Arguments
The Climate Change Authority report: a dissenting view
Posted on 15 September 2016 by Guest Author
Clive Hamilton, Professor of Public Ethics, Centre For Applied Philosophy & Public Ethics (CAPPE), Charles Sturt University and David Karoly, Professor of Atmospheric Science, University of Melbourne
This article was originally published on The Conversation. Read the original article.
As Members of the Climate Change Authority who have participated fully in the Special Review of Australia’s Climate Goals and Policies, we reached the conclusion, after much consideration, that we could not in good conscience lend our names to its report, published last week.
Rather than resign from the Authority we decided to write a minority report. Here we present edited extracts from our report, which is released today.
The basis of our disagreement with the majority report is its failure to recognise the importance of the constraint put on all future emissions-reduction targets and policies by Australia’s carbon budget. The carbon budget is the total emissions that Australia can release between now and 2050 while still contributing its fair share in holding the global temperature rise to less than 2? – a key goal of the Paris climate agreement negotiated last December.
The majority report should, but does not, address the relationship between its recommendations and Australia’s carbon budget, consistent with a fair and equitable national contribution to the global carbon budget.
This is all the more regrettable because the requirement to do so is embedded in the Special Review’s terms of reference and was analysed in the First Report of the Special Review released in April 2015 (before the appointment of six new Members to the Authority in October 2015).
The budget constraint
In 2014 the Authority recommended an Australian emissions budget of 10.1 billion tonnes of greenhouse gases for the period 2013-2050. On this basis, it advised that Australia should set an emissions-reduction trajectory for 2030 in the range of 45-65% below 2005 levels. Contrast that with the current 26-28% target set by the Abbott government.
Against the constraints of the carbon budget, the majority report accepts – explicitly in some places, implicitly in others – the government’s current target.
But accepting this less ambitious target for 2030 is consistent neither with the Authority’s own advice to government, nor with Australia’s commitment under the Paris Agreement to play its role in holding warming below 2?.
The graph below shows the carbon budget for Australia put forward by the Climate Change Authority in its earlier report. (The budget is the area under the curve.)
The embedded pie chart shows the sliver of emissions that would remain to cover the 20-year period after 2030 if there is no change from the 26-28% target. More than 90% of Australia’s carbon budget to 2050 would be used up by 2030. Australia’s emissions would have to decline precipitously and reach net zero by 2035.
Keeping Australia’s current emissions targets in place would leave a huge amount of work to do after 2030. Author provided
Such a dramatic reduction would be impossible to achieve. So the current target of 26-28% lacks credibility because it is wholly inconsistent with Australia’s international obligations. If pursued it is likely to lead to a policy crisis within a decade or less.
Political independence
In our view, the failure of the majority report to make this clear to government and the public contravenes the Authority’s legislated obligation to deliver independent advice and to recommend measures that are “environmentally effective” and based on science.
We believe that the effect of the majority report will be to sanction further delay and a slow pace of action, with serious consequences for the nation. Those consequences include either very severe and costly emissions cuts in the mid-to-late 2020s, or alternatively a repudiation of Australia’s international commitments, and free-riding on the efforts of the rest of the world.
As we see it, the recommendations of the majority report are framed to suit a particular assessment of the prevailing political circumstances. We believe it is inappropriate and often counterproductive to attempt to second-guess political negotiations, especially for a new and uncertain parliament.
The unduly narrow focus of the majority report, seemingly based on a reading from a political crystal ball, has ruled out policies, such as a strengthened renewables target and stronger land clearing restrictions, that have a proven capacity to respond most effectively to the nation’s climate change goals.
Policy recommendations
At the centre of the majority report’s recommendations is the retention of the current Direct Action policy as the basis for further action. Its two pillars are the Emissions Reduction Fund (ERF) and its incorporated Safeguard Mechanism, which sets an upper limit on emissions from major polluters.
The report also recommends a new emissions trading scheme for electricity generation, based on an emissions-intensity baseline. Such a scheme would have lower price rises than the kind of cap-and-trade scheme favoured everywhere else in the world, and which Australia would have now if not for the Abbott government. After the rancour that engulfed the carbon price, the intensity-based scheme is presumably seen as more appealing to nervous politicians.
The majority report downplays the drawbacks of emissions-intensity schemes and the Safeguard Mechanism. There is not space to discuss them here, but we would like to comment on the flaws in the ERF because the majority report recommends that it be hugely expanded.
Flaws in the ERF
Under an expanded ERF policy, the cost to the federal budget would increase sharply, and even more so if Australia adopted tougher emissions targets in line with the science. Using the ERF in this way would be, in Professor Ross Garnaut’s words, “an immense drain on the budget”.
We believe it is unwise to make Australia’s climate policy hostage to disputes over fiscal policy.
As a rule, the replacement of the widely accepted “polluter pays” principle with the ERF’s “pay the polluter” principle is bad economics, bad ethics and bad policy. The practical drawbacks include the need for an expert bureaucracy to evaluate each prospective project and then to monitor, over several years, each successful project to ensure that the promised emissions reductions actually happen.
There are also serious and continuing concerns about the issue of “additionality”. Under the ERF, it is hard to know whether the Commonwealth is wasting money by paying for emissions reductions that would have taken place anyway – that is, projects that are not additional. Bear in mind that businesses plan energy-saving projects all the time, so why wouldn’t they try to get a subsidy if one is on offer?
Surveys show that a large majority of Australians want stronger action to reduce Australia’s emissions. The role of the Climate Change Authority is to advise on how that desire can be realised, in a way that is consistent with the best scientific and economic evidence.
The full minority report can be read here.
Thank you for releasing this minority report. The deliberate pursuit of policies destined to reach a crisis within ten years should be front-page news.
I have a some questions.
1) Are any of the majority report authors available for comment, or have they already released comment elsewhere?
2) Does the inadequacy of the majority report indicate that the Climate Change authority has become a sock puppet for Abottesque political forces?
3) Have any of the minority report authors performed similar calculations for the more ambitious target of 1.5 degrees?
My understanding is that the Emissions Reduction Fund is essentially a tax payer funded subsidy to encourage things like cleaner electricity generation. I dont totally oppose subsidies on principle, but I agree this one will be very bureaucratic and problematic. This scheme is trying to avoid being too hard on business directly, and so shifts costs onto the public as much as possible, but in a way that subtly hides the costs by giving it a grand, benevolent sounding name. Its laughable really, like a sort of game of hide and seek.
But conventional emissions trading schemes (Cap and trade schemes, etc) also have considerable bureaucracy and complexity of administration, and are very easy to rort. I just haven’t seen these schemes having any real success, other than growing forests, which helps but is not an adequate answer to climate change. And there will be immense pressure to cut these forests down anyway, for the resource.
Another approach is carbon taxes, which are simpler to administer. However the problem is they push up the price of carbon, so encourage more oil exploration.
There are only two viable answers. Firstly direct regulatory control over electricity generation and car manufacturers, although again this has some complexity of rules.
Secondly go to the source of the problem. Force fossil fuel companies to leave carbon in the ground. This is much simpler and stronger and gets to the cause of the problem.
But of course this will lead to big protests from the fossil fuel industry, and also the public. We dare not contemplate this option. So we play silly games instead, that have made no difference, or only a very slight difference of no consequence. We pretend to solve the problem by tinkering.
Thanks Clive for that important summary.
I want to comment on the the implied politicization of CCA, implicitly blamed here on the actions of Abbott government. However the sentence:
states that said politicization started happening under Malcolm Turnbull govenment, who assumed the offices of LNP leader & PM of Australia after defeating Tony Abbott in a leadership spill on 14 September 2015. Clearly, Turnbull with respect to climate mitigation, continues inadequate, if not outright wrong policies of his predecessor (Abbott), who as recently as 4-5years ago was saying that CO2 is nothing but "invisible and odourless trace gas", and as recently as 1y ago was saying that "coal is good to humanity". What was the point of the leadership spill of 14 September 2015, since the new PM continues the line of a disgraced predecessor?
nigelj@2,
Can you elaborate please (best with a scientific reference that provides evidence of the issue) because it's news for me.
Chriskoz @ 4
The following article is a thoughtful, detailed analysis of some of the problems with carbon taxes, and it comes from a Greenie! Im sorry I dont have time to hunt down anything peer reviewed, however the article is something I read a while ago.
www.greenbiz.com/article/why-carbon-taxes-arent-silver-bullet-climate-change
The essential issue is a carbon tax pushes up the price of carbon, so certainly this will reduce use. However higher prices might encourage more oil exploration and so the increased supply of oil pushes the price back down, making the carbon tax self defeating at least to some degree.
I dont know if studies have been done on existing carbon taxes in British Columbia or Canada etc to see if this happens.
Just to be clear, a carbon tax is certainly better than nothing. However carbon really needs to stay in the ground, and I favour more direct regulatory controls on emissions.
I dont think that makes sense. What would encourage more oil exploration is higher profit not higher prices. The oil companies dont pocket the carbon tax. The analysis that article uses is flawed. OPEC raising prices on their oil, raised all oil prices so companies can reap profits. Carbon tax does not do anything for companies. On the other hand, price elasticity for oil is currently low (lack of reasonable alternatives) and it would be more effective against coal (which is where it really counts). Electric vehicles are rapidly changing the picture however, and I think in a few more year, price elasticity on oil might substantially increase.
Nigelj,
The point of a carbon tax is to raise retail prices while wholesale prices remain the same. This discourages use while it does not encourage more exploration. It seems to me that your reference is mistaken. It is only a newspaper report, not a peer reviewed source.
In addition, your report assumes that there will be no replacement of current power by any other source. Obviously if carbon is more expensive that makes renewables relatively cheaper and more likely to be deployed. When energy is more expensive people also make more attempts to be more efficient. That lowers demand which lowers profits of fossil fuel producers.
The discussion relates to Australia's policy with respect to to the carbon budget, that is the release of greenhouse gases. Australia needs to adopt a sound emission reduction policy only to provide evidence that it is reducing the high per capita level. Ironically, what Australia does will have no impact on the rapid climate disruption and ocean acidification and warming that is under way because its emissions are a very small percentage of the global rate. More focus should be on measures to cope with such issues as sea level rise, more floods, storms and droughts.
Michael Sweet @7
Your justification of carbon taxes does make sense. Carbon taxes do seem the most practical option on the whole, and even a moderate tax would likely encourage electric car use given all the current pricing issues.
Ideally I would see governments passing legislation that keeps fossil fuels in the ground! Of course this is a big move, and unlikely to be popular, or happen in the middle east, so carbon taxes are probably the best next alternative.
We currently have an emissions trading scheme in New Zealand that has achieved almost nothing. We have had issues with imported credits of dubious origin and value.
I suspect one weakness in the emissions trading scheme concept is it would have to be set very high to encourage electric car use. Our modest ETS certainly hasn't encouraged electric car use.
Government oppose subsidies for electric cars, and put all their faith in the ETS as the single mechanism to encourage changes of behaviour and to fight climate change. This doesn’t make much sense to me, because they are relying on just one tool to deal with a very complicated range of issues.
michael sweet:
A carbon tax on fossil-fuel production at the source (mine, well or port-of-entry) make the most sense to me. It would internalize a portion of the hitherto external costs of AGW, in the cost of fossil fuel production. The producers would be forced to pass their increased cost on to their immediate customers, who are the refiners, distributors and other wholesalers. That is, wholesale prices are the first to rise, and are passed on to consumers in higher retail prices.
Mal Adapted @10, provided the "or port of entry" is included, and carbon taxes are strictly leveled only on internal emissions of a nation (including fuel purchased for international journeys from that nation), I agree. The later requires that the carbon tax not be paid on fuel extracted at the mine or well and exported (or that there be a rebate on exports). Failure to include this provision means that we are taxing the carbon emissions of people whose national per capita emissions are very much below the global average; and making true the currently false skeptical claim that we are impoverishing the third world to salve our first world consciences. It also makes impossible a fee and divident arrangement for importers of the fossil fuels.
nigelj @2, the majority of the bureacracy required by Emissions Reduction Fund and Emissions Trading Schemes (ETS) needs to exist regardless just to monitor total national greenhouse inventories. The size of that bureacracy is, however, small relative to that required to admister most other government activities.
While ETS are potentially rortable, most carbon taxes allow the purchase of carbon credits to ameliorate the tax, which introduces the most serious potential to be rorted in ETS as a feature of carbon taxes. While that is not a necessary feature of carbon taxes, a carbon tax that lacks it will be far more onerous economically than one with it. In order to avoid that, if emissions credits are not permitted, industries that are high emitters and which face unusual difficulties in reducing emissions are likely to be exempt from the tax, thereby eliminating the price signal to reduce emissions in those industries. Consequently, in practise, the relative simplicity of a carbon tax relative to an ETS is not as great as you supose.
Further, an ETS has the advantage of easilly linking up with other ETS schemes internationally, thereby turning local national solutions into global solutions. (In the US or Canada, the same can be said for a transition between state or province based solutions to national solutions.) Ideally we would be able to move to a situation in which there is a single, global carbon market with tradable national emission quotas determined by a strict, equal per capita allowance for each nation; said quota reducing annually on a clearly laid out trajectory. In contrast, the coordination of carbon taxes in a similar manner is far harder, and necessarilly ad hoc.
Given these to fact, I am in principle in favour of Emission Trading Schemes over Carbon Taxes, although in practise I need to see the details of any particular proposed ETS or carbon tax to determine my preference.
I will note, on this subject that traditionally ETS and carbon taxes have been suggested on a fee and dividend basis with an equal per capita dividend. There is a good argument in favour of this on the basis of equity (ie, that the permissible carbon emissions is a public resource, equally owned by all people in the world, so that all people should be equally compensated for its use), but it is not the only reasonable arrangement and its egalitarian nature, I am sure, is very off putting to more conservative voters and politicians. Consequently a scheme in which there is a base credit sufficient to match in value the cost of the scheme to a person on the poverty line, and with no change in their expenditure patterns (and hence no reduction in emissions), and a second component distributed pro rata based on income tax paid (not taxable income) would have a better chance of being supported by conservative politicians. It would still be equitable in the limited sense of not making the very poor worse of; but would not involve a massive income transfer between the wealthier and poorer sections of the population, and would reduce the economic impact of the scheme.
Other, reasonably equitable schemes are also possible, and should be discussed so that we maximize the chance of getting conservative voters and politicians on board, and therefore doing something rather than remaining in a deadlocked situation.
Tom Curtis @12, I have a preference for carbon taxes over emissions trading schemes, but I totally agree it comes down to the detail of a carbon tax versus an emissions trading scheme. I’m not closed minded on the issue.
Carbon taxes are based on very strong evidence that price affects behaviour while the ETS scheme does the same but somewhat indirectly.
Carbon taxes have one advantage that even a modest tax provides money that can be used to subsidise an activity of choice like, electric cars, or compensate low income people. Emissions trading schemes don’t do this or only subsidise forest planting. The problem is encouraging electric cars requires altering public perceptions, providing recharging stations etc and emissions trading schemes are not good at those things or would require a very high carbon price to get movement on these things. For example the ETS in my country has not encouraged electric cars.
Of course you could argue philosophically that an ETS is setting up a “market platform or process” and the market may not see electric cars as the answer, - or not right now. Indeed companies in NZ are tending to purchase units in forests rather than cut emissions or develop new technology. However I just don’t like this market process thinking. It’s obvious to me we need electric cars, so we should just do this.
I’m also a very results orientated person, and carbon taxes seem to be working in places like British Columbia. Emissions trading schemes do not have a great record in Europe or my country of New Zealand. Emissions trading schemes make sense to me in theory, in a textbook, however their record in the real world is not so good.
Carbon taxes are also fully compatible with other measures like energy efficiency measures, and one would not rely just on a carbon tax. That much is commonsense. Emissions trading schemes are in theory stand alone schemes that should not require other measures, yet in reality they seem to require many other measures.
You claim ETS schemes can internationally link up. In theory yes, but we have had problems in New Zealand with imported carbon credits of dubious value (from Eastern Europe) so your international linkages are not without problems.
Of course it all comes back to how the ETS is designed I guess. My country may have a bad version.
I agree with your last two paragraphs on assisting low income people hurt by emissions reductions schemes, etc, etc. However it’s sad that we have to go to such an extent of convoluted policy to persuade the more conservative viewpoint.
nigelj @12, your desciption of an ETS is foreign to my experience. As I understand it, in an ETS a government sets a value for the maximum permitted emissions in its territory over a certain period. Permits to emit up to that amount are then auctioned of to the public, being mostly bought by major emitters such as power stations, cement works and the like.
The revenue from the auction is then available to the government for whatever purposes it desires. These should include compensation to low income earners and subsidies of renewables, but in a properly designed scheme, such subsidies are redundant if not counterproductive. Consequently, ideally the revenue will be returned to the population on an equal per capita basis, or a floor plus pro rata on taxable income basis (or some other reasonable, equitable basis). It should not be used for general revenue, as by design the take of am ETS (or carbon tax) will fall to zero within a few decades; and using the income from it as general revenue will build future deficits and probably reduction of services into the budget.
The advantages of an ETS over a Carbon Tax are that companies that can more cheaply reduce their emissions will bid less for emission permits, and buy less permits. That keeps down the cost of emission permits for those for whom the shift is more expensive, so the total economic cost (in reduced GDP growth) for a given reduction in emissions will be less for the ETS than for a Carbon Tax. In addition, an ETS makes it easier to coordinate emission reduction policies internationally than does a Carbon Tax as noted above. The advantages of a Carbon Tax are conceptual simplicity and ease of implimentation, although you still need to document emissions to tax them, so the advantage of a Carbon Tax in that regard is not as large as is often claimed.
In both instances, revenue to the government can potentially be reduced by buying carbon credits from companies or individuals who earn them by negative emissions. That can be avoided in a Carbon Tax by not allowing such credits, but that then means there is no economic advantage in sequestering carbon. In the case of an ETS, the credits generated in this form are more likely to be used to allow more positive emissions by pairing them with negative emissions, thereby maintaining net emissions at the government prescribed level. In Australia's briefly existing scheme, companies making emissions without emission credits from some source were forced to purchase them by law (which transaction because it was mandatory and on a short term, would probably result in a price premium). The credits thus purchased were either subtracted from future total allowable annual emissions, or offset by credits from sequestration from other sources.
I notice that the NZ ETS has an all free allocation, which is bad policy IMO. That requires that allocation to industry be done on the basis of past emissions, and/or bureaucratic decisions, with neither basis likely to be economically efficient. The only way to do an all free allocation is if it is done to all residents on an equal per capita basis; but even then, that requires all residents to become knowledgeable about the emissions market to be efficient (a big ask, IMO).
With regard to subsidies for renewables, in a mature ETS or Carbon Tax system, they are at best redundant, and more likely counterproductive. Any ETS or Carbon Tax should be introduced at a low pricing point (for an ETS that means total credits issued close to current emissions), and then ramped up gradually to minimize economic disruption. Renewable energy subsidies should phased out durring that process such that they are eliminated when the ETS or Carbon Tax imposes a price close to current best estimates of the social cost of carbon.
I agree, however, that further regulation in addition to the ETS or Carbon Tax is desirable. Specifically, the building of new coal fired power stations, and the expansion and/or refitting of new ones should be prohibited unless the employ (or are refitted to employ) CCS that reduces their CO2 emissions per unit energy to the direct CO2 emissions per unit energy of Natural Gas powered plants. Further, the development of new, or expansion of existing coal mines should also be prohibited. Non-conventional oil and gas fields should also be subject to the same limits unless the newly developed fields sequester sufficient carbon to bring total fuel lifetime emissions down to those of conventional natural gas.
Just the burning of currently commercially available coal will put us well past the 2 C limit, and the burning of all currently available and likely exploitable conventional oil and gas reserves will leave us well under. Therefore the regulations above provide a usefull backup to the ETS at minimal economic cost.
Tom Curtis @14
Thank's for that very detailed reply. It does clarify some things although I just didn't expect such detail and its appreciated.
I do broadly understand how the ETS works with permits etc. As I said the idea makes lots of sense in theory and a textbook. Its the application in the real world that seems less convincing. However a carbon tax would have some challenges as well.
I think the problem is also partly my countries specific version of an ETS. There have been free allocations, unfortunately, and the government doesn't like using income generated as subsidies. I hear what you say about not needing subsidies in an ideal world, but surely its obvious governments should subsidise recharging stations for electric cars?
Our government also wants all reliance to be put on the ETS and generally opposes add on"measures" or regulations, with a few small exceptions. I agree with the regulatory measures in your final paragraphs, but our government has ruled those out, unfortunately. They have even let a coal fired plant stay in use for no compelling reason.
However my gut feeling (not very scientific I know) is that its easier for governments to produce a weak ETS than a weak carbon tax! I just think the ETS idea smells a bit wrong, when it comes to trying to make it work in the "real world".
The following link gives an interesting, balanced comparison of carbon taxes and ETS schemes. You will be aware of all this and certainly better than me, but other readers may be interested.
www.theguardian.com/environment/2013/jan/31/carbon-tax-cap-and-trade
nigelj @15, the link you provide at the end is indeed informative. Thanks.
With regard to governments not operating in good faith, as appears to be the case with the NZ government, and is definitely the case with the Australian government - no policy is immune to being sabotaged by such a government. As a result, I don't think that is a consideration. Rather, we must see which policy operates best when practised in good faith, and which can secure the most public support in order to make it politically costly to sabotage it. I believe carbon taxes are an easier sell in that regard than emission trading schemes; so in political reality I expect carbon tax regimes to be more frequent in the future than ETS schemes.
Tom Curtis @16,
I agree public perceptions are important. The public may see a carbon tax as easy enough to understand, and reasonably transparent and upfront. They may see an ETS as complicated and involving some sort of rort by the corporate sector.
It’s interesting as my initial reaction was that a carbon tax might be unpopular as people are wary of new taxes, and that an ETS may be more publicly acceptable as its a market mechanism. Things often don’t turn out as expected.
However I still see other more practical problems with an ETS. An ETS relies on trust, that companies have reduced emissions, met obligations, and forests are in fact planted. All this requires complex monitoring by government. A carbon tax is right upfront. Use of fossil fuels either decreases or it doesn’t. It all just seems easier to verify, or at least in a way that is easy for the public to comprehend.
Of course an ETS could in theory lead to carbon sequestration rather than reducing fossil fuels. The scheme is kind of market driven and we cannot fully predict the ultimate solution or direction, only guess it. However I ‘m a born sceptic of market mechanisms ( I declare a bias there) and it just seems to me the obvious goal has to be to reduce fossil fuel use as directly as possible.
However I’m not opposed to either scheme in principle, and the devil is in the detail of either approach.
Nigelj,
Sometimes people use the term "fee and dividend" instead of "tax" because so many people in the USA oppose any tax. These two terms are equivalent (as long as the tax is accompanied by a dividend). There is a fee at the dump to leave your trash, why shouldn't there be a fee to dump your trash in the atmosphere?
Michael Sweet @18, yes people in America seem very anti tax, although the congress seem more opposed to tax than the population at large. There seems this strange divergence of views betweeen the population and republican congress in particular.
I have never had this visceral dislike of taxation, although obviously I don't want astronomical taxes either. I come from a small country and it's hard to provide sufficient services without taxation, because the private sector is just small.
It's amazing the euphemisms people ahve to use to describe a tax. I partly agree with your dumping fee analogy and its quite a good way to promote a carbon tax, however strictly speaking the idea is to stop the dumping completely rather than charge for it, and use the dividend for good works, presumably climate related.
My ideal preference is that we should require companies to leave fossil fuels in the ground or firmly regulate these companies and other emitters. Of course this is probably not politically sellable, so it leaves carbon taxes or an ets.
A carbon tax just seems the most practical option.
Another thing about emissions trading schemes. In theory these market driven schemes should encourage innovative solutions, but markets are notoriously slow to respond to price signals and change behaviour. I'm not sure we have the luxury of a slow system like this given the current global warming situation. A carbon tax combined with some selective regulation may provide faster results.
Tom Curtis #11, yes, there is more to say about appropriate design of a carbon tax. I was narrowly addressing Michael Sweet's claim "The point of a carbon tax is to raise retail prices while wholesale prices remain the same." A carbon tax on fossil fuel producers at the source is intended to raise wholesale prices, which would raise retail prices as well.
Mal Adapted - this discussion arose around the question of whether a carbon tax would encourage drilling. Tom's use of "wholesale" is really short hand for "1st point on the chain" which in your terminology is "producer". The point here is that producer gets no more income than before, so has no incentive to drill.