Cash for clunkers

Frank Jotzo, Deputy Director of the ANU Climate Change Institute, and a participant in the Joint forum on climate change convened at the ANU on 12 July 2010 by Australia 21, Universities Australia and the National Business Leaders’ Forum on Sustainable Development, contributed the following analysis of the Government’s “cash for clunkers” scheme to the Monday 9 August edition of the online political newsletter Crikey:

A carbon price beats throwing cash at new car owners

Frank Jotzo, deputy director of the ANU Climate Change Institute, writes:

Populism and procrastination reign in Australian climate policy, and what new policy proposals there are, on both sides of politics, consist largely of spending taxpayer dollars for little gain.

Labor’s "cleaner car rebate" is a particularly striking example. A year after the US and European countries finished up their cash-for-clunkers programs, Labor proposes that Australia start one. The European and American cash-for-clunkers schemes were squarely aimed at helping the car industry through the recession, but in Australia it is dressed up as climate policy.

The proposal boils down to this. Government would spend $400 million of taxpayers’ money to buy older cars from people who are well enough off to afford new cars. Any car better than the existing fleet-wide average qualifies, so the great majority of new cars would be eligible, not just the most efficient ones. Many of the older cars that attract the subsidy would probably be scrapped soon anyway. The money would be diverted from other climate programs, in particular advanced solar power.

By Labor’s reckoning, the car program would cut carbon dioxide emissions by one million tonnes, presumably stretched over several years. Australia’s total emissions in just one year are 500 times that. The fiscal cost per tonne avoided would be $400. By comparison, a carbon price of just $20 per tonne would drive widespread change in the power and industry sectors. Even relatively high cost renewable energy options, such as the ones supported by government programs that are to be cut back to pay for cars, are estimated to come in at about $50. So the car subsidy policy would backfire in terms of emissions, because money is drawn away from options that would have delivered a much bigger and long-lasting effect.

The tendency with policies such as this is to lead to a maze of expensive subsidies and cumbersome regulation, with plenty of bureaucratic churn and political interference. It will be expensive, and fall short of even the lower end of the 5%-25% reduction range that both parties have signed on to.

The Coalition, meanwhile, promises to pay emitters for reducing carbon, rather than imposing a price on emissions. By necessity, it would need to use highly uncertain estimations of the reductions achieved, compared to some hypothetical baseline. The Kyoto Protocol’s clean development mechanism relies on this principle. It has managed to draw money into clean investments, but in a very patchy fashion, with huge bureaucratic overheads, and with uncertain environmental benefit.

What is more, the Coalition claims as an advantage that prices of energy and goods will not rise. But as always the money will have to come from somewhere, in this case from taxpayers. And if power prices do not go up, then extra incentives need to be created for end users to save energy, through extra government interventions and more subsidies. Achieving any kind of meaningful reduction would rack up an enormous tax bill.

The underlying problem is that neither of the main parties can summon up the courage to go with the policy that is so obviously the key to an effective and efficient climate policy: putting a price on carbon, through emissions trading or a carbon tax. Business is calling for it to put an end to crippling investment uncertainty. The Howard government prepared for emissions trading already in 1999 and made it its policy in 2006. And Australia would by no means be out in front: Europe has had emissions trading for five years, and despite setbacks in the US Senate, schemes for carbon pricing are in place in many American states. Even China is set to introduce emissions trading of the next five years.

Julia Gillard has stated that she is committed to carbon pricing, but not just yet. Her citizens’ assembly seems little more than an excuse for further delay. It would not bring new insight on an issue that has been so well researched and so widely debated as climate change. The science of climate change is crystal clear, the case for action has been made convincingly, and consensus among the expert community in economics and business is that carbon pricing is the right policy choice. Climate change has been in the centre of public debate for years now, and attitudes among the Australian public have been surveyed and re-surveyed dozens of times.

Demolishing the myths on emissions trading

The following piece by Australia 21 Director Ian Dunlop appeared on the ABC’s web forum The Drum: analysis and views on the issues of the day on 2 August 2010, under the title Demolishing the myths on emissions trading.

Demolishing the myths on emissions trading

One of the great myths being perpetuated in this election campaign is that the Greens, by refusing to support the Government's CPRS (Carbon Pollution Reduction Scheme), prevented the introduction of effective emissions trading in this country, thus blocking serious action on climate change. Penny Wong was at it again on ABC's Q&A on Monday night. Utter nonsense!

The CPRS is appalling policy. By weakening the underlying emissions trading mechanism with multiple escape clauses and compensation, it runs counter to all the recommendations of the sound policy design work that had been carried out in Australia, ranging from the AGO 1998 National Emissions Trading framework to the 2008 Garnaut Review, as well as practical overseas experience. The rot set in with the 2007 Report of the Task Group on Emissions Trading, which was initiated by the Howard government and dominated by fossil-fuel interests. Rudd and Wong then continued the race to the bottom, even before the Garnaut recommendations were released, throwing aside what little CPRS integrity remained in the final horsetrading with Malcolm Turnbull. If the CPRS were to be implemented in its current form, it would impose an enormous cost on the economy for minimal reductions in emissions.

Turnbull deserves credit for standing up to the climate luddites in the Coalition, but he is still not prepared to honestly acknowledge the nonsense which the CPRS represents and, more importantly, the size of the problem we now face. The only political party to do so are the Greens. Christine Milne laid it out clearly in her Re-Energising Australia Report, released in 2007. The science now indicates even greater urgency for action.

The inertia of the climate system, particularly the slow warming of the oceans, means that the results of our emissions today only become evident decades hence. Thus, unless we take rapid action now, we may well be locking in irreversible climate change of catastrophic proportions for future generations; indeed we may have already done so.

There will always be scientific uncertainties on an issue this complex, with year-to-year climatic variations continuing to be used selectively by deniers to discredit the mainstream science; but the overall trends are clear and they are all moving in the wrong direction. It is tempting to believe the deniers are right, but faced with the mounting empirical evidence, prudent risk management dictates we should not gamble on inaction.

The world is starting to understand that, if catastrophic outcomes and climatic tipping points are to be avoided, the real target for a safe climate is to reduce atmospheric carbon concentrations back to the pre-industrial levels of around 300ppm CO2 from the current 392ppm CO2. This will require emission reductions in the order of 40-50 per cent by 2020, almost complete decarbonisation by 2050 and continuing efforts to draw down legacy carbon from the atmosphere.

Looked at from a total carbon budget perspective, to have a less than 25 per cent chance of exceeding the 2 degrees Celsius temperature increase relative to pre-industrial levels, which is still the official political temperature objective, the world can only emit a further 800 gigatonnes of CO2 in toto from today, a budget which would be used up in less than 20 years. Accepting a 50/50 chance allows the budget to increase to 1,200 gigatonnes of CO2, used up in less than 30 years. The Australian budget runs out in around five - eight years. If the temperature target has to be less than 2C, which is now almost inevitable, the budgets are considerably lower.

Put bluntly, we face a global climate change emergency, which requires an emergency response; both major parties are well aware of this from their scientific briefings. In this context, the emission reduction target of 5 per cent by 2020, which they are so graciously offering is derisory. The only possible conclusion is that both parties do not believe in human-induced climate change and are going through the motions purely to placate the electorate. I, for one, object in the strongest possible terms to the future of my children and grandchildren being thrown away by such irresponsibility from those who would profess to be our "leaders".

Christine Milne is quite right to hold out for serious climate change policy rather than this "Clayton's" variety offered by the major parties' deniers.

Ian Dunlop is a CPD Fellow and a contributing author to the CPD book, More than Luck: Ideas Australia Needs Now, launched this week. Ian chaired the AGO Experts Group on Emissions Trading from 1998 to 2000.