Gospel according to Ross Garnaut

AUSTRALIA cannot afford to be left behind, says the government's key adviser on climate change.

Climate change

FOR anyone with any doubts, the Kyoto climate change accord that caused so much anguish for the Australian and global political establishment is officially dead and buried.

The Kyoto agreement's demise had long been apparent following the collapse of the Copenhagen talks and the new reality thrashed out at climate change negotiations in Cancun, Mexico, in December.

But final confirmation came when Russia, Japan and Canada officially told the G8 meeting of the world's leading economies in Deauville, France, at the weekend they would not join a post-Kyoto deal that does not include emissions reductions from developing countries such as China.

US President Barack Obama used the G8 dinner to confirm that like Kyoto Mark 1, the US is not interested in what has been seen as a Eurocentric global agreement.

The death of Kyoto came as the International Energy Agency published its latest gloomy forecast that the battle to limit CO2 emissions to stop runaway global temperature rises with potential catastrophic consequences is being lost.

CO2 emissions reached a record high in 2010, the IEA says, and 80 per cent of projected 2020 emissions from the power sector are already locked in.

After a dip in 2009 caused by the global financial crisis, emissions are estimated to have climbed to a record 30.6 Gigatonnes (Gt), a 5 per cent jump from the previous record year in 2008, when levels reached 29.3Gt.

IEA chief economist Fatih Birol says the significant increase in CO2 emissions and the locking in of future emissions due to infrastructure investments represent a serious setback to hopes of limiting the global rise in temperature to no more than 2C.

Given these twin realities it will be possible to conclude that Australia's climate change debate - as outlined by Ross Garnaut in his final report to Prime Minister Julia Gillard yesterday - is being conducted in a parallel universe.

The government's key climate change adviser has argued that Australia adopt the Gillard government's carbon tax, which would link into a global trading scheme some time in the future.

He says he is convinced the science of climate change is sound and that the rest of the world is taking action.

The bottom line in the report is that Australia cannot afford financially or morally to be left behind.

For the work of a former diplomat and economist, Garnaut's report is an undiplomatic and highly political document.

It casts the climate change challenge in terms of dead-end protectionism versus grand reform.

Garnaut uses his final report to launch a withering attack on the Business Council of Australia and special interest groups ranging from steel makers to trade union leaders whom he says have over-emphasised the impact of a carbon tax or neglected to calculate the opportunity cost of not acting.

Garnaut argues the forces against action on climate change represent old-fashioned protectionist instincts, which are anti-reform, anti-competitive and not in Australia's national interest.

The final details of a carbon tax are yet to be negotiated but Garnaut has recommended a starting price of about $26 a tonne that would generate about 20 per cent of the revenue collected by the goods and services tax.

Garnaut's proposal would use the tax and welfare system to fully compensate low and middle income earners for the costs of the scheme with measures to ensure that higher income earners do not receive a benefit and the government's bottom line budget position is not changed.

Garnaut describes it as substantial, efficiency-improving tax reform.

He rejects arguments that compensation will cancel out the impact of the tax.

Rather, he says a carbon tax will encourage industry to develop lower emission technologies.

Consumers will have additional discretionary income to support the lower cost, lower carbon options.

Garnaut has recommended the establishment of three new bodies to administer a carbon tax. These include:

lAn independent committee to advise on targets, coverage, scheme reviews, the switch to a floating price and progress on international action.

lAn independent carbon bank to regulate the carbon pricing scheme.

lAn independent agency to develop recommendations for a new assistance regime for emissions intensive, trade exposed industries to operate after the initial three-year interim period.

Garnaut insists his proposal sits well within the unfolding international climate change response.

Given the weekend declarations by Russia, Japan and Canada not to drop out of the revised Kyoto process, Garnaut says the Cancun meeting marks the beginning of the end of the Kyoto regime. This was cemented in Cancun's move to embrace non-binding pledges and end the twofold structure of climate change effort comprising developed and developing nations.

"This is not a bad thing so long as a number of unequivocally positive achievements of the Kyoto years are preserved," Garnaut says. He says an arrangement within which all countries make commitments to limit emissions and to report on their progress under one universal instrument is much more likely to lead to an effective global outcome than the old separation of developed and developing countries.

The problem with unilateral non-binding commitments, he says, is they are unlikely to add up to the required amount of emissions reductions.

This has certainly been the case with the first round of commitments from Cancun.

The other problem with non-binding commitments is that they provide a less firm foundation for an international trade in entitlements.

Garnaut says whether or not these are serious or even fatal flaws depends on what happened next.

He has used his final report to address some of the key arguments against Australia taking action, including that it would be acting alone.

"The assertion is often accompanied by statements that it would be economically damaging for Australia to act ahead of the world," he says.

"When you next hear someone say that he is worried that Australia might get ahead of the rest of the world in reducing greenhouse gases, take him by the hand and reassure him that he has no reason for fear.

"There is no risk of Australia becoming a leader in reducing greenhouse gas emissions - others are already too far ahead."

He says Australia has to decide whether it is in its national interest to do our fair share or to lag behind others in the mitigation effort. Then the country has to decide how to go about doing its fair share.

"In forming our assessments of the national interest, two main questions have to be answered. Is the science legitimate? And what is the relationship between what Australia does and what the rest of the world is doing?"

He says those who oppose Australian action on the grounds that others are not reducing greenhouse gas emissions can be comfortable with his recommendation that Australia strengthen its target in line with the average of international action.

Garnaut says another line of argument is that Australia is an inconsequential country.

"What Australia does and does not do, according to this argument, has no effect on the actions of others.

"Therefore Australia should do nothing and save its money, whether or not the rest of the world is taking action. That way Australia will benefit from what others do if they are taking action, and save money if they are not."

Garnaut says the view that one country's actions have no effect on other countries is present in all but the largest countries, but outside Australia is recognised more clearly for what it is: an excuse for not acting on climate change.

"The argument dissolves once it is recognised that there is no need to make a once for-all-decision on Australia's share of an ambitious global mitigation effort. What is important is that we make it clear we are moving with other countries, and are prepared to contribute our fair share to ambitious action if others are playing their parts.

"We can all build towards strong mitigation, each of us observing the actions of others and moving further in response to what we see.

"Australians who don't want any action on climate change make the point that we account for only a very small proportion - just under 1.5 per cent of total global emissions - so that what we do has little direct effect on the global total.

"This is a true but trivial point.

"While the United Kingdom's share of global emissions is not much larger than ours - about 1.7 per cent, despite it having three times our population - it hasn't occurred to a British prime minister from Margaret Thatcher onwards that Britain's efforts are unimportant."

The core of Garnaut's recommendation is that a market-based solution will deliver the best result.

He says once a price is put on carbon millions of Australians will set to work finding cheaper ways of meeting their requirements and servicing markets.

"We don't know in advance what the successful ideas will be, but I'm pretty sure that there will be extraordinary developments in technology.

"That is the genius of the market economy. That, above all else, is why West Germany absorbed East Germany and not the other way around, and why South Korea is doing so much better than its northern neighbour.

"That is the reason why Australian productivity growth was so near the bottom relative to the rest of the developed world from federation through to the mid 1980s and so high in the 90s.

"That is why the United States could afford the Cold War and the Soviet Union could not.

"That is why economic growth accelerated in China, Indonesia and India once they had scraped away the barnacles of protection.

"And that is why reliance on regulatory approaches and direct action for reducing carbon emissions is likely to be immensely more expensive than a market approach."