Government should reconsider climate approach Opinion Article

Feb 02, 2015 - 3:00pm

This article first appeared in RenewEconomy  on 2 February 2015.

John Connor   
CEO, The Climate Institute

It may have been desperation to get away from the darkness of The Knight. Maybe a need to urgently ring old bells of fear before an election. Or both. Last week put a sorry light on the Abbott Government’s approach to climate change.

It is confused. It remains neither conservative nor Liberal. It underplays risk, undermines market mechanisms and distorts policy analysis. It is time to reconsider.

Last Tuesday the Abbott Government quietly released “Climate Change in Australia”. This is a remarkable update of CSIRO and Bureau of Meteorology analysis of current and forecast climate impacts. This information-rich interactive website is primarily for natural resource management, but the implications are clear for the broader economy.

At least, unlike the Newman Government, the federal government hasn’t simply whited out references to climate change. But there was not a peep from the feds in support of the CSIRO/BoM research, let alone any idea of how they intend to take it forward.

No “our nation’s premier scientific agencies are warning us that the foundations of our economy and society are at risk”. No “it’s time we treat this seriously because it will reshape Australia over the coming decades”. No “for our national wellbeing we must manage the unavoidable while redoubling our efforts to avoid the unmanageable.” Nothing.

At least the data is out there.

This omission was compounded in a tired sledge on the performance of the carbon pricing mechanism. In an ongoing travesty of public policy analysis, the Environment Minister distorted the data on the carbon laws’ emissions impact, and ignored the investments in clean technologies, as well as the tax cuts and pension increases funded by carbon pricing revenue.

He claimed that the carbon price’s success was minimal because total national emissions fell by only 2.9 million tonnes over the two years to July 2014.

In fact, annual emissions from the electricity sector, the sector most directly affected by the carbon price, declined by 19 million tonnes over this period. This represents a steeper drop than in previous years. Some of it was cancelled out by rising emissions in sectors where the carbon price signal was minimal (transport, fugitive emissions) or absent (agriculture, deforestation).

The government itself reports the short-lived carbon price is responsible for reducing emissions by 40 million tonnes compared to business as usual. This figure is one of the foundations of the claim that it has become easier for Australia to reach its minimum 5 per cent emission reduction target.

A fact check of the Minister’s emission claims made the point that electricity emission reductions under the carbon price were mainly due to hydro generators running down their water supplies to take advantage of temporarily higher wholesale electricity prices. This effect overstates the short-term impact of the carbon price.

On the other hand, some companies that might have invested in emission reductions if the price was expected to stay in force may have held off instead (perhaps to wait to be paid to do so through the Emission Reduction Fund). This would understate the impact of the carbon price.

ClimateWorks Australia found that carbon price uncertainty affected investment decisions across a range of industries. This is very important to remember because the real value of the carbon price is its effect on medium- and longer-term decision-making.

It is important to remember that the fixed price was due to switch this year to a trading scheme with a national emission limit. The legislated default limit would have started at 12 million tonnes below the priced emissions of 2012-13 (and fallen another 12 million tonnes each year). This means that the short-term hydro effect would have contributed to deeper national emission reductions over following years. Electricity companies would have had to make up for the fall in hydro supply and the rise in coal emissions by finding reductions elsewhere in the economy and/or by accessing international permits. We estimated that just the default cap could have cut Australia’s net emissions by 15 per cent by 2020.

What about the impact on electricity prices? The Minister claimed electricity bills are 9 per cent lower than they would have been if the carbon laws had been kept.

In fact, the previous government projected a 9 per cent increase in power prices due to the carbon price, and supported middle- and low-income households accordingly with tax cuts and pension increases. Actual impacts were slightly lower: abolishing the carbon price lowered electricity prices by 6.9 per cent in NSW, 8.3 per cent in Qld and 7.7 per cent in Victoria. SA and Tasmania saw even lower falls. Budget papers showed the inflation impact was, as expected, less than one per cent.

So analysis from NATSEM and CSIRO – which found the vast majority of households would be better off under the reforms - are ignored.

With the mid-year deadline to submit its post-2020 climate targets to the international community fast approaching, the Government urgently needs to reconsider its position. The UK Government shows that Conservatives can support effective climate policies, while the NSW government shows thatbeing Liberalisn’t an obstacle either. The conservative OECD, IMF and World Bank talk openly of the need to decarbonise economies and hasten renewable energy’s growth. For a range of reasons the federal government would benefit from a more sensible, evidence-based approach to climate policy.

John Connor

John Connor was CEO of The Climate Institute from 2007 to March 2017. Whilst qualified as a lawyer, John has spent over twenty years working in a variety of policy and advocacy roles with organisations including World Vision, Make Poverty History, the Australian Conservation Foundation and the NSW Nature Conservation Council. Since joining The Climate Institute in 2007 John has been a leading analyst and commentator on the rollercoaster that has been Australia’s domestic and international carbon policy and overseen the Institute’s additional focus on institutional investors and climate risk. John has also worked on numerous government and business advisory panels.

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