GARNAUT CLIMATE CHANGE REVIEW - Brief on
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Brief on the
GARNAUT CLIMATE CHANGE REVIEW
DRAFT REPORT, JUNE 2008
11 July 2008
Contact: Andre Kaspura
Policy Analyst, International & National Policy
11 National Circuit Barton ACT 2600
Tel: 02 6270 6581 Fax: 02 6273 4200
Email: akaspura@engineersaustralia.org.au
www.engineersaustrGarnaut Climate Change Review: Draft Report, June 2008 ENGINEERS AUSTRALIA 11 July 2008 Page 1
Garnaut Climate Change Review: Draft Report, June 2008 1. Overview This is a wide ranging, large (536 pages) and extensive review of climate change issues from an Australian perspective. At this stage it is not comprehensive because it does not yet include modeling results for climate change mitigation policies. Joint modeling work between the Garnaut review and the Australian Treasury has been delayed and is expected to be released by the end of August 2008. The omission of this material leaves a yawning gap, especially since much of the material presented in the Draft is familiar to those who have closely followed the process. More generally, this is a thorough review of climate change issues which takes Australia further down the climate change mitigation track. It establishes a vital platform for a public information campaign and puts to bed many short term diversions. It pulls few punches in its discussion of climate impacts on Australia. A key conclusion is that inaction or continual delay amounts to a decision to accept the consequences. 2. Climate Change Science and Future Greenhouse Emissions The first five Chapters of the Review deal with climate change science, observations about the impact of climate change globally and identifying the principal costs of climate change and the benefits of mitigation and adaptation policies. Much of the material will be familiar and is reminiscent of the corresponding parts of the Stern Report, but set in an Australian institutional and political context. However, the material presented in Chapter 4 is path-breaking. There has been concern that the processes required for the IPCC to come to its resolutions are slow and cumbersome. This is not a criticism about the IPCC conclusions but about the fact that that they relate to data and research which have not adequately picked up the rapid growth of key developing countries or fuel substitution brought about by recent rapid increases in oil prices. IPCC projections of future greenhouse emissions are based on scenarios which describe possible future emissions pathways under varying “story-lines”. The IPCC scenarios produce emissions growth to 2030 ranging from 1.6% (B1 SRES scenario) per annum to 2.5% (A1F1 SRES scenario) per annum, with a median scenario of 2.0% per annum. The A1F1 scenario was the IPCC “extreme case” scenario. Following scientific advice that it was essential to update estimates of likely future emissions growth, Garnaut draws on his strong background on issues relating to China and other developing Asian countries to further develop estimates made by the International Energy Agency’s World Energy Outlook 2007. Critical to this work was the observation that global greenhouse emissions growth has accelerated from 1.1% per annum between 1990 and 2000, to 2.9% per annum between 2000 and 2005. Garnaut’s scenario suggests that annual emissions growth to 2030 will be 2.6% per annum. This puts future emissions growth higher than the IPCC extreme case. Garnaut draws a distinction between this estimate and the corresponding joint Garnaut Review/Australian Treasury estimate of emissions growth which will feature in the modeling work to be released in August. This is a “more conservative” estimate of emissions growth, but at 2.5% per annum still equals the IPCC extreme. In comparison the Stern Report used an estimate of 1.5%, but Stern released his work well before the IPCC Fourth Assessment in late 2007. ENGINEERS AUSTRALIA 11 July 2008 Page 2
Garnaut Climate Change Review: Draft Report, June 2008
3. Greenhouse Emissions and Climate Change in Australia
Chapters 6 to 10 deal with Australia’s greenhouse emissions and the impacts of climate change on
Australia. Much of this material draws on joint CSIRO/Bureau of Meteorology research released in
late 2007. The description follows a familiar theme that future conditions are characterized by
seasonal variations of increased amplitude about a trend of rising temperature (and not the
constant average characteristic of the past). The key difference in the Draft Garnaut Report is that,
unlike many political leaders, he feels no need to tip-toe around describing likely impacts. Some
key points include:
• By 2030 Australia will on average be 1 degree Celsius warmer (coastal 0.7 to 0.9 degrees
and inland 1.0 to 1.2 degrees) and by 2100 the 10 percentile outcome is 3 degrees for most
of the country and almost 5 degrees for an extensive area in the north-west of Australia.
The 90 percentile outcome shows increases exceeding 7 degrees in some areas. The
number of days over 35 degrees will increase (Melbourne now 9, in 2100 27; Sydney 3.3 to
14; Brisbane 1 to 21; Adelaide 17 to 44; Perth 27 to 72; Canberra 5 to 32; Darwin 9 to 312
and Hobart 1.4 to 3.4)
• By 2050, there will be a 49% reduction in irrigated agriculture in the Murray-Darling Basin
and by 2100 this increases to 92% and “depopulation will be underway”.
• By 2100 the Great Barrier Reef will be destroyed; even under a 550 ppm mitigation
scenario, the one most favoured in international discussions, the Reef “as we know it” will
disappear. Similarly, by 2100 all snow based tourism will have disappeared.
• Garnaut differentiates between measurable monetary effects, non-measurable monetary
effects and non-monetary effects of unmitigated climate change. In this Draft Report only
estimates of the first of these are provided. These show that by 2050 Australia’s GDP will
be 2% smaller as a result of measurable climate change effects alone. By 2100 the
Australian economy would be 4.8% smaller and in 2005-06 prices equates to an annual
loss of $425 billion.
• Damage to infrastructure is a major component of these losses. By 2050 Australia’s GDP
will be 1.23% smaller through infrastructure damage alone. By 2100 Australian GDP would
be 2.42% smaller. While not reported simple proportions suggests this to be an annual loss
of $212 billion.
Garnaut specifically points out that Australia’s problem is the emissions intensity of energy
production (98% higher than the OECD and 74% higher than the global average) rather than
Australia’s industrial structure.
These Chapters also describe the mitigation scenarios which will be pursued in later modeling.
These are shaped by the terms of reference and the Garnaut/Treasury estimates of emissions
growth.
4. Policy Framework Proposed
Garnaut proposes a market based policy framework for climate mitigation policy. The centre-piece
would be an emissions trading scheme, complemented by other policies to address specific market
failures and to compensate groups of consumers and businesses which are particularly
disadvantaged. When discussing the recognition of market failures and the policy principles which
should be applied to address them, Garnaut adheres strictly to conservative economics. In many
ENGINEERS AUSTRALIA 11 July 2008 Page 3Garnaut Climate Change Review: Draft Report, June 2008 respects this is a sound basis for policy advice because the pragmatic requirements of government invariable lead to some dilution. There are some weaknesses in the analysis, however. For example, incumbency advantages for existing technologies are over-looked. 5. International Character of the Problem Garnaut is unequivocal about the need for an international agreement and that Australian unilateral action would not solve our predicament. He is forthright in arguing that Australia has more to lose than other countries and must take a leadership role to ensure an agreement is reached. Chapters 11 to 13 cover the present status of international negotiations, developments in other countries and propose principles for allocating emission entitlements across countries taking into account their present stage of economic development. Much of the international political debate has been conducted in terms of a specific reduction in emissions by some future date; for example a 60% reduction in present emissions by 2050. Garnaut sees this as an obstacle to progress because it appears to present a barrier to the legitimate aspirations of developing nations. Garnaut’s alternative divides countries into three groups; group 1 is the developed countries which would have binding emission reduction commitments (three-quarters of global emissions), group 2 would be most developing countries and would be expected to sign up to non-binding targets and group 3 would be the least developed countries characterized by conflict and/or who do not have the preconditions for a national approach. China is seen as part of the first group and in recognition of its developing status and capacity to operate as a blocking force, as now is the case with the USA, would be treated as a special case in negotiations. The principle for allocating emissions reductions to countries is a per capita emissions approach based on the emissions level consistent with atmospheric stabilization. Over time countries would contract (or expand in some developing cases) per capita emissions until the stabilization objective is reached. Garnaut argues that this proposal deals with equity issues that have bedeviled negotiations, is consistent with the reduction target approach for most countries and is administratively feasible because as climate stabilization relates to the accumulation of emissions, emission budgets are needed whatever method is used to express targets. Garnaut sees international technology transfer as crucial and proposes an International Low Emissions Technology Commitment to fund mitigation costs in developing countries. The Commitment would be a levy on GDP up to a threshold (the World Bank high income threshold of $US11,000) and estimates that in 2007 Australia’s share under his formulation would be $2.8 billion or 0.26% of GDP. 6. Emissions Trading Chapters 14 and 15 deal with emissions trading. The guiding principles and design rules proposed in the Emissions Trading Discussion Paper issued earlier this year were reiterated unchanged in the Draft Report. They were expressed in broad terms, evidently in the expectation that operational principles and rules will be spelt out in the forthcoming Green Paper by the Federal Government. Some key issues include: ENGINEERS AUSTRALIA 11 July 2008 Page 4
Garnaut Climate Change Review: Draft Report, June 2008
• An emissions permit will enable the holder to emit one tonne of carbon dioxide equivalent
once. The number of permits on issue would be determined by the mitigation trajectory
selected by Government and each trajectory would be fixed in a rolling 5 years format
(each year the forward 5 years would be extended by one year). Supported by Engineers
Australia in its Submission.
• All greenhouse gases included and all sectors of the economy, except agriculture, waste
and forestry, to be included from trading commencement and these sectors to be included
as soon as technical measurement problems are resolved. Broadly supported by Engineers
Australia.
• Sectors not included would be eligible to create emissions offsets conditional to satisfying
measurement and additionality standards. Supported by Engineers Australia. This issue
was a change from the Discussion Paper.
• All permits to be auctioned and permit revenue to be used to fund research, development,
commercialization and deployment programs and to compensate consumers, particularly
low income consumers and trade exposed industries. Supported by Engineers Australia.
• Once the policy framework and emissions targets have been set by Government,
governance of emissions trading would be handed to an independent carbon regulator
operating similarly to the Reserve Bank to avoid political interference and to ensure a level
playing field. Supported by Engineers Australia.
• Emissions trading to start in 2010 using the Kyoto targets and with emissions permits
issued at a fixed price. Because of the nature of Australia’s Kyoto target, the two years until
2012 would in effect be a transition period to enable all new institutions and the business
sector to get up to speed. European experience demonstrates the need for this. Engineers
Australia pressed for an early start to emissions trading but expressed no views on the
stringency of initial targets.
• Trade exposed energy intensive industries would be assisted on a case by case basis.
Limited (if any) assistance necessary in the first two years. Garnaut argues for urgent
pursuit of global sectoral agreements in the absence of a general global agreement. The
assistance envisaged to be based on what is needed to maintain Australian production in
light of price effects created by movement in Australian carbon prices and not assistance to
insulate businesses from general movements in global commodity prices.
Engineers Australia in its Submission drew particular attention to the interaction between
emissions trading and the Mandatory Renewable Energy Target (MRET) and energy efficiency
programs, both of which were strongly supported by Engineers Australia. In both cases an issue
raised by EA was that emissions reduced by MRET and energy efficiency mean that fewer permits
should be issued into the permit market to ensure that carbon prices achieve the level they would
in the absence of these policies.
• In the case of MRET, Engineers Australia argued that the incumbency advantages of
existing technologies warranted assistance and that MRET meant that fewer permits
should be issued to ensure that emissions prices were set at the level they would achieve
in the absence of MRET. Garnaut approach was to point out that MRET would lead to
higher emissions reduction costs than in an unconstrained market, but once carbon prices
exceed $40 tonne the influence of MRET would become dominated by emissions trading
and could be phased out. The process of rolling 5 year emissions trajectories can
accommodate the question of how many permits should be issued. There was an
implication that it would not be long before carbon prices were close to or above $40.
ENGINEERS AUSTRALIA 11 July 2008 Page 5Garnaut Climate Change Review: Draft Report, June 2008
• Garnaut recognised the non-monetary barriers impeding take-up of energy efficiency but
there was no discussion of the interaction with emissions trading. The Draft Report implied
there was more to come in the modeling work. Similarly, the potential for conflicts between
energy suppliers (who gain by selling more) and energy efficiency (reductions in demand
for energy while maintaining energy services) was not addressed.
7. Complementary Policies
Garnaut proposes an aggressive research, development and innovation response to the demand
for low or zero emissions technologies necessary for climate mitigation policies. He proposes a
large increase in funds for these programs financed from the revenue derived from permit
auctions, by reallocating existing funding programs and through industry levies. This strong
supported is based on a recognition that market failures mean that without government support
research, development and commercialization of new technologies would be sub-optimal.
Garnaut identifies positive externalities for Australia as a whole generated by the
commercialization of new technologies and criticizes existing programs because although the
provide incentives to “first movers” they do not adequately target externalities (expansion of
industry’s knowledge base, initiation of new skills in the labour market, development of new legal
and regulatory arrangements, development of support industries and building social acceptance).
Garnaut proposes much greater emphasis on technology-neutral matched funding programs to
lower the costs of being a first mover.
Garnaut expresses concern that electricity network infrastructure arrangements present market
failures which may impede the future structural changes necessary in electricity generation both in
respect of which technologies are used and their location throughout Australia. His proposal is that
the role of the National Transmission Planner be expanded beyond what is envisaged in current
papers under discussion by energy ministers to incorporate a forward looking (at least 20 years
ahead) economic approach which considers projects on their future potential as well as those that
are currently economic. Garnaut also proposes that as well as developing investment options, the
National Transmission Planner, has the capacity to provide financial incentives to overcome first
mover problems and that investment is socially optimal and not merely related to the needs of
existing players. Garnaut envisages an extension of the Building Australia Fund for this purpose.
Garnaut is confident that existing private sector arrangements for natural gas transmission are
adequate. However, he sees potential market failures in providing pipelines for transport of carbon
dioxide to sequestration sites and advocates a role for government in the early stages of the
development of this technology to ensure there are no delays in deployment.
Market failures and information barriers to the uptake of energy efficiency options are recognised
and extensively discussed in Chapter 18 of the Draft Report. Much of the discussion is esoteric
economics jargon, even to an economist. All important issues of concern to Engineers Australia
are accepted but specific proposals for the future are deferred until the final report.
Chapter 19 is devoted to a discussion of the equity and distributional issues arising from emissions
trading. Garnaut sees the direct price effects of emissions trading as heavily regressive on the
lower half of Australia’s income distribution. He proposes that approximately half the revenue from
ENGINEERS AUSTRALIA 11 July 2008 Page 6Garnaut Climate Change Review: Draft Report, June 2008 permit auctions be allocated to correct these impacts. He sees a heavy emphasis on programs to assist the uptake of energy efficiency especially in early years. The final Chapter attempts to chart a pathway for the future and proposes a three phase approach. This Chapter is somewhat disappointing. The issues covered have been covered before and very little new material is introduced. The main contribution of the Chapter is to emphasize the criticality of coal in Australia’s future. There is a thinly veiled warning about dire regional consequences if low emissions coal technologies cannot be deployed, either in Australia or elsewhere in the world. 8. What Next? Submissions to the Garnaut Review are closed. The joint Garnaut Review/Treasury modeling is to be released by the end of August and the final Garnaut Report is due by 30 September. Before the end of July the Federal Government is expected to release a Green Paper outlining its proposals for an Australian Emissions Trading Scheme. EA plans to prepare a Submission to respond to the Green Paper. As yet there is no information as to the time available for this. The Federal Government is expected to incorporate its response to the Garnaut Report and submissions on the Green Paper into a White Paper to be released late in 2008. ENGINEERS AUSTRALIA 11 July 2008 Page 7
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