Jon Stanford. Paris Agreement on Climate Change: Implications for Australia

Despite a generally positive reception to the Paris accord on climate change, the ideologues on both sides of the debate regard it as a failure. For the sceptics, the agreement that developing countries (which played a negligible role in causing the problem) can continue to increase emissions is so inequitable that it undermines the whole deal. For the more extreme green groups, given their view that renewables are ready to take over from fossil fuels now, the ambition is not nearly high enough and much more should have been done.

But for the non-ideological majority, the Paris agreement is significantly better than could have been expected even twelve months ago. The nations of the world, including the major emitters, have committed to taking action over time to meet a 2 degree target and even, potentially, a 1.5 degree target. It was always a dream to suppose that a grand global treaty could be achieved, with ambitious, legally binding commitments to cut emissions, sanctions for the underperformers and all achieved by recourse to a global emissions trading scheme. Post Kyoto, the US, China and India, all major emitters, signalled that they would not ratify any legally binding treaty that would commit them to reduce greenhouse gas emissions.

The Paris agreement, supported as it is by the major emitters and with each nation’s efforts subject to regular peer review, is as good as it was ever going to get and better than most observers expected. With the review mechanism and the widespread recognition that greater emissions reductions will be required in the future, countries are unlikely to take their commitments lightly.

To be sure, the current commitments, even if they were met, would not stabilise the global temperature increase at 2, let alone 1.5, degrees Celsius. Taking account of likely recalcitrants, we are now looking at perhaps 3 degrees. But that’s not the point. Dealing with climate change was always going to be a very long game. Even if nations were willing to write-off the current capital stock in the emitting sectors, the inescapable fact is that the world does not yet possess the necessary technologies at an acceptable cost to be able to get rid of fossil fuels. Close to home, the current problems with the South Australian electricity system, with its over-reliance on wind and consequent spikes in power prices, provide some evidence of this.

That is why people such as Bjorn Lomborg suggest that the clean technology fund established at the Paris conference by Bill Gates is more important than the agreement itself. Committing greater resources to R&D and innovation in the area of clean energy is a sine qua non for an effective response to climate change in the medium and longer term. Apart from hydro, nuclear energy is currently the only available technology for the provision of zero emissions base load power at reasonable cost (although outside China the costs remain excessive). If solar is going to provide base load power in any quantity in the future, not only must the problem of storage be solved, but the physical footprint of solar thermal technologies must also be drastically reduced. All this, of course, must also be achieved at an acceptable cost.

What are the implications of the Paris agreement for Australia? First of all, it is quite clear that early reports of the death of coal have been greatly exaggerated although, in the next few years, thermal coal at least may enter a slow but terminal decline. On the one hand we have yet to find a substitute for steel in many of its applications and demand for coking coal will not go away any time soon. On the other hand, developing countries, particularly India, will continue to rely on thermal coal for the foreseeable future to provide low cost electricity to millions of people emerging from poverty.

The main issues, however, are Australia’s emissions targets and the policy measures that are required to achieve them. Although our relatively high population growth needs to be taken into account, Australia’s current emissions targets are not particularly ambitious nor indeed, adequate in the context of stabilising at 2 degrees or less. There is a strong case now for raising Australia’s 2020 target from 5 to at least 10 per cent, which is achievable. The review of targets scheduled for 2017 could well look to increasing the 26-28 per cent target for 2030. Although our 2030 target is comparable to those of Canada and the US, it is now manifestly inadequate in the light of the higher global ambition since enshrined in the Paris agreement.

Finally, Australia has time to design a comprehensive policy approach to reducing emissions significantly post 2020. While most economists always will prefer market-driven mechanisms like a carbon tax and emissions trading, we must recognise that these have become politicised, perhaps fatally, and examine some second-best options such as regulation. The Grattan Institute is currently working on this, with a detailed report to be released early in 2016.[1]

A thorough review of these issues by the Productivity Commission could make a very useful contribution to the government’s consideration of policy options. Yet, fearing that such a review will merely lead to a clarion call for an ETS, the government may be reluctant to establish a Productivity Commission inquiry. This would be unfortunate, and the terms of reference could be crafted so as to address the government’s sensitivities. This could include a requirement to evaluate all major potential policy instruments and how they would impact on the different emitting sectors of the economy, on user industries and on the community in general.

Jon Stanford is a Director of Insight Economics and has undertaken numerous assignments on climate change for government and industry. While he was at the Department of Prime Minister and Cabinet in the 1990s, he was Chair of the Interdepartmental Committee on Greenhouse.

 

 

 

[1] Tony Wood, David Blowers and Greg Moran (2015), “Post Paris: Australia’s climate policy options”, Grattan Institute Working Paper, December.

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