to the policy proposed, this scenario should be kept in mind. Prudent risk assessment, weighing the risks and their probabilities in the light of today’s knowledge, suggests that it clearly makes sense to proceed with these proposals, as the potential impact of dangerous climate change may be catastrophic, while the costs of carbon emission reduction are manageable. To continue with business-as-usual implies an irreversible increase in global atmospheric carbon concentrations, which would be foolhardy in the light of the evidence available. But the risk assessment must be kept under review as the scientific evidence evolves.

Whilst policy should endeavour to minimise costs and smooth the transition to a low-carbon economy equitably, there will undoubtedly be pain, but the pain of not taking action will be considerably greater.
In these circumstances, it is not possible to maintain industry competitiveness and economic growth as currently constituted. Conventional growth is a large part of the problem. We must move to a new paradigm of a sustainable economy, which requires major structural changes, as well as a shift in values.

But whilst some industries decline, greater opportunities open up. It is essential to take a proactive, forward looking view and seize these sustainable opportunities, rather than reactively defend an unsustainable status quo: the former represent the future of Australia, whereas the latter guarantees our decline and immeasurable community hardship. Rather than a problem, as currently presented, it is a unique opportunity to set humanity on a new course, built on sustainable principles.

The transition will only be achieved if there is strong leadership and a whole-hearted commitment to achieving these objectives. To build this commitment will require extensive community awareness programs.

Above all, visionary, principled, long-term leadership is needed from government, the community and business. Short-term political or corporate expediency is no longer acceptable. Bi-partisan cooperation is essential, for this will not be solved with conventional party politics. Many will argue that conventional politics is all we should expect. I suggest that after another natural disaster or two, the community will demand much, much more.

Current atmospheric carbon concentrations are 430ppm CO2e, increasing at 2ppm per annum. That leaves 10 years before we reach the danger point of 450ppm. As there is a considerable lag before any reduction in emissions has an impact, action is required in the next 6-12 months, not in the 3-5 years favoured in political debate.

Climate change is the most serious issue to confront humanity in centuries. It is of an entirely different dimension to the issues which typically dominate the political and corporate agenda. As such, it must be addressed with honesty and urgency, not with the denial and misrepresentation that continues to epitomise the debate.

Based on today’s criteria of economic success, defined by short-term myopia and profit performance, Australia is doing splendidly and may continue to do so a while. But on any sustainable basis, without rapid corrective action we are heading for a fall, the like of which we have never seen before. Particularly in an economy so dependent on unsustainable energy consumption and exports, on the driest continent on Earth.

We know what to do – it is hard, but we need to get on with it and not waste another 10 years. As Herman Daly said many years ago: ‘the economy is a wholly – owned subsidiary of the environment, not the reverse’. No environment, no economy.