Action plan sets us up for a fall

Ross Garnaut's moderate emissions targets are still problematical, writes Keith Orchison (published in The Australian, 8 September)

Ross Garnaut set up a fabulous straw man in his second report on emissions trading, released last week.

You have to read to page 43 to find the creature.

This is where he tells us that "the European, Americans, Chinese, Indonesian and Japanese, among others, are all watching Australia with acute interest to see how we handle the problems of our trade-exposed, emissions-intensive industries."  If we get adopting emissions trading wrong, says Garnaut, it will "give every country on Earth another excuse to also get it wrong."

This is hubris of a high order -- not just gazing at our own navel, but setting ourselves up as the navel of the planet. 

It is also clever because it plays to the desire of Australians to be recognised by others around the world as something special. 

As a country, we have boxed above our weight in soldiering, the arts, science and sport, so why not as the world leader in greenhouse gas abatement?

Unfortunately, this is an issue that lends itself to "big picture" rhetoric and to little real public understanding of the consequences because of its technological and economic complexity.  The struggle the Federal Treasury is having in producing a report for Cabinet on the economic impacts of emissions trading speaks volumes about this complexity.

Synthesizing it all down to another version of "C'mon, Aussie, c'mon" for public consumption in order to provide opinion poll support for radical policy action is dangerous stuff.

When Garnaut proposes a goal of cutting Australian emissions to 10 percent below 2000 levels by 2020, what he is actually putting forward is the equivalent to closing down the Victorian brown coal generation industry in the next 5-10 years, a development with severe consequences not only for that State but nationally.

Speaking at a forum in Melbourne last month, KPMG energy expert Antony Cohen estimated that the cost of meeting the government's renewable energy target alone would be $27 billion by 2020 -- to which would need to be added the cost of replacing coal-fired generators with gas plants (averaging about a billion dollars for every 1,000 MW installed).

Boiled down, what Garnaut (and others) are arguing is that the Australian government should be prepared to go to the Copenhagen summit on greenhouse gas policy in December next year with a demonstration that it is prepared to wound the national economy in order to encourage a global agreement on abatement.

The alternative, of course, would be to go to Copenhagen with a clear plan for Australia action if there is a global agreement. This would have the merit of being based on an understanding that no Australian stand-alone action can change the trajectory of greenhouse gas levels in the atmosphere -- and that taking a large domestic economic hit in the absence of such an agreement is most likely simply to shift Australian factories to other countries.

Showing that we have put in place actions to bear Australia's share of global abatement if the other nations will agree on a common approach is one thing; legislating unilateral high-impact actions domestically in the hope that we can persuade (shame) others to follow suit is entirely another.

Garnaut's language in his latest report is interesting: a Copenhagen agreement, he argues, is essential because it is the only way to remove "the dreadful political economy risks to Australia, and to the global trading system, of payments to trade-exposed, emissions-intensive industries."  Complete failure of the Copenhagen negotiations, in his view, is "unlikely."

On the other hand, he concedes that "the awful arithmetic of developing country" emissions makes it "unlikely" that the proposed global goal of restricting atmospheric concentrations to 450 parts per million -- the level scientists deem "safe" -- can be achieved through adequate constraints.

A Jim Hacker listening to this language would quickly grasp that Sir Humphrey was telling him to be very "courageous" indeed.

The problem for Rudd and his ministers is that it will not be Garnaut who faces the voters in 2010 with a hurtful carbon charge system in place and a failure to reach agreement at Copenhagen (which many international analysts believe to be highly likely, citing the recent collapse of the world trade talks as an example). Nor will it be Garnaut going to the federal polls in 2013 by which time the voters in every State in Australia will have had an opportunity to react to the fall-out from unilateral national actions.

A very experienced management consultant I know has summed up the situation like this: " I think the government and its advisers under-estimate the mobility of business when their competitiveness is threatened. More than a few small manufacturers, when the implications of what is planned are explained to them, are saying things like 'I'm off to Malaysia with the factory.' "

Part of the problem for the Rudd government is that there are a myriad of "unintended consequences" lying around every corner on this path. These include the implications for power supply reliability in southern Australia in a situation where carbon costs strand coal-fired investment and international demand for  gas-fired generation equipment pushes out construction delivery times by years while driving up capital costs. It could also include a situation where renewable energy policy drives early large-scale development of wind farms but regulatory, environmental and construction problems impair the transmission networks' capacity to handle power flows.

None of this is pie in the sky speculation. The current waiting time for gas plant delivery is three to four years. The problems of managing efficient transmission development have been worrying the Council of Australian Governments all this decade and are not resolved.  Transmission capital expenditure in South Australia, where wind development to date has been greatest, is tripling.

Garnaut himself, in his latest report, decries "ad hoc" policymaking, which is how he seeks to characterise Australia not committing to radical change until it sees what happens at Copenhagen.  What "ad hoc" means is "done for a particular purpose" -- and, if the purpose of embracing high risk policy is to show an example to countries that have made it clear they don't intend to follow suit, then Garnaut, it seems to me, is as far away now from making a political case for action as he was when the Rudd government gave him the task almost a year ago.