Little by little: the benefits of Australian climate policy

Landcare get-together: reducing our toll on nature comes in part from many of us taking steps that individually are not always so big, but which accumulate. The carbon tax is one such step. Flickr/feral arts

A catchment threatened by salinity can’t be repaired by one or two landholders. Revegetation designed to lower watertables has its greatest ecological benefit where the plants are, but its net impact on salinity is small and spread over a much larger area. To achieve catchment-wide benefits, many good neighbours need to pay a small amount towards revegetation, with everyone contributing according to their capacity. Landcare - an idea invented in Australia and exported overseas - works exactly on that basis. It is supported by all major political parties, and many Landcare programs are funded by the taxpayer.

For climate, any action to permanently reduce greenhouse gas emissions in one region spreads the benefits across the globe. A global effort requires many good neighbours amongst countries who may not know each other well or trust each other very much.

Australia’s efforts to do its bit as a good neighbour are being opposed by an increasingly shrill and irrational chorus that includes politicians, industry figures, academics and a sizeable proportion of Australia’s print media. This opposition is on two main grounds: that a tax take of $10 billion is too large and that the benefits of Australia’s efforts are too small. Some recent opposing voices, Andrew Bolt in the News press and The Age’s John Spooner, are using a figure I calculated in assessing the benefits of a 5% reduction in emissions by 2020 – a lowering of global temperature by 0.0038 degrees in 2100 – to maintain that the benefit is too small for the cost.

They do this by using a psychological trick. Comparing a very large number to a very small number is called the contrast effect. A cost of ten billion compared to a benefit of 0.0038 is a very large contrast, even though dollars and warming are different categories. Also present is a time bias called hyperbolic discounting, which magnifies a small loss now compared to a long-term benefit. Spooner in his cartoon psychologically magnifies the $10 billion as ten thousand million dollars – three numbers instead of one – although it is mathematically the same. Setting a $10 billion “cost” now against a 0.0038 degree benefit in 90 years makes that benefit look tiny and remote.

Contrast effect: the little boat may have felt like a wonderful way to get around until the bigger boat sailed by and made it seem silly. Flickr/Patrick Theiner

But the $10 billion carbon levy is not a net cost to the economy. It is a fixed levy on the 500 highest emitters and is returned to householders as tax cuts and increased social security, to alternative energy schemes and as compensation to energy producers and intensive energy industries. So the $10 billion stays in the economy. Net costs occur in making the adjustment and in accounting costs not covered by compensation; these are comparatively small. There are distributional effects. The economy constantly experiences similar dynamics as industry, technology, and the economy all change under the influence of globalization.

Arguing that a $1.3 trillion economy using fossil fuels is robust, and a $1.3 trillion economy with a $10 billion carbon levy is committing national suicide makes no economic sense whatsoever. The GFC, the higher dollar, and the GST were all larger shocks than this will prove to be. Trying to unmake the omelette, as Tony Abbott is promising to do, would also be economically disruptive, as well as poor risk management.

Some people demand to know exactly how much a carbon price will reduce emissions. Such a price does not translate directly into an accurate reduction in greenhouse gases any more than Reserve Bank interest rate changes translate directly into inflation figures. That’s why the Climate Change Authority has been created, to learn from experience and make relevant adjustments.

Last year for the Sunday Age/Our Say 10 questions about climate, I made two calculations to assess the potential benefits of Australian climate policy. One applied the policy of both the government and opposition of a 5% reduction in emissions from 2000 by 2020. The other was to estimate a 80% reduction by 2050 - the target within the Clean Energy Act. The first produced a 0.0038 degree reduction by 2100 and the second a 0.02 degree reduction by 2100.

Mercury rising. Flickr/Joe Shlabotnik

At around 2 degrees total global warming (the target that international negotations are aiming to avoid), the two reductions in warming would avoid critical bleaching on the Great Barrier Reef over 9 and 50 square km respectively. Above 4 degrees global warming, likely to occur if efforts are half-hearted or non-existent there would be no benefit. Why? Because there would be no live coral communities. For species extinction risk with around 2 degrees global warming the above reductions would save roughly 4 vertebrate species for attaining the 2020 emissions policy target and 22 species for attaining the 2050 emissions policy target. The big difference is that at 2 degrees about 12% of Australian vertebrate species are at risk and at 4 degrees almost two-thirds are at risk. The risk is similar elsewhere. This is asking for serious ecosystem collapse at the global scale.

At 5.3 degrees warming by 2100, the business as usual scenario in the Garnaut Review produced by Treasury, we would be seeing a committed melting in large ice sheets, widespread loss of regional security – not least in south-eastern Asia and widespread loss of water supply systems, ecosystems and agriculture as both natural and human capacities to adapt are exceeded by a wide margin.

If keeping to below a 2 degree target is a marathon from 5.3 degree business as usual, the Australian contribution of 0.0038 degrees is about 50 metres and 0.02 degrees is about 250 metres. Considered as a relay, both numbers are a reasonably fair contribution from Australia to the total distance. Australia would get the direct benefit from the 250 metres we ran and the other 41.75 kilometres that all the other nations ran, if successful.

Is Australia going it alone? No. Limited trading or tax schemes exist in the US, Canada, the EU, and Japan, and are soon to start up in regions of China, India, and South Korea. The rest of the world will learn from us, as we have learned from the Europeans to keep a tight limit on emissions permits. Good carbon accounting was largely developed in Australia.

In the same way that we have exported Landcare for good environmental management and sports science for running marathons, we can export our know-how in managing the climate. Naked self-interest and ignorance are the two biggest barriers to achieving this.

Comments welcome below.