Feeling the heat in Australia

The defeat of climate-change legislation has dealt a blow to the green credentials of the world’s driest inhabited continent. Erwin Jackson examines the nation’s prospects for building a low-carbon economy.

Recent news of an Australian firm’s US$60 billion (410 billion yuan) deal to supply coal to Chinese power stations made headlines around the world. Coming on the back of the Australian parliament’s rejection of the government’s emission-trading bill, the move has led some to question the country’s resolve in tackling climate change. Outsiders might well be forgiven for feeling confused about Australia’s climate policies – and it is worth taking a moment to examine the current state of play.

Most of Australia’s coal exports are destined for industrialised OECD countries, in particular Japan and South Korea, with around 9% going to China. Both Japan and South Korea are moving towards carbon pricing, which will have an impact on these markets. As a possible sign of things to come, India has also put forward a policy to levy coal imports to help fund clean-energy development.

However, as counter-intuitive as it may seem, global assessments by the International Energy Agency (IEA) and others see Australian coal exports increasing for a least two decades, even in the context of global action to reduce emissions. Modelling of the impact of global climate-change action on the country’s economy from the Australian Treasury concluded that “coal [and some other emission intensive trade exposed industries] are likely to maintain or improve their competitiveness and share of global trade. These sectors are either less emission intensive or energy intensive than comparable sectors in competitor countries.”

This is not to say that Australia does not have a responsibility to address emissions from its coal trade. It does. But the most practical way of doing this would be to focus on early deployment of carbon capture and storage (CCS) technologies and ensure best practice emission-reduction policies in the domestic resources sector. Along with large-scale solar and geothermal renewable technologies, a focus on emerging CCS capabilities draws on national strengths and is an appropriate contribution to global research, development and demonstration pathways for low-emission technology.

However, beyond the impact of global action on Australia’s coal-export industry, a more fundamental debate is missing in Australia – and key questions remain to be answered. Does the nation remain Asia’s quarry? Does it join global efforts to drive the clean-energy economy? And how does it remain competitive in a world that significantly reduces its emissions?

Recent research commissioned by my Sydney-based think tank, The Climate Institute, suggests that China is improving its carbon productivity and carbon competitiveness at a rate more consistent with avoiding the worst impacts of climate change than that of Australia, the United States and some other developed economies. Central to this analysis is the concept of “low-carbon competitiveness”: the ability of a country to produce economic prosperity at the same time as reducing greenhouse-gas emissions. In a world with carbon constraints, countries that can limit carbon pollution per unit of GDP will generally be more competitive than others.

As Nicholas Stern wrote in his preface to the report, “A global economic recovery will present an ideal opportunity for countries to shift towards low-carbon growth. Countries who don’t seize this opportunity will undermine their future competitiveness and prosperity.” This view is reinforced by a considerable quantity of economic modelling in Australia showing that the countries that act first will gain a comparative advantage in the emerging clean-energy economy. These projections show that countries that defer action face higher long-term costs as global investment is redirected to low-carbon countries.

While the importance of “carbon competitiveness” to future prosperity is yet to soak into the psyche of many Australian policymakers, in the past 12 months there has been a broadening of the definition of national interest. The current government has, for example, accepted the conclusion from professor Ross Garnaut, a former Australian ambassador to China, that it would be in Australia’s interests to stabilise global greenhouse-gas concentrations and equivalents at 450 parts per million (ppm) or lower. This was driven by the recognition that Australia is the advanced economy most vulnerable to the impacts of climate change and caused Australia to play a more positive role in international talks in the lead up to Copenhagen.

It also contributed to Australia’s decision last May to increase its emissions-reduction ambition to a cut of “up to” 25% on 2000 levels by 2020. The 25% figure was recommended by both Garnaut and The Climate Institute as a fair contribution to the global objective of limiting a rise in temperatures to two degrees Celsius above pre-industrial levels.

Despite all this, amid high political drama last December, the federal Senate voted down the government’s proposed emission trading bill – the Carbon Pollution Reduction Scheme (CPRS) – for the second time. The bill was far from perfect but it would have been a concrete step towards fulfilling Australia’s national interests. It would have allowed emissions targets to be met at the same time as sending a credible price signal into the economy to begin the shift towards low-carbon competitiveness.

The government has since reintroduced the legislation and successfully passed it through the lower house of parliament. But the bill will be defeated in the Senate again, as the government lacks sufficient numbers in the upper house to pass it unilaterally. It either needs support from the opposition Coalition party or from the Green and independent senators, all of whom oppose the legislation in its current form.

The voting down of the CPRS has had ramifications for Australian diplomacy. Australia is a strong supporter of the Copenhagen Accord. However, when it made its accord submission to the United Nations in January, the government placed provisos on higher emissions targets, saying it was not prepared to categorically increase its 5% reduction goal until certain conditions were met, including a commitment to “verifiable” domestic actions from China. By doing this, Australia missed a significant opportunity to advance the accord by signalling its confidence in the agreement as a foundation for global action.

A wealth of independent analysis demonstrates that, based on the actions of other countries and the previous conditions set by the government for moving beyond the 5% target, Australia should commit to reducing emissions by at least 15% on 2000 levels by 2020. Forthcoming work from the Crawford School of Economics, at Australian National University, suggests that meeting this more convincing (though still insufficient) target, would involve Australia reducing emissions on a similar scale to that implied by pledges from China, Indonesia, Japan and South Africa.

Australia’s reluctance to put a more acceptable target on the table can, in part, be explained by the position of the federal opposition party – the Coalition – and its resistance to the CPRS. Under the leadership of former prime minister John Howard, the Coalition moved to support the introduction of carbon pricing in Australia. Even today, it continues to back the government’s proposed emission-reduction targets. But under new leadership, which emerged from a major split in the party last November, the Coalition has abandoned support for emissions trading and effective carbon pricing for the time being.

The Coalition’s latest policy proposal is to free up US$2.9 billion (19.8 billion yuan) over four years to support the abatement of 140 million tonnes of carbon dioxide per annum by 2020. This relies largely on investments in soil carbon sequestration, which is untested and non-compliant with the rules of the Kyoto Protocol. The plan is largely a voluntary mechanism, without a price signal to reduce emissions and, as such, offering relatively little incentive for investment in low-carbon technology. A large fraction of the low-cost abatement options in the economy would likely remain untapped. As The Climate Institute and other bodies have pointed out, the opposition party’s scheme is also unable to guarantee a specific level of emissions reduction. Overall, the estimates to date suggest that the Coalition’s policy would see Australia’s emissions increase by around 10% by 2020.

So what next for Australian climate policy? Ultimately, Australia’s posture internationally and ambition domestically depends on a credible carbon price. The recently adopted target to get 20% of the country’s electricity from renewable sources by 2020 will unlock billions of dollars in investment and create thousands of clean-energy jobs. However, this target alone would only achieve around one twelfth of the total emission cuts needed to hit the 25% reduction target. It would also fail to drive more fundamental restructuring of the economy from high to low carbon. Without the CPRS, but including the new renewables target, national emissions are projected to be about 20% above 2000 levels by 2020.

Given Australia is an energy-intensive economy with relatively fast-growing emissions, achieving any of its proposed targets would be significant. However, only the 25% cut could be described as a credible contribution to the effort to avoid a rise in global temperatures of more than two degrees Celsius. Without a carbon price, meeting that goal is likely to be very difficult and much more costly. This, in part, explains the government’s reluctance to move forward with meaningful targets.

The real test for the government is whether or not they have the courage to call an unusual “double dissolution” election, a device to end a deadlock between the lower and upper houses of parliament by allowing voters to decide through a general election. Such a move would be followed by a joint sitting of both houses of parliament, where the government – should it win – would have the numbers to force through a raft of legislation, including its emissions-trading scheme.

The government is coming to the end of its term and has to go to the polls this year or early next year. It would take electoral nerve to do it early, but this may be the only way to drive vaguely credible climate policy through parliament in their next term. This is a test of the government’s climate-change resolve and its ability to ensure Australia plays its fair part in global efforts to reduce emissions.

Erwin Jackson is deputy chief executive of the
Climate Institute, an Australian think tank focussed on climate-change policy.

Homepage photo by OZinOH shows a coal loader near Newcastle, Australia.