Australian carbon emission politics explained.

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Have a look at the beautiful graph below, which depicts the main trends in Australian emissions and its promised emission reduction targets.

Australia’s emissions trends, 1990 to 2020

climate graph
Note: trajectories to the 2020 target range are illustrative

The dotted orange line shows the amount of greenhouse gas that Australia’s economy produces. It depicts a steadily increasing line from 420 million tonnes in 1990 to 560 million tonnes today, projected to rise to 650 million tonnes in 2020 under a ‘business as usual scenario’. The blue line shows total emissions, which thus adds emissions from deforestation to the ‘economic emissions’.

The three straight lines at the end of the graph show Australia’s promises, and then in particular the -5% line that both parties have committed to. Its a beautifully informative graph, which I have used in several lectures the last few years. It is of course meant to shock the audience into rising to the challenge, but it is also very useful as a guide to discussing the politics of greenhouse emissions:

  1. Actual economic emissions have more or less followed the ‘business as usual scenario’ in the last 20 years, despite several governments tinkering with wind-mills and ‘energy efficiency’.
  2. The only reason that Australia now only emits slightly more than in 1990 is because forestry activities are included in the headline numbers (the blue line): there happened to be a lot of deforestation in the early 1990s! It would be much more proper, of course, to exclude this source: you won’t see this source in the reports of the International Energy Agency which calculates world emissions. Hence, a mere ‘accounting trick’, probably cooked up by some clever civil servant years ago, is keeping Australia in the ballpark of its promised reduction. And of course, another accounting trick is needed to exclude bush fires from ‘deforestation’! If you really want to pretend our ‘efforts’ look good, you can just look at the blue line without seeing the orange line and crow about the years with reduced emissions (such as is done here), but if one would look at economic emissions alone, then keeping the 5% reduction target would entail reducing the economic emissions between now and 2020 by about 40% relative to the ‘business as usual scenario’.
  3. Even with the ‘forest tricks’ in place one can see that Australia is not going to reach its targets without dramatic action, which its population and industry have time and again rejected.

Look at this graph hence and suppose you are the minister who is supposed to make the promised reductions happen. What can you do? You know it’s hopeless in the political reality of Australia to reduce the economic emissions by the needed amount to get to the 5% economic emission reduction by 2020. So you adopt the forestry tricks. One of your brains in the Treasury on this topic then tells you in a September 2013 OECD report that it would need a 76 dollar a tonne carbon price to get that promised reduction. That price is about 3 times higher than the price that got Labor laughed out of town, so you reject that one too. Indeed, your adviser tells you that you would have to increase the price much more drastically, easily a 100 fold at current demand elasticity estimates, to reduce emissions by the 90% you really are supposed to achieve if the world is to stabilize CO levels. So you realise you are in pretense mode anyway, but you like to keep that promise, so what do you do? Why not nuclear, you think? Well, your adviser tells you, it simply takes too long for the nuclear plants to come on-line.

So your adviser gives you two realistic options. One is to cheat and to pretend to reduce the emissions of other countries and then count them as part of the Australian tally. That is what the whole deal with the emission trading scheme in the EU was about: we’d pay Greece (and other EU countries) for the emission permits it wasn’t using anyway because its economy has collapsed, which we would then have trumpeted as doing our bit for the planet. It was of course never likely to fly politically that we would truly send countries like Greece hundreds of millions of dollars, but that was essentially Labor’s plan. Cheered on by many commentators who clearly couldn’t be bothered to investigate properly as to what would really happen, it has to be said.

Though you, the minister, have just walked away from this scam, you can always go back to it by buying ‘Kyoto permits’ from developing countries. They come at a couple of bucks per tonne, so it’s even cheaper than the EU route. Maybe you can even get it to count as development aid, you wonder?

The other option you have is to bribe big businesses and power stations to switch towards a slightly less carbon-emission intensive form of fossil fuel. From coal to shale gas, for instance, could save around 40% of the emissions used (IEA derived calculations), which could mean a difference of perhaps as much as 50 million tonnes or so per year on electricity generation in Australia (which currently belches out around 100 million tonnes in black coal and another 50 million in brown coal). That sounds good, you might think!

Politically speaking, the second route looks more likely, though not at first glance: the ‘Kyoto permit’ route is cheaper, whilst switching fossil energy sources takes a couple of years and often would happen naturally anyway, so that might at first glance make the first route seem attractive. However, being able to spend lots of public money on particular domestic industries clearly has its political advantages! So from a political point of view, the second one looks like the winner, even though on its own it looks unlikely to hit the promised target either. Hence, one should either expect that promise to disappear off the table in the coming years or for some lucky developing country to be able to sell some permits after all!

Neither option, of course, will do diddly-squat about the greenhouse gas emissions issue. Buying up the left-over permits of others is just a form of pretense: the world as a whole has increased its emissions by 100% in the last 30 years, and again increased its emissions last year according to the International Energy Agency! Buying ‘off-sets’ from countries whose emissions are sky-rocketing, under the pretense that they would otherwise rise even more, is a smoke-and-mirrors trick from start to finish! Maybe they could pay us for not back-burning and hence ‘prevent’ some of our emissions?

The problem with the shale gas/oil option is that one is effectively exchanging coal burning in Australia now with coal burning elsewhere on the planet (we’ll keep digging it up!), as well as coal burning in the future once the shale oil/gas is burnt up. So it is really just another smoke-and-mirror trick: you are still waiting for a competitive ‘low emission’ technology to come round to truly challenge fossil fuels as the source of our bulk energy. And even then, energy uses that really only work on combustion, such as air travel, will most likely ensure the planet will still burn through its fossil fuel reserves.

Of course, compared to the 90-95% reduction that Australia ‘should’ achieve if we are truly to ‘do our bit’ to stabilise CO2 levels, it really is quite immaterial who we bribe to pretend to reduce their emissions or which fossil fuel we are burning up first. But such truly significant reductions are not politically feasible, neither here or elsewhere. After all, who amongst you is prepared to stop all long-distance travel and move to a non-airconditioned hovel to reduce the temperature in 50 years time by 1 degree? Certainly not the frequent-flying bureaucrats and economists who advocate you change your way of life!

So this gives you the proper focus to understand the politics of climate change in Australia: you have those who want you to waste tax money overseas and you have those who want you to hand it out locally to friends, neither of which will have a noticeable long-run effect on the climate. Or you can stop the expensive, ineffective, and corrupting pretense.

15 Responses to "Australian carbon emission politics explained."
  1. Interesting of course. But I wonder about the sentence “who amongst you is prepared to stop all long-distance travel and move to a non-airconditioned hovel to reduce the temperature in 50 years time by 1 degree” ? Is it really the case that decarbonisation is all cost and no benefit (at least not in my life time) ? I am accustomed to reading Paul’s blogs and finding food for thought. Not so much here.

  2. Hi Bruce,

    I would certainly like to hear about those benefits from decarbonisation! The scenarios I hear sound rather grim to me. In 2007 I reviewed an IPCC report on the topic of what a decarbonised world would look like (http://clubtroppo.com.au/2007/05/24/what-to-do-with-all-that-hot-air/). My summary of what is being asked of you still holds today:

    “Lets think this through, shall we, and assess how painless the transformation to such a Brave New World would be. Would you hence all please hand in your 4-wheel drive at your nearest recycling station, as well as your other superfluous cars, and exchange them for tickets for the metro-system? Please disenroll your kids immediately from any activity that cant be done within walking distance from home. Please move instantly out of that quarter acre mansion in the suburbs youve just mortgaged yourself for and hovel together with all your extended family in a shack-sized little apartment (apartments are more energy efficient: you share excess heat with the neighbours!), conveniently situated next to your work. Air travel (very energy intensive) will require a special permit and is only for important people, which I’m afraid excludes you. Your holidays are to be enjoyed in the next-door apartment (a new ministry will make apartment swapping easier!), and exotic destinations you are prepared to walk to. Work only takes place during the daytime when there is natural light and you can have a warm shower at the end of the day when the water on the roof is sufficiently heated. You will be restricted to a minimum set of clothes and under no circumstance are allowed to wear cotton which is highly water and energy intensive.
    Does this mean you are necessarily poorer when you faithfully make all these adjustments the Council of Frequent Travellers making up the IPCC Board wants you to make? Of course not. Dont be so narrow in your thinking! ….”

    I will admit, it was a bit of rant. Since then, the scenarios have become a bit rosier, if only because solar is now cheap enough to insure bountiful (if intermittent) electricity, but major life-style benefits from decarbonisation? Less noisy cars?

  3. “The problem with the shale gas/oil option is that one is effectively exchanging coal burning in Australia now with coal burning elsewhere on the planet (we’ll keep digging it up!)”

    We need a much better approach to long term energy sustaining!

  4. I really appreciate the controlled anger. It’s good to see. It feels like the sheer volume of calls for extreme, drastic action has led a large chunk of the population to filter out all this information as noise. Not sure what the solutions are going forward, but it always helps to have some clarity about the current predicament.

  5. Hi Paul, this is useful context for your other commentary on this topic.
    Yes if you make certain assumptions about benefits and costs, then global cooperation not only doesn’t stack up, it wouldn’t happen. The problem is your arguments look circular to me.
    For example, the assumptions for the future are based on outcomes from policy settings from 11 years of global warming denial under Howard and co. followed by 6 years of political gridlock.
    You could have used the same type of arguments against the Hilmer competition reforms (many did).
    Australia has exceptionally high emissions. If it moved toward international norms, there would be material emissions reductions for modest costs. In my experience as an energy consultant,substantial emissions reduction opportunities are routinely missed or the costs over-estimated.
    By the way, wind investment in Australia was initially driven by Howard’s renewables policy – MRET. EMRET (20% by 2020) was bipartisan. Most informed observers knew at the time that renewables were not an economically efficient means of emissions reduction.
    Yes, the long term targets are very challenging and require far reaching change over time. But efficient early action reduces the long term costs and brings forward investment in low emissions technologies.

  6. Simon,

    Dont worry, I dont get my future scenarios from the Howard era. I look at what the big business believe about the future, as revealed by their investments. I follow the concensus opinion on how much emission reductions really would be needed to actually keep global warming to a minimum. And I use my own expertise, which is the question of how the whole socio-economic system works, both locally and internationally.

    You say “You could have used the same type of arguments against the Hilmer competition reforms (many did).”
    No, I couldnt: local competition reforms have local benefits and local enforcement mechanisms. They dont require us to police and punish actions of people in other countries. They were able to use the already existing national enforcement mechanisms. An impressive reform, yes, but one within our political means.

    Now, you are right that every major reforms will have its nay-sayers who say it cant be done, as every idealistic reform will have its true believers who passionately argue it can. Some system changes really cannot be pulled off, like the communist planning system or the prohibition on alcohol. Both of those were passionately advocated too. Some system changes can be pulled off, like the SO2 emission control systems. You have to look at what is actually being asked of the changed system. How much control does it need? What would the options for cheating be? How is commitment maintained and what human needs will it go up against?

    At core, i think most adherents of the world wide emissions system do not want to see the greed that would completely derail it.

  7. Paul,

    If I can summarise your hypothesis on climate change mitigation, it is that effective international co-operation is implausible because the benefits of free-riding are too high and the mechanisms for policing and punishing such free-riding are too limited.

    There have been successful examples of similar international co-operation: for example, in banning CFCs to address the hole in the ozone layer. I would guess that you would argue that these were successful because the benefits of free-riding were relatively low.

    Given this, would you concede that, for climate change mitigation, there is some threshold level of free-riding benefit, below which international co-operation is plausible? The free-riding benefit is broadly proportional to the long-run carbon price that would be required to substantially reduce carbon emissions. So, do you have a view on what the threshold level for that carbon price might be? $1000/tonne? $100/tonne? $10/tonne? $1/tonne?

    • Dave,

      I try to adhere to a policy of not debating emotive issues with people who don’t use their full name (or whose name is known from their acronym, like hc).

      Having said that, your question is not unreasonable. So instead of flogging you off without any reply, let me ask you the return question: how many people would you need to employ to measure 95 percent of the emissions caused by individual humans on the planet? And how costly would just that measurement be? Then ask yourself what we actually measure here in Australia and how easy it would be to cheat if the price differential between what is measured and what is not is high. Then think of the same issue in, say, Zimbabwe. I think you will find you have the answer to your own question then too.

      • Paul,

        Thanks for your reply. Unfortunately, I don’t really understand how the questions that you are asking relate to the question that I asked. Perhaps you could elaborate.

        Even if I did understand that relationship, and had enough information to accurately answer your questions and hence infer what my answer to my own question would be, I still wouldn’t have your answer to my question.

        What I was trying to get at was the source of the difference between your views and the views of those who do think international co-operation on climate change mitigation is plausible. In terms of my question, is it because you believe the threshold carbon price is lower, or because the required carbon price is higher, or both?

  8. Paul,
    I like your analysis. Logical and to the point.
    Of course if we chose to, Australia could dramatically reduce its greenhouse gas emissions by modernising our existing coal burning power stations. Most are decades old, using decades old technology.
    Direct action with a predictible outcome.
    As for the measurement of greenhouse emissions, that is an entirely different story. Usually we levy taxes using measurement systems of great precision. In the area of GHG emissions that simply is not the case.

  9. So what’s the argument here, essentially? I find it hard to tell, so correct me if I’m wrong, but it seems to be:

    1) An emissions trading system is too politically difficult to get in, and in any case wont reduce emissions because it is open to rorts and is otherwise difficult to properly police.

    2) The alternative (reducing emissions entirely domestically) is too expensive, and also open to rorts.

    I don’t find this convincing at all, and the examples of rorts that you bring up are puzzling. Take the forestry/bushfires one: I would think that bushfires are not counted as emissions because over the long term forested areas are carbon neutral (trees suck up carbon, then burn down, then suck up carbon as they regrow, etc). Converting a forested area to (say) grassland, on the other hand, does increase emissions, so it makes sense to have an allowance for that.

    Also, I dont think your doom and gloom about reducing emissions is warranted. People were not dying in a ditch or freezing in hovels 30 years ago. Sure, they owned fewer cars and flying interstate to watch your football team play was seen as an extravagant luxury. Also, on current trends, solar will be cost competitive with coal within a couple of decades. Already the cost differential between coal and solar is fairly small (perhaps 20%).

    Anyway, I just dont get it. Granted, there are going to implementation issues, and some people will try and dodge their obligations, but given the risks associated with temperatures 3+ degrees higher, it seems a little too early to throw in the towel this easily…..

    • Hi Peter,

      my argument is a bit more developed than all that (follow the links!), but I indeed do think emission control systems are ineffective at best, corrupting at worst.
      Why dont you read up though on the actual experiences of the European Emission systems? Its a fascinating tale of tall promises, corruption, political machinations, followed by more unmet tall promises. Wikipedia is as good a place to start as any to learn the difference between pretence and reality when it comes to such systems. In particular the criticism by the World Wildlife people is interesting. http://en.wikipedia.org/wiki/European_Union_Emission_Trading_Scheme
      For a bit more economics on that program, see http://economics.com.au/?p=9404

  10. Paul

    A couple of points (I will be in Brisbane end of November if you wish to discuss).

    First the recent dip in total emissions is not entirely an acounting trick. Oil consumption peaked in 2004 and has been dropping since per capita. This partly relates to a shift in housing preferences to inner city apartments, especially among the young. Likewise take-up of alternative energy was higher than forecast, and has reduced growth in coal power output. Nevertheless overall I agree with you – our emissions in the long run are headed up, primarily due to population growth and excessive use of plentiful and cheap coal. In fact, for a country that manufactures very little, our per capita electricity consumption is unusually high. Total transport sector emissions are about 16%, and declining, so the distance argument does not explain it.

    Why are our cities so profligate in energy use? It is because we subsidise them to sprawl outwards. A small carbon tax on electricity usage will make little difference to behavioural choices when people can also get a tax credit worth many thousands per annum for buying an investment property 40+ kms from the CBD.

  11. Option 3: Stop subsidising electricity for aluminium smelters (about 15-20% of our emissions). Wait for the market to do its thing.

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