Turnbull adds a dose of carbon reality

19-May-2011

Finally, we seem to be getting a dose of reality in the carbon debate – and all in good time ahead of the crucial talks this weekend from the multi-party committee.

The UK has provided a glimpse of what will be required of all developed countries; the case for a carbon price being imposed as soon as possible has been underlined, as have the problems facing Australian industry in a carbon-constrained world; Malcolm Turnbull has more or less confirmed that the Coalition’s carbon policy is good for sceptics and few others; and the US has shown us what a vision for the future really looks like.

In the UK, the Tory government seems determined to deliver on its promise to the greenest government ever. It's undertaking to cut its emissions by 50 per cent from 1990 levels by 2025 are the most ambitious for any developed country, and the only one so far to respond to the science.

It puts the current debate about how best to meet Australia’s bi-partisan target of a mere 5 per cent cut in some context. This is likely to be a small downpayment on the efforts that will be ultimately required. A 25 per cent cut, Australia’s undertaking if most of the world’s heavy polluters respond with serious targets – would require a doubling of our efforts.

It is rarely discussed, but the policies fashioned now need to have the flexibility to adapt to higher targets. And as Malcolm Turnbull so devastatingly concluded in an interview on ABC’s Lateline on Wednesday, the Opposition’s Direct Action policy would be incapable, or would cost way too much money, to be adapted to a deeper cut.

In effect, Turnbull admitted, it was a policy that was pandering to climate sceptics, because it could be easily terminated if the science was found to be bogus. Otherwise, the policy was pretty much useless. The UK will likely rely heavily on importing permits to meet its targets, and Australia will need that option too. It can only be done effectively with a market based system.

The proactive move by the UK may be motivated as much by concerns about energy security and energy costs as it is by climate change – as it is in Europe and north Asia, and within the Obama Administration – but the implications for Australian companies operating in an increasingly carbon-constrained world should not be forgotten.

A reminder came last week with the front page headline in the Weekend Australian that Qantas would have to lift airfares because of the imposts imposed by the EU emissions trading scheme on international airlines. It was labeled an “exclusive,” although this was a bit hard to understand because it had been announced by general press release in 2009, and the paper’s own aviation correspondent had written a long analysis about its impact on Qantas and air fares last year.

But it did serve to underline the fact that, even though there is no global binding treaty on reducing emissions, Australian companies are being forced to account for the emissions intensity of their products. Each one of the 100,000 companies that supply goods to Walmart now has to account for its carbon footprint and compete with others on that basis, as the world’s biggest retailer and the biggest private employer in the US seeks to cut 22 million tonnes of CO2e from its supply chains by 2015. This is occurring in supply chains across the world – a lax domestic policy does not protect local business from global realities. It is untenable to suggest that Australia has somehow hid from this reality.

The federal government released two important reports this week on the signals needed for the local electricity industry, which will have to shoulder much of the effort in reversing Australia’s spiraling greenhouse emissions. The reports came to a couple of sobering conclusions: the first was that cost effective investment would not occur without clear policy – and this included trajectories, an early transfer to a market-based scheme, and bi-partisan support. Without it, companies would simply invest in less risky technology that would be more expensive and contribute less to reducing emissions. The message could not have been clearer.

The reports, however, also underlined the fact that a low carbon price won’t do much at all to effect a transformation, even from coal to gas, let alone from fossil fuels to clean energy. Rising gas prices mean that the carbon price may need to be $40 a tonne to effect that first transition. The $40 may not need to be the spot price, but if it is going to be on a future cost curve, then its trajectory needs to be clear and bankable. If gas prices on the eastern states reach international parity, as a result of the construction of the large LNG export plants in Queensland, then that transition point may need to be $60/t.

Still, it was interesting to note how these reports were framed around the protection of current investments, with little mention of the possibilities of new technology and how to bring them to market.

Consider the difference in language in the UK and the US. The UK’s energy minister on Wednesday talked of putting Britain “at the cutting edge of the new global industrial transformation.” In the US, the Strategic Plan released this week by the Department of Energy defines four major themes – driving energy efficiency to reduce demand growth, demonstrating and deploying clean energy technologies, modernising the electric grid and discovering new solutions.

“The transition to a secure, low-carbon energy future requires nothing less than a new industrial revolution,” the plan says. “Economics and climate science demand a rapid transition, yet transformations of energy systems have historically taken decades. We must act aggressively … and greatly reduce the time from invention to deployment with significant market penetration. To guarantee US leadership in the transition to a sustainable energy future, we need to increasingly engage in all stages of energy innovation to optimally harvest the scientific, technological, and economic bounty for our future generations.”

It seems Australia has some way to travel.

Giles Parkinson
Source: Climate Spectator www.climatespectator.com.au

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