Australia’s greenhouse gas emissions strategy is a policy failure

As someone who has long accepted the link between human activity and global warming, I argue that Australia should reduce greenhouse gas emissions at a much faster rate.  

While Australia’s National Greenhouse Gas Inventory reported in 2019 that per capita greenhouse gas emissions had fallen 40% since 1990, given Australia is one of the few nations allowed to include  land use and forestry emissions, OECD data shows that Australia’s level of greenhouse gas emissions actually increased by 31.9% between 1990 and 2017 when excluding land use and forestry. 

Although Australia is committed to lowering emissions by 26 to 28 per cent from 2005 levels by 2030 with its land use and forestry concession, it remains one of the most carbon-intensive OECD countries with coal, oil and gas providing 93% of Australia’s overall energy mix compared to an OECD average of 80%, while renewables provided 16% of electricity generation compared to the OECD average of 25%.

But, with the recent bushfires, estimated to have emitted an additional 400 million tons of carbon dioxide, why would Australia want to merely preserve the status quo with regard to Australia’s current economic-environmental policy mix?

In response to the bushfires, Prime Minister Morrison states that climate changes was “as important now” as it was earlier this year, that the nation was on track to meet its emissions reduction commitments, that Australia is “carrying its weight”, and that he will not make “reckless” cuts to the nation's coal industry.

I, for one, prefer the logic put forward by the economist Warwick McKibbin who advocates a risk management strategy given the government’s business-as-usual scenario runs the risk of a major adjustment in the future if the global economy dramatically changes in response to major climate events which may include a dramatic drop in the value of coal-fired power stations and other fossil fuel intensive assets.

Of course, Australia should continue to profit from energy exports while it makes its own domestic transition with a 2019 estimate that Australia now provides 7% and 20% of all global and OECD energy exports (coal, oil and gas).

To put it mildly, Australia can hardly end its reliance upon energy exports immediately, especially at a time when the importance of manufacturing has declined from just under 30% of GDP in the early 1960s to 5%, along with a growing gap in earnings and profitability between Australia’s mining and non-mining industries in more recent years.

As the World Coal Association notes, despite also calling for low emission technology to help limit global warming, fossil fuels (including coal) will still make up 75% of the global energy mix in 2040  with China alone raising its coal-fired power capacity by around 4.5% in the 18 months to June 2019 despite reducing its use of coal as a proportion of total energy use from 68% in 2012 to 59% in 2018.

Australian coal exports have the added benefit of being cleaner than from many other countries which means less is needed to generate the same amount of energy, while Australia’s National Greenhouse Gas Inventory notes that Australia’s liquefied natural gas exports (worth around $50 billion in 2018-19) also save global emissions equal to around 27% of Australia’s annual domestic greenhouse gas emissions

But, government policy can make a difference on behalf of Australian liberal democracy.

Despite my previous concern that a carbon tax ran the risk of Australia losing energy-intensive industry offshore to nations with less stringent environmental standards, the IMF (and many others) continue to strongly advocate a carbon tax as being necessary to reduce carbon emissions quickly while still promoting economic growth.

Warwick McKibbin urges a carbon price to encourage economy-wide benefits for Australia, but prefers a design that does not seek to predict a future carbon price or world demand. It is based on designing futures markets for carbon that enable market forces to produce long run carbon prices that can guide investment decision.

As McKibbon argued in December 2018, “the attempts to avoid the idea of pricing carbon have become so absurd that it now might be possible to start again with a design that is based on science and expertise rather than the nonsense that has passed as political debate driven by political cowardice”.

McKibbon makes a number of important points to support an economic wide carbon price in line with his observation that “international climate action is inevitable, and it is in Australia’s national interest to be part of a cooperative global approach”.

They include Australia’s climate policies already having a carbon price given that “renewable energy targets or subsidies for batteries have an implied carbon price that either consumers, taxpayers or firms will pay”.

That direct subsidies, subsidised batteries and similar other policies, albeit having some impact on carbon emissions, have a higher cost and “low benefits compared to an economic wide carbon price”.

And that any focus on how electricity is generated or used is only relevant to less than one third of Australia’s greenhouse gases and ignores other cheaper carbon reduction options which may be found.

Sweden, which had the highest carbon price in the world at US$139 per ton of carbon dioxide as of 2018, has already shown how a carbon tax can deliver 60% economic growth and reduce carbon emissions by 25% between 1991 and 2018.

With more than 40 governments adopting some sort of price on carbon as of 2019 through direct taxes on fossil fuels or through cap-and-trade programs, it is predicted that global carbon pricing will increase in the future with China due to create the world’s largest carbon market in 2020 to cover 40% of its greenhouse gas emissions, albeit it remains to be seen how credible the market will be and whether its emission trading system becomes “a global marketplace that other countries are able to link into”.

Australia needs to back its potential to deliver and prosper from alternative cleaner energy sources given many new proposals aided by falling renewable prices and growing local and international interest in new technology. 

For example, Sun Cable is bullish about the prospect of providing Singapore with energy in less than a decade through the use of prefabricated solar cells that can deliver electricity via the advent of high-voltage, direct-current submarine cable which would prove very attractive against incumbents (oil and LNG) in the future. Currently, Singapore relies mostly on gas piped from Malaysia and Indonesia and shipped as LNG.

While there is no reason why a competent Australian centre-right government cannot take the lead, as was the case in Canada’s province of British Columbia where all carbon tax revenues go to households and firms, popular support for such an approach is evident in Australia. For example, a 2017 Pew Research poll found that 58% of Australians considered climate change to be a “major threat”, second only to the 59% who considered ISIS a major threat; a 2018 survey from the Australia Institute found that 60% wanted coal-fired power to be phased out within 20 years, with 73% expressing concern about climate change (a five-year high); and a November 2019 Essential poll found that 60% believed Australia should do more to reduce the risks of climate change at a time of major bushfires.

Government leadership in a liberal democracy is vital in line with the latest evidence on a particular issue.

For instance, Australian governments have no reason to support coal power stations given that 2018 research from Bloomberg New Energy Finance concluded that new renewable energy is now the same cost or cheaper than existing coal power stations in New South Wales and Queensland due to the ongoing cost of wind and solar and the higher international price for black coal. This is why private companies are overwhelmingly choosing to invest in new renewable energy generation.

And, given that Labor has previously set an electrical vehicle target of 50% of new car sales by 2030, albeit it will merely encourage manufacturers and consumers to make the shift from petrol cars rather than regulate, several countries have indicated that they will no longer register new cars with combustion engines in future years. Norway, the Netherlands and the UK have set 2025 as a target for this; Ireland 2030, France, and Taiwan 2040.

In contrast to Australia, many nations have reduced carbon dioxide emissions that go beyond previous reductions after 1990 that were caused by the outsourcing emissions to other countries by moving manufacturing offshore to countries with a very coal-intensive electricity generation mix.

Leading the way is the United Kingdom (UK) which reduced its greenhouse gas emissions by 40.6% between 1990 and 2017.

One report notes that the UK’s carbon dioxide level, which reduced by 38% between 1990 and 2017, would have been four times higher if change had not occurred through political leadership. The UK’s strategy included a 31% gain from a cleaner electricity mix based on gas and renewables instead of coal, 31% from reduced fuel consumption by business and industry, 18% from reduced electricity use mostly in the industrial and residential sectors, and 7% from changes in transport emissions with fewer miles driven per capita and more efficient vehicles.  

There are simply few excuses for Australia given that a risk management strategy alone provides ample reason for Australia to reduce greenhouse gas emissions much further, a strategy made more urgent by global warming predictions of more regular droughts and severe bushfires that will make Australia’s current greenhouse gas emissions strategy look even more ridiculous than it already is.