Climate change convergence

With the release of the Coalition’s climate change policy, my impression is that we have at long last reached policy convergence. The policies of the two major parties are hardly different from one another when compared with the policies of other countries or any past, I guess, lack of policy action. There are some details where there are difference but thankfully, Malcolm Turnbull has avoided getting into headline emissions target bidding (whether up or down) and instead has emphasised some areas that the government hasn’t: most notably, the lack of carbon offsets being part of the ETS.

So overall, we have broad mainstream political agreement on climate change. I must admit that I think the Coalition’s arguments for delaying the introduction of the ETS are weak (why delay the inevitable when there is nothing more to learn) but their arguments that we are not seeing enough positive action to complement the ETS right now is a strong one. Everyone needs to get to work and do so quickly.

4 thoughts on “Climate change convergence”

  1. Yes, with 10 consecutive years of global cooling and the largest expansion of sea ice in 29 years, better get those economy-crippling laws on the books quick before the electorate figures out they’ve been conned. Hup! Hup!

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  2. There is a very good chance that ALP will be returned at the next election and the Greens will hold the balance of power in Senate. This is the Coalition’s best chance to do a deal whilst holding some cards.

    The Government will try – ok, is trying – to wedge them and Turnbull will have to display as-yet-unseen qualities for the Coalition to get any political credit – but a deal will be done.

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  3. Unfortunately they are converging on a flawed strategy.

    Like many markets a free emissions permits market without contraints will exhibit chaotic price behaviour. The reason is that as prices go up so demand goes up because supply is fixed. The price starts to go down when demand is reduced by more renewables or by less consumption of energy and then they keep on going down until supply is reduced by removing permits but not before prices have dropped an indeterminant amount.

    The price behaviour will appear to be random. A positive feedback loop in any market leads to chaotic price behaviour unless the feedback is constrained or governed in some way. Free markets cannot establish a stable price unless there is feedback between price and supply or demand in time to influence the price. Reducing demand depends on investment in renewables or reduction in consumption and both of these have a long time frame relative to the time it takes to change the price or supply of permits.

    An unconstrained emissions permits market by design will produce chaotic prices. But the market in permits is meant to influence (control) the market in infrastructure to build renewable energy plants. A control device whose behaviour is chaotic cannot control anything and is worse than useless. How can investors in renewables plan if they have no idea of the costs of their competitors. It will be a gamble and they will want guarantees on price. So why bother. We are better off to put a fixed price on carbon. At least renewables will have a fixed target.

    There is another way better way. It is simpler, more economically efficient, and will give guaranteed reductions in GHG emissions to decrease the price of renewables by cutting the finance costs. This can be done by giving zero interest loans, having long term repayments of loans, or reducing taxes. This will produce cheap renewable energy and decrease emissions.

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  4. One thing that Turnbull is doing better than the government is recognising the potential of reducing total emissions by reducing deforestation, improving land management, and improving agricultural practices. Unfortunately, including this as a carbon offset is a poor way to do this.

    Firstly, the precision and accuracy of measurement of carbon sequestered is too poor to credibly include many of these activities as an offset. Alternatively, we could face overly massive measurement costs. Policies that sequester carbon through land use that do so outside the CPRS will not face these barriers.

    Secondly, including these activities as an offset does not reduce total emissions, it merely makes it cheaper to meet a particular target. Instead of realising the public good of hundreds of millions of tons of extra emissions reductions, all that we do is lower the carbon price in the CPRS. This will reduce investment in technologies that we need for eventual decarbonisation, such as renewable energy sources.

    What is needed is instead of making these activities in to an ‘offset’, we should set a price, or minimum price, for payments for activites that sequester carbon through better land use. A way of funding this could be with auction revenue from the CPRS.

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