Australian report on addressing climate change

04 July 2008

A draft of a landmark report by leading economist Ross Garnaut was released today. It provides detailed analysis of how climate change will affect the Australian economy and what should be done to counter it. It rejects calls for delay.

Kevin Rudd's Labor government, which commissioned the report while in opposition, has already resolved to introduce an emissions trading scheme (ETS) by 2010 and will release a paper detailing the path towards this later this month.

The 550-page report assesses the proposed ETS promised by both the outgoing and incoming governments, which will allow emitters who cannot meet greenhouse gas reduction targets to buy carbon emission permits. However, it does not contain specific targets for emission cuts - these must await treasury modelling, to be released in a Supplementary Draft Report in August, which will inform Garnaut's final report in September.

A contentious aspect of this report is that it recommends against compensating coal-fired power stations, which will be heavily impacted by the government's new ETS. Garnaut, of the Australian National University, is not convinced that fossil fuel electricity generators should be compensated for the diminished value of their assets under any new carbon regime. Other emissions-intensive industries, such as aluminium smelting, are also expected to be hit hard by the ETS.

A feature of the report is that it recommends that the ETS cover as much of the economy as possible, including the transport sector. Electricity is a major source of Australian carbon emissions, comprising 34% of the total of some 600 million tonnes per year. With 80% of the electricity being from coal, there is much scope for reducing this, though nuclear power is currently not under consideration.

A week earlier, however, two senior Labor Party figures said that it made no sense to leave nuclear power off the agenda. The head of the largest blue-collar union and the former New South Wales premier combined to show up the federal Labor government's ideological agenda in ruling out the main technology Australia will need in its power sector.

The report suggests that the price of carbon should be fixed for a two-year introductory period, until 2012, before a true carbon market kicks in. This will be a step on the way to trading arrangements and is designed to avoid undue volatility.

A likely outcome is that the country's Mandatory Renewable Energy Target (MRET) is increased from 10% to 20% of electricity, while any emissions trading is soft pedalled. However, MRET has been shown as a very inefficient way of reducing CO2 emissions beyond present levels (which include 6.6% hydro). The report does not examine the relationship between an expanded MRET and the ETS.

Michael Angwin, executive director of the Australian Uranium Association (AUA), welcomed Garnaut's acknowledgement that the country will be "best served by continuing to export its uranium." He said, "Ours is an export industry. As such, we will continue to urge removal of those artificial domestic political constraints that prevent the industry reaching its export potential, and therefore its potential to deliver a low-carbon energy source to electricity-hungry nations around the world."


Research conducted recently for the AUA suggests that in a moderate climate change abatement scenario, Australian uranium exports, increased to their full potential, could help avoid between some 3600 million tonnes and 4500 million tonnes of CO2 by 2030.


A separate report by another professor at the Australian National University, Warwick McKibben, addresses the question of Australia's links to international trading of carbon permits under some Kyoto-based system. His report says that Australia would suffer significantly greater economic losses than other countries under a Kyoto-based system of international targets and timetables because of the detrimental impact on carbon-intense exports such as aluminium. His research claims the losses would come from Australia's big trading partners cutting imports, regardless of the domestic price of greenhouse permits. He suggests that Australia should run its own ETS and link internationally through an agreed carbon tax.