Carbon price—a cheap way to do nothing on climate change

Labor has used a Productivity Commission report to bolster its push for a carbon price as the best way to cut carbon emissions. But the only thing it proves is that its policies will do next to nothing to tackle climate change.

The report examined the cost of carbon abatement policies in eight “key economies”, including China, the US, UK and Germany. As was intended, it found that Emissions Trading Schemes (ETS) were the cheapest way to reduce emissions.

But the report is a case study in missing the point and obfuscation. What unites all the government policies surveyed is that none have substantially cut emissions.

The only active ETS studied was that in the European Union. Under the EU ETS emissions rose by over 3.5 per cent in 2010 for industries covered by the scheme.

But the Commission is concerned simply with the cost of reducing “counterfactual emissions”—what emissions would have been without the policy in place. In other words all it requires is that policies slow the growth in emissions, not reduce them outright.

The report is a bit like asking what’s the cheapest way to build an airplane, without bothering to ask “will it fly?”. It didn’t ask, as Beyond Zero Emissions 2020 Stationary Energy Plan did, how to best reduce emissions on the scale required to stop catastrophic climate change, in the time necessary, whilst maintaining living standards.

Small emissions reductions, caused for instance by fuel switching to gas from coal, can be fairly cheap per tonne of abatement, but this will not solve the problem. 

The report also looked at transport emissions but excluded “transport infrastructure policies, such as the development of public transport systems” on the basis that such policies have an impact “over long time periods” and that “these impacts are difficult to measure”.

Funding renewables
While dealing a minor blow to the Coalition line that the rest of the world isn’t acting, the main purpose of the report is to back carbon pricing against other more useful measures.  Bernard Keane, writing in Crikey, spelt it out starkly, “The PC’s conclusions also back Ross Garnaut’s view that once an emissions trading scheme is established, supplementary policies such as a Mandatory Renewable Energy Target… become superfluous and costly add-ons”.

The government has used the report to dismiss demands from The Greens and the climate movement for new spending or subsidies for renewable energy.

They cite the report’s finding that subsidies for small scale solar PV were the most expensive way to cut emissions, including the feed-in tariffs for rooftop solar panels at state government level in Australia.

Tellingly the report didn’t look at large scale solar. It didn’t examine countries like Spain which have built large scale solar thermal power plants. 

Building large scale renewable energy does carry an upfront cost, but is the only real solution to cutting emissions from electricity generation, and carbon pricing won’t deliver it.

Greens Senator Christine Milne rightly criticised the report, saying it had, “fallen into the trap of only measuring the effectiveness of policies in terms of how much they cut pollution in the short term, ignoring the fact that many of these are very effective industry development policies designed to transform the economy over the long term”.

The report found that Germany, which had done the most to stimulate renewable energy of the countries examined, also achieved the greatest abatement. Whilst it made much of the fact that the cost per tonne of abatement was higher for Germany than Australia, Germany has achieved 67Mt of abatement compared to Australia’s 7Mt.

Interestingly, the report found that “excluding the ETS from Germany’s results has little effect on the estimates”. In other words it was renewable energy, not the ETS, which had been effective in Germany.

As Christine Milne put it, “The report shows that pricing carbon is the most efficient way to drive fuel-switching from coal to gas, but it is not enough to drive the transition to renewable energy.”
The Greens are right that carbon pricing won’t deliver renewable energy, but that only shows that their strategy of making a price on carbon central to climate action is a mistake.

The Productivity Commission understands that economics is at the heart of climate politics, stating, “all policies impose costs that someone must pay…Where schemes differ is in relation to who ends up paying for them”.

The Commission, and the government, would prefer that workers pay through a carbon price—but are also avoiding policies that give us any change of halting climate change.

This is not the approach The Greens or the climate movement should back.

By Chris Breen


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