The latest round of critiques of the Garnaut report have emerged, this time from some of Australia’s best-known climate scientists. They all argue that Garnaut should be telling the Australian government to push for a more aggressive global deal, rather than passively accepting a weak deal. While it’s hard to be sure in the context of a short media report, they would also seem supportive of the idea of Australia unilaterally going further even if there is only a weak deal.
Given that, I thought I’d look at one possible scenario; where the 550ppm global deal is signed, but Australia unilaterally goes for a target proportional with its responsibilities under a 450ppm deal. How much would that cost Australia?
Surprisingly, if you make some assumptions, it’s not that hard to calculate a rough figure. As noted previously, there is only a rather tangential connection between the targets set for Australia, and what the levels of our physical domestic emissions will be. The “targets” essentially tell Australia, and other countries around the world how many permits they are entitled to issue. As those permits will be traded internationally, they will rapidly converge to a single, global carbon price. If Australia’s carbon price rises above the world average, we buy some permits from overseas. If it falls below the world price, foreigners will buy them from us.
So, to go for the “450 target”, the Australian government would issue fewer permits each year. That would leave fewer permits available globally, and therefore global emissions will be lower. It will also push the price of permits higher than it would be, but not much – Australia would only account for around 1.5% of the permits issued, so cutting our permit allocation by 15% or so would only reduce the global allocation by 0.1% or so; Ill assume for the purposes of this exercise that such a small cut wouldn’t affect the global price much. The net result of issuing that smaller allocation will therefore do very little to affect what happens on the ground in Australia. Instead, one of two things would happen: that Australia sells fewer surplus permits to foreigners, or we have to buy more on the global market. The net loss would be the number of permits, multiplied by the global permit price.
Firing up the handy-dandy spreadsheet, such a change would mean that by 2020 we would be issuing around about 83,000,000 less permits than we otherwise would. Garnaut estimates that the price of a permit (in 2005 Australian dollars), will be $34.50. The net loss to Australia? Around $2.9 billion annually. Say $3 billion, to take into account the effect on the carbon price. That’s in the context of an Australian economy with an annual GDP that already exceeds $1000 billion, and will probably be around $1400 billion in 2020.
If that’s what it takes to convince the rest of the world we’re serious about wanting a better deal, it’s very, very cheap at the price.
I agree that it would be very cheap at the price but I can’t see the politics working. Because we’d be paying the $2.9B directly and transparently to “foreigners”, and mostly multinational corporations at that.
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I can already write the lines for the opposition – “putting our children deeper into debt by adding to our current account deficit”, or “that’s enough to give every pensioner a $1000 bonus every year”.
Robert, while you’re right that $3 billion out of $1400 billion is a pittance a government could probably still do a lot with that revenue.
A few examples off the top of my head might be a couple of gigawatts of nuclear, geothermal or clean coal energy? On the other hand, a government could spend the money giving maybe $2-300 per Aussie household to help increase energy efficiency. Or maybe we could plant $3 billion worth of trees every year? :p
But a bit more seriously… what if the situation were reversed and the world was buying permits from Australia instead? Obviously that would be a much more politically palatable solution to Aussie voters possibly even to skeptics.
dd: while it might be transparent to you, and even possibly to me on a good day, I’m doubtful it will be transparent to the commentariat.
None of them seem to have figured out yet that in the world Garnaut envisiages, the carbon price – and thus the fate of, for instance, the Latrobe Valley – would have essentially nothing to do with Australia’s specific emissions target.
Chumpai: the trouble is that under a global emissions trading system, such actions won’t actually end up with a net reduction in carbon emissions unless it’s accompanied by a reduction in permit issuance.
Get the thing across the starting line first.
Its great if we take a lead and develop the systems needed to bring down carbon emissions. This will encourage other nations to do the same: if they can easily adopt or copy already proven systems, and if they can see how other countries have lowered emissions without screwing their economy. $3 billion is not too much to begin down the road.
“We should judge our climate-change policies by this simple test: Will we leave the Great Barrier Reef for our children? At present the answer is “no”. We are all responsible for changing the answer to “yes”.
The current science indicates our target should be stabilising atmospheric greenhouse gases at 350 parts per million, but Garnaut does not even mention this.
We do not know whether we can stabilise atmospheric greenhouse gases at 350, 450 or 550ppm, but think of it this way: If we wanted to build a bridge across a 1km-wide river, we would not ask our engineers and scientists to build us a bridge that was 500m long. We should apply the same logic to climate-change policy and set targets that produce the results we want to achieve.” http://www.news.com.au/story/0,23599,24313192-5007146,00.html
Robert, I was under the impression that under the model you suggested Australia would have 1.5% of permits, so if we radically cut greenhouse gasses wouldn’t we have surplus permits to sell to the rest of the world?
Chumpai: Yes we would.
However, if we sell them, that’s extra permits that others can use to emit carbon that they wouldn’t otherwise have been able to.
Prof Karoli wants us to do for a much tighter 400 -450ppm. That’s good enough for me.
Robert @7 – good point
Postglobalism,
Love Chris McGrath’s bridge analogy. Parts per million of CO2 tends to make my friends and colleagues eyes glaze over, so the bridge with no purpose works much better for me. Thanks for the link.
Wouldn’t the cost include the loss of GDP from the end-products that those emissions would have produced, as well as the loss of permit income (which you’ve accounted for)?
I’m not big on long-term stabilisation targets for a number of reasons. I do believe that we (globally) need to get to the point of overshoot asap. How low one can go from there is a combination of tech, will and what the Earth System will permit. Knowledge of past climates is not good enough to set a target – we have to get as low as we can go and see if that’s enough.
The initial price for carbon (A$20) is way below the level of damage it will cause, so we need a better handle on the benefits of avoided damages, even if it does not link directly to the trading price.
I don’t believe in designing for failure. In complex systems where agency feeds into the mix, it increases the likelihood that failure will occur.
Roger: so what’s your plan to get global agreement on that concept, as much as I’d like to see it happen?
Meanwhile, QLD’S premier keeps showing that…er..backbone?! Just the backbone we need in times like these:
http://www.brisbanetimes.com.au/news/queensland/bligh-goes-in-to-bat-for-miners/2008/09/10/1220857596826.html
Robert,
we need to explore whether the risks of moving hard and fast outweigh the risks of taking a slower path. This is counter to most people’s attitude towards risk so we’re mired in psychology as much as anything else. But I don’t trust gut feel in this case – where gut feel works, most of the information is in people’s heads and their emotions make the judgment. This is not the case here. We need more information, and quickly. The last big decision that went on gut feel got us into Iraq, and that time the information was there (about the likelihood of few or no WMDs).
We’ve never done a global risk management plan before and our understanding of how that should be done is very immature. One area where we need better information is on the benefits of avoided damages. They need to be better articulated between 550 and 450 ppm and lower paths. Another is how carbon can be reduced rapidly (up to 5% pa in high emtting countries) without the economy going into rapid decline.
Learning by doing. People will act if there are examples that “prove” the case. Maybe brave players are needed to test this on the small scale. Could we get 100,000 people in Australia to sign onto <1 tonne CO2 pa, achieved any which way they can?
No easy answers.
No easy answers, Roger, but also a total absence of leadership from political leaders in this country and now from Garnaut. Rudd will have to answer to His God, but who will save the planet for those of us without his complaisant faith?