Facing the high costs of climate change policies

Climate policy is about more than slogans and good intentions. Politicians have a duty to be open about what their prescriptions will cost. This is vital as Labor seeks to pump up its climate change credentials but hide the detail of its plans. In the present atmosphere, it is natural that opponents will choose to highlight modelling that best suits their case. It is of little surprise, then, that detailed analysis by former government scientist Brian Fisher on the price of measures being proposed has provoked strong reactions.

The government has emphasised the high costs of Labor’s proposed 45 per cent emissions cuts outlined in the peer-reviewed Fisher document, relative to the cost of meeting the existing target of 27 per cent below 2005 levels. Those who favour tougher action, such as a 50 per cent renewable energy target, have questioned some assumptions in the analysis.

But Dr Fisher is well credentialled to identify what is at stake. He is a former head of the Australian Bureau of Agricultural and Resource Economics who served in the Hawke, Keating and Howard governments as a chief adviser on climate policy. The aim of the research, he says, has been “to inject some honesty into the debate about the true cost of achieving our targets’’. His report models six scenarios under Coalition and Labor policies. The bottom line is that all of the options proposed would impose a significant cost on the economy, which would translate to industry decline, lower wages, higher unemployment and a blunting of the nation’s competitive edge. Cumulative GNP losses are estimated at $293 billion by 2030 for the Coalition’s 27 per cent emissions reduction target and $1.2 trillion under Labor’s 45 per cent goal.

The Fisher evaluation outlines how higher abatement ambition becomes progressively more expensive to achieve. The research also identifies measures that can be adopted to reduce the cost of the transition. One avenue highlighted is the use of carry-over permits from the Kyoto process to help meet the Paris Agreement goals. The other is the use of relatively cheaper international trading permits.

Allowing for Kyoto carry-over and international trade in emissions permits reduces the carbon penalty of the Coalition policies from $263 to $73 a tonne. The carbon penalty of Labor’s 45 per cent emissions target across the same time horizon can be reduced to $97 a tonne by adopting the two measures. But both figures are significantly higher than what turned out to be a politically crippling carbon tax under the Gillard government that was less than $25 a tonne. The bottom line is that the cost of transition is high, representing disruption across the economy. If the election is to be fought on climate change action, as Labor has said, it is incumbent on leaders to explain their policies and the costs.

The Coalition has said it will recapitalise and rebadge the Abbott-era emissions reduction fund and use public money to cover industry emissions. It will use the Kyoto carry-over permits but has been less clear on the use of international permits. The problem with the Coalition approach is that the use of public funds limits the scope of action and provides little incentive for business to act.

The ALP has talked a big game but has been less forthcoming on the detail. The opposition has hedged its position on the use of Kyoto permits to meet the Paris goals but has been more positive on the use of international permits. There has been scant detail, however, on how a carbon price of the magnitude outlined by Dr Fisher would be absorbed. Bill Shorten owes voters a clear explanation of the full cost of Labor’s plan, including for sectors that would be most affected: mining, transport and agriculture. What is his plan, for example, to safeguard Australia’s trade-exposed industries? And while Labor appears sympathetic to the European ideals of “just transition” in which displaced workers are compensated and central planning is imposed on sectors in decline, it is not clear how such costs would be met.

After more than a decade of division and the near collapse of Australia’s once competitive energy sector, climate change debate is about more than feel-good sound bites. Neither side of politics should be allowed to hide from the costs, which is why the Fisher report is a welcome addition to debate.