A carbon tax.. and then?

David Spratt Climate Action Centre

www.climateactioncentre.org First published in Dissent magazine December 2010

CHoiCes

a carbon price, and then... ?

if the gillard government fails in its new-found enthusiasm for a carbon price, its a dead duck. but is that enough, asks david spratt.

vote lost by labor at the august federal election fell to the Greens, more because of climate than any other reason. I will not backflip on climate, declared billboards around the seat of melbourne for the successful Greens candidate, adam Bandt. labor had no answer. Climate policy and its absence was the political story in 2010. the two major parties, lacking credibility, wanted to take climate off the election agenda, and both lost. now dependent on the Greens and three climatesavvy independents, the secondterm federal labor government cannot afford to fail again on climate action. But has it learned the lessons, how genuine is its new-found commitment, and are labor and the Greens even in the same ballpark?

wo-thIrDS oF the prImarY

lessons of 2010
Climate had already laid waste to the opposition leaderships of Brendan nelson and malcolm turnbull when Kevin rudd made his fatal decision in may 2010. It was to accede to the views of deputy leader Gillard, treasurer Swan and the climatesceptical nSw right faction and dump labors emissions-trading legislation. It created, in ross Garnauts terms, a policy vacuum, but rudd can only blame himself. rudds strategy was to use climate as a wedge to split the coalition, but succeeded only in uniting the opposition around the denier abbott, whose rise gave comfort to a chorus of professional

sceptics as labor trashed itself. labor decided to marginalise the Greens and refused to negotiate with them for two years, dooming the CprS emissions-trading legislation to defeat in the Senate. the consequences of this brilliant strategy were a rise in the Greens electoral standing, and a hung parliament in which labor had to elevate the Greens to the centre of the climate policy-making in order to maintain power. It is difficult to think of a finer example of political blowback. labors sales job was hampered by penny wong, who appeared tactically inept and emotionally unengaged with the great moral challenge of our time she was charged to answer. Shifting her from climate suggests at least one lesson has been learned. together, rudd and wong completely misread the trajectory of international negotiations. they tied the success of labors climate policy to a process that was obviously failing long before it died at the December 2009 Copenhagen climate conference, in what Swedens environment minister, andreas Carlgren, called a great failure. while much of the world recognised that commitments under Kyoto were a disaster, in australia Kyoto was used in 2006 and 2007 as a stick with which to beat the howard Government. that suited labor and the big environment nGos, but this strategy reinforced a public view that the international process on which Kyoto was built could save us. how else to explain groups such as the australian

Conservation Foundation, Climate Institute and worldwide wildlife Fund supporting labors decision to make the polluter-friendly trading scheme dependent on the outcome of the Copenhagen summit? Before the doors had closed on Copenhagen, this strategy was in tatters, and rudds credibility. tim Flannery was a lone voice as Copenhagen concluded in thinking that our prime minister has played an outstanding role ... hes been working very hard for the last few months... and hes just been fantastic all the way, he just shines at it... hes been really important through these meetings. [By may 2010, Flannery felt a profound betrayal of trust and said he was unlikely to vote for labor again.] But rather than going to a double dissolution in early 2010 before the penny had dropped that the CprS was foundering on Copenhagens consequences, rudd procrastinated as abbott raged. the path from labors backflip to rudds loss of the prime ministership was then but a short walk; from a condemned prisoners cell to the political gallows. labors complete humiliation and collapse onto the opposition benches was prevented only because three of the independents and the Greens mp adam Bandt in the new parliaments lower house are more committed on climate that labor, and couldnt abide the idea of denier abbott as prime minister. all said getting some action on climate was important in deciding to back labor. the question is whether the
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can all of them listen to the experts long enough to realise that dinky climate policies are little more than an act of collective suicide, that the laws of physics and chemistry which drive our climate system can be negotiated with only at our collective peril?

new multi-party Climate Change Committee into which labor, the Greens and the independents have cast their fate, can deliver. Can they agree on a credible mechanism for putting an effective price on carbon, along with complementary measures? and can all of them listen to the experts long enough to realise that dinky climate policies are little more than an act of collective suicide, that the laws of physics and chemistry which drive our climate system can be negotiated with only at our collective peril?

What price carbon?

a carbon price has a useful, but limited role to play. It is effective where there are readily available technological substitutes at a cost that makes demand for carbon pollution relatively elastic. In electricity generation, for example, the starting carbon price being mooted of around $20 a tonne is sufficient to cancel out the profits of australias dirtiest facility, the brown-coal hazelwood power station in victoria. For others, it would so dent margins as to deter banks funding the construction of any new coal power stations. [there are plans for up to a dozen new coal-fired power stations across every state except tasmania: the wa government has cleared the way for three coal-fired power station projects, there are two large plants on the drawing board for nSw, and two being developed in Queensland. those part-way through approval

processes are exempt from emission standards announced by labor during the election.] But at $20 a tonne, the substitution will be to gas-fired power stations, not renewable energy of which wind is currently the lowest-cost, but not yet competitive at this carbon price. For now, it is the mandatory renewable energy target of 20 per cent by 2020 that is driving investment in wind, and solar hot water. the energy sector anticipates (and some such as CprS-wreckers Bhp Billiton are advocating) carbon prices at low levels that make gas the fuel of choice, a promised golden age witnessed in the scramble for coal seam gas. In the United States, for example, the energy Information administration anticipates the need for 250 megawatts of additional capacity by 2035, factoring in retiring coal plants and increased demand. natural gas accounts for 46 per cent of capacity additions in its predictions, with renewables 37 per cent, coal 12 per cent and nuclear 3 per cent. to avoid locking in a new, fossilfuel dependent industry based on gas, a carbon price must either start at a much higher level, and/ or it is made legislatively clear that the price will rise to a level in a timeframe that does not make gas the new coal. Complementary measures will also be necessary, including a feed-in tariff and support to drive investment to renewable energy rather than gas. whilst the Greens have an

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to avoid locking in a new, fossil-fuel dependent industry based on gas, a carbon price must either start at a much higher level, and/or it is made legislatively clear that the price will rise to a level in a timeframe that does not make gas the new coal.

explicit commitment to 100 per cent renewable energy and creating a zero-net carbon economy, labor appears to have chosen gas as its preferred energy path, especially since the cargo cult of clean coal (carbon sequestration and storage), which had underpinned the CprS modelling, has fallen from grace. the multi-party Climate Change Committee will have difficulty glossing over the fact that labor and Greens emissions targets at present are not from the same planet. whilst the Greens are committed to emissions at least 40 per cent below 1990 levels by 2020, and want a 350 parts per million (ppm) atmospheric greenhouse goal enshrined in law, labors present commitment is for only a five per cent reduction, and a 450 ppm target. and the reality is that a moderate carbon price will have little impact on our transport choices. In its liquid form, carbon is highly efficient and we are addicted to it, making carbon prices a poor driver of change in the transport sector. a carbon price of $50 a ton adds just 11 cents a litre to the price of petrol, a small disincentive to consume when compared to recent history; demand has increased despite a doubling of petrol prices over the last decade. In this sector, making technological substitutes (electric vehicles) price competitive and public transport more attractive (building capacity, congestion taxes, regulation) will bring better results than a reliance on carbon

pricing. For international air travel, which is the worlds fastestgrowing emissions sector and for which there are no technological substitutes, carbon pricing is also a relatively poor means of reducing demand.

back to the future?

the Canberra bureaucracy is split as to whether to price carbon as a tax or by emissions trading. Both the treasury and the Department of Climate Change seem unwilling to break free of their co-dependent relationship with the CprS, but the prime ministers and energy departments may be more open to a carbon tax. a test for labor will be its willingness to bury the CprS remains. the CprS was a policy race-to-the-bottom, locking in a brown economy by failing to cut emissions below the baseline till 2035, in the vain hope that clean coal would then kick in, and relying on importing permits as a substitute for emissions reduction. rudd ignored Garnauts warnings and caved into the big polluters with obscene levels of compensation. the labor-oriented think tank, the Grattan Institute, found industry assistance a $20 billion waste of taxpayers money... many of the proposed free permits would delay structural reform that will ultimately improve australian living standards. where businesses are unsustainable, government support should be directed to assisting individuals and communities to adjust, not
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a [carbon] price, its starting range and implementation timetable are not easy, nor a silver bullet.

propping up profits. In the few industries where some assistance is justifiedparticularly steel and cementassistance could be delivered better, at lower cost to taxpayers, through border tax adjustments. andrew macintosh, associate director of the anU Centre for Climate law and policy, describes the CprS as a spectacular screwup from a policy and political perspective. he says the first version had a modicum of policy credibility but, by the time it got to version four in late 2009, it was farcical: the mitigation targets were weak and the government caved in to every half-baked plea for special assistance from industry, thereby stripping the scheme of economic credibility. Coal generators were offered $9 billion-$12.5 billion worth of free permits over 10 years... emissionsintensive trade-exposed industries would get $48 billion-$83 billion over 10 years... the list of handouts was never-ending. If a new carbon pricing mechanism is re-built from the CprS, it is hard to see it not falling victim to the same special interests and gang of rent-seekers, and the lure of offshore permits. the very structure of emissions trading builds a market in carbon pollution permits that can become detached from the goal of emissions reduction. Cap or trap?, a recent study of the european Unions emissions-trading scheme for 20082012, found it will reduce emissions by only 32 million tonnes despite covering annual emissions of 1.9

billion tonnes. It also found that the availability of cheap offsets could allow europes domestic emissions to grow a staggering 34 per cent from current levels by 2016. and those offsets have been systematically rorted. Firms participating in the Kyoto protocols Clean Development mechanism (CDm) carbon scheme are abusing it by artificially inflating their greenhouse gas emissions, thereby allowing rich nations emissions to rise significantly, according to CDm watch. westfarmers chair Bob every is amongst an increasing number of corporate heavies who back a carbon tax. he says there was too much use and misuse of derivatives during the global financial crisis to justify introducing another derivativebased scheme in the form of emissions trading. and plummeting prices triggered for example by economic recession can undermine the efficacy of a trading scheme, whereas a carbon levy with a known and escalating price over time brings certainty.

and then?
the danger in the next period is that the climate debate in australia, and political metrics as to the success of climate policy, will be reduced to a single-lens focus on carbon pricing. this would be a catastrophe because a price, its starting range and implementation timetable are not easy, nor a silver bullet. a serious conversation about

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energy efficiency and mitigation programmes is under way, recognising that many of the past initiatives at state and federal level have been ad hoc, contradictory, inefficient and at times counterproductive. they have been turned on and off for little reason, often more concerned with householder appeal than efficacy. as andrew macintosh notes, two reviews of labors green loans program were scathing of the way it was designed and managed, finding repeated and systematic breaches of probity requirements, a lack of program oversight, budget mismanagement and cost overruns, and comprehensive failures of risk management. like the insulation program, the loans scheme cost taxpayers an enormous amount and produced very little in the way of measurable environmental improvements... the renewable energy target scheme underwent two major restructures in the space of 12 months. the solar homes and communities plan was prematurely terminated after a massive cost overrun of about $900 million. a carbon price at the level being mooted will shift the focus from coal to gas, so complementary measures are core to shifting decision-making from gas to renewables. the Greens policies include an explicit commitment to 100 per cent renewable energy, a comprehensive feed-in tariff for all forms of renewable energy at all scales, loan guarantees for industrial-scale baseload renewable energy power plants, an increased renewable energy target,

and a national roll-out of the smart grid. these measures have the potential to realise what a carbon price will struggle to do. Funding should not be a problem, if finding $43 billion for the national broadband network is any guide. re-directing fossil fuel subsidies would liberate $78 billion a year in australia. Bloomberg new energy Finance says that governments around the world last year gave $43$46 billion support to renewable energy through tax credits, feed-in tariffs and alternative energy credits. that compares with the $557 billion that the International energy agency says was spent to subsidise fossil fuels in 2008. revenue from a carbon tax can be applied both to compensating low-to-mediumincome families, and to supporting the renewable energy sector.

reality check
the question is whether what is on the public agenda, and a similar scale of action globally, would be enough to save us from a climate catastrophe. most advocates for the transition to a more climate-friendly society have largely wrapped their advocacy in upbeat rhetoric. Understanding investment riskmanagement will drive green business, and the move to a cleanenergy economy is a win-win, with new jobs, new industries and a better environment. hardly any cost at all. part of this happyclappy advocacy is driven by the marketing and communications

consultants whose habitat is increasingly to be found high in branches of many nGos. people dont want to hear bad news stories, so the story goes, and will be empowered by simple, positive messages about a rosy future. think polar bears, bright-coloured corals and wind turbines sleek against a blue sky. the question is whether what they are advocating will make a rosy world. the problem is that much of the grim reality being told to us by climate scientists is put to one side. It is sobering when committed climate activists with whom I work tell me they have stopped reading the science because its too depressing. Some nGo leaders act as if they never understood it in the first place. only by honestly engaging with the science can we identify what we need to do, and how quickly. the fact is that we are going to suffer dislocation and disruption to stop living in a fossil-fuel dependent world and build a new one from the ground up. a recent melbourne Age editorial was more honest that many: Change will be painful and divisive, because it involves altering patterns of settlement and household management that are nearly as old as the private car and the electrical appliance. though change need not be revolutionary, adjustment may well be inconvenient in the short term. three quick scenarios are a way to judge how big the challenge is. lets call them Copenhagen, two Degrees and Safe Climate.
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Human civilisation will be largely confined to northern europe, russia and Canada, and seabords.
1. copenhagen.
In this scenario, the world achieves all, but only, the emission reduction commitments that have been made by governments to date. this would result in an increase in global average temperatures of around four degrees Celsius compared to the pre-industrial temperature, and five-to-six degrees on land in australia. much of the tropical and sub-tropical land area would be desertified, and southern european sea levels will eventually rise by 70 metres, initiating a global flight from coastal zones. human civilisation will be largely confined to northern europe, russia and Canada, and seabords. ocean acidification and a surface warm layer will initiate the destruction of the base of the oceans food chain. extinction rates are estimated at 10 per cent for each one-degree rise. professor Kevin anderson, director of the tyndall Centre for Climate Change in the UK, says: If you have got a population of nine billion by 2050 and you hit 4, 5 or 6 degrees, you might have half a billion people surviving.

australia would need to head towards a zeroemission economy within a decade.

We have gone too far, and we need not only to very quickly stop our fossil fuel dependency, but build largescale capacity to drawdown (reduce) atmospheric carbon levels.
3. safe climate scenario.
naSas chief climate scientist, Dr James hansen, warns that we have reached a point of planetary emergency climate is nearing dangerous tipping points. elements of a perfect storm, a global cataclysm, are assembled the oft-stated goal to keep global warming less than two degrees is a recipe for global disaster, not salvation. he and a group of eminent scientists last year published data on what a safe boundary for the planetary system might be, and concluded for greenhouse gases that it was under 350 parts per million, a much lower level than at present. there is evidence that even this figure is too high. the conclusion is startling. we have gone too far, and we need not only to very quickly stop our fossil fuel dependency, but build large-scale capacity to drawdown (reduce) atmospheric carbon levels. and very likely we will need to find geo-engineering methods to reduce the impacts of the current heat imbalances in the system before whole ecosystems, such as the arctic, are transformed beyond all recognition, and tipping points transgressed.

2. two-degrees scenario.
two degrees is in theory the aspiration of international negotiations, but in practice it has been left behind for worse outcomes. the research tells us that a two-degree warming will initiate large climate feedbacks on land and in the oceans, on sea-ice, glaciers and the tundra, taking the earth well past significant tipping points. likely impacts include large-scale disintegration of the Greenland and west antarctic ice-sheets; sea-level rises of many metres; widespread extinctions; dangerous ocean acidification and widespread drought, desertification and malnutrition in africa, australia, mediterranean europe, and the western USa. Keeping warming to two degrees means stabilising greenhouse gas at around their present level. Using a carbon budget model (how much more carbon can each person emit to achieve this purpose?), australians would run out of the budget in under ten years. In other words, in order to do our fair share, australia would need to head towards a zero-emission economy within a decade.

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in the transport sector alone, it would mean amongst the many changes an end to virtually all air travel and airfreight

stuck in scenario one, though it would protest otherwise. the Greens are somewhere in the second and third. they aspire to a safe climate, but often fail to message what that actually means. So where does this leave the new labor-Greens-Independents climate committee, when the scientists tell us we need to stop emitting greenhouse gases and to cool the planet? Speed is of the essence in acting to reverse direction. the planet stands on the edge of a precipice beyond which human actions may no longer be able to control in a meaningful way the trajectory of the climate system, or the fate of human life in a rapidly degrading natural world. this requires emergency action, and probably ten per cent or more of world production will be required for a sustained period to build a new global energy system and economy. In the transport sector alone, it would mean amongst the many changes an end to virtually all air travel and air-freight (because there are no viable, large-scale energy substitutes on the horizon) with enormous consequences for the global economy, mass tourism and even australias university sector with its newfound dependence on overseas student fees. think of the global shipment of freight without oil. and that is the challenge in just one part of one sector. It will not be happyclappy, win-win, but challenging and difficult. and absolutely necessary.

aBor In praCtICal termS IS

Ian Dunlop, formerly a senior oil, gas and coal industry executive and Ceo of the australian Institute of Company Directors, says: honesty about this challenge is essential, otherwise we will never develop realistic solutions. we face nothing less than a global emergency, which must be addressed with a global emergency response, akin to national mobilisations pre-wwII or the marshall plan this is not extremist nonsense, but a call echoed by an increasing number of world leaders as the science becomes better understood In the face of catastrophic risk, emission reduction targets should be based on the latest, considered, science, not on a political view of the art-of-the-possible. Somehow I doubt whether that is music to the ears of Gillard, Swan and Combet. David Spratt is co-author of Climate Code Red: the case for emergency action (Scribe, 2008).

www.climatecodered.net

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