Climate is an intergenerational issue, but the report ducked it

Treasurer Joe Hockey didn’t mention climate change in his speech on Australia’s prospects for 2055. AAP Image/Lukas Coch

The 2015 Intergenerational Report (IGR) fails to engage with the likely impacts of global warming on Australia’s economy, society and environment. In this sense, it is detached from a reality that is far more challenging than Treasurer Joe Hockey dares to represent.

This is not wholly surprising. Most countries that have adopted the practice of reviewing emerging threats to their long-term financial sustainability have tended to focus most strongly on easily identified domestic factors – such as ageing populations – which have implications for economic productivity, workforce participation, pension and health cost.

They have typically been weakest in considering external threats, such as global economic or environmental change.

Added to this is the fact that the openness of these reviews tends to reflect the prevailing political culture. In Scandinavia, for instance, where disparities of wealth are rejected in favour of social cohesion and the legitimacy accorded to strong tax regimes is sufficient to support consideration of significant welfare state intervention, there have been fewer problems with debating tough policies to tackle emerging long-term social, economic and environmental problems.

In contrast, in countries where neoliberalism has prevailed and the state is seen as having a lesser role, reports and responses have been much weaker. While economic times were good, Australia seemed to fall somewhere in the middle, with its A$110 billion Future Fund aimed at benefiting future generations.

Glossing over the climate question

While the first two IGR reports in 2002 and 2007 ignored the environment and climate change, the issue was given its own modest chapter in the 2010 report. This emergence could hardly be surprising, given that Australian public awareness, political anxiety, and policy focus around climate change had increased greatly since 2002.

The 2015 IGR briefly discusses climate change, offering less than two pages (out of 170) on the issue. These report that Australia has warmed by 0.9C since 1910 and that the frequency of extreme weather events has increased. But the 2015 IGR mainly spends its time reassuring us that current policy is sufficient for the task and that Australia’s emissions targets will be met courtesy of the government’s A$2.5 billion Emissions Reduction Fund. It offers no critical comment about the adequacy of current targets or about additional demands for mitigation or adaptation that might arise in future.

Climate change is most certainly an intergenerational issue. It involves major and disproportionate benefits to current generations from fossil fuel use, and the transfer of negative impacts to future generations.

As the Garnaut Climate Change Review and more recent work on Australia in a Four Degree World show, the intergenerational costs of climate change are easily listed – if not easily estimated.

They include economic impacts associated with:

  • Emissions reduction: new technologies will get cheaper over time, but delayed action will mean emissions targets must become tougher and thus more expensive overall;

  • Adaptation: delays in mitigation will make impacts more severe and more costly;

  • Stranded assets: fossil fuel resources and mining infrastructure will decline in value as will, potentially, the value of related investments such as superannuation funds (with consequences for pension payments) and coastal properties;

  • Structural economic transition: the fossil fuel market is likely to disappear in the medium term, and revenue, employment and productivity from other climate-affected sectors such as agriculture, tourism, forestry and fisheries will decline in the long term;

  • Emergency assistance and remediation: extreme events such as fires, floods and droughts will intensify, increasing costs associated with damage to infrastructure and property, health and welfare, and hamper our access to environmental benefits such as water.

Dodging the issue

While some of these costs reflect Australia’s commitment to cut its greenhouse emissions, their scale and severity are compounded by the relative success or failure of global negotiations to reduce emissions rapidly. A surprisingly good outcome at the United Nations talks in Paris later this year may deliver us climate stabilisation at around 2C of global warming by the end of this century. This will still have major deleterious consequences across Australia.

However, all signs presently indicate that those negotiations will fail to restrain emissions significantly, and that the world is heading towards catastrophic warming of 4C or more by 2100. The more rapid the warming during the timeframe of the IGR (the next 40 years) and the less restrained the trajectory beyond, the worse the intergenerational picture becomes, both during and after the term of this report.

Complex interactions between climate-related factors outside Australia’s control – for instance, changes in international demand for Australian coal and gas, regional population shifts, and climate-related regional insecurity and unrest – will have further domestic consequences.

Given these variables, projecting the potential costs of climate change is very difficult – but it’s also essential for good precautionary fiscal policy.

A clear-sighted attempt to forecast the risks and costs of existing policy settings would also most likely raise the political pressure to reduce emissions rapidly now. Perhaps unsurprisingly, then, Treasury and the latest IGR have failed to do this basic, necessary job. Instead, the report restricts itself to looking at “projections of the three long-run drivers of economic growth in Australia: population, labour force participation and productivity”.

There is not a single mention of climate change in Hockey’s speech, or the report’s summary projections for revenue and expenditure. The full report offers a weak summary of projected physical trends but no critical consideration of the fiscal benefits, risks and failures of existing collimate policy. In glossing over one of the most significant emerging challenges to Australia’s economy, the IGR presents a fiscal fiction.

A review process intended to provide Australians, including policy makers, with guidance about possible emergent distant economic (and social and environmental) problems in order to provoke timely and reasonable discussion about how to tackle them, has yet again been captured by the usual small-minded, short-termist partisanship of Australia’s political elite.

Meanwhile, the costs mount up

Recent reports (for instance, here and here) have pointed to the growing public and private expense – and institutional difficulties – of dealing with extreme weather events. Meanwhile the cost of Australia’s economy meeting a responsible and globally equitable 2020 emissions target of around 40% below 2000 levels would be between A$30 billion and $40 billion of public and private investment each year for the remainder of this decade.

In the absence of a carbon tax, levy, or emissions trading scheme, and with only some $2.5 billion in the existing Emissions Reduction Fund, this government would hardly want to focus on future climate-related funding shortfalls.

Yet delay in adequate expenditure in the near term could have dramatic consequences for Australia’s longer term fiscal future: the costs of future climate impacts could end up diverting public funds from other programs such as health or education. It could conceivably require the future introduction of large new taxes, or send public debt soaring, or all of the above. Without long-sighted planning, Australia’s welfare state could end up being forcibly reconfigured by the costs of climate.

We need a mature national exchange of views about how future climate action should be funded. We need to plan for ambitious and equitable emissions-reduction targets through to 2050, and decide how we will meet their costs, and of adapting to climate impacts.

The past five years of toxic and partisan climate politics have made such reasoned discussion almost impossible, yet this remains vitally important. The IGR should have helped to reopen this space for debate but it failed. Its task seems too political to be handled by Treasury, which ducked for cover at the crucial moment.

Let’s instead hand the IGR process over to an independent body, which might be brave enough to raise unpalatable issues for us to consider. Only then will we be get proper warning about threats to our intergenerational prospects, before those issues hit us in the face.