Q&A with Ross Garnaut: ‘we’re not there yet’ on climate policy

The cost of low emissions technology is falling faster than modelling five years ago expected, lowering the cost of reducing carbon emissions. Bas/Flickr, CC BY-NC-ND

Following the repeal of the carbon tax, the Australian government has implemented its Direct Action climate policy, centred on the A$2.55 billion Emissions Reduction Fund. The results of the fund’s first auction were released on April 23. So far, the government has signed contracts for 47 million tonnes of carbon emissions for a total of A$660 million.

However, questions remain about the long-term adequacy of the fund and its ability to achieve Australia’s unconditional emissions target of 5% below 2000 levels by 2020, and larger cuts beyond.

The Conversation asked Ross Garnaut, Professorial Research Fellow in Economics at the University of Melbourne and architect of Australia’s carbon tax, what Australia needs to do to build an adequate climate policy. Garnaut was a keynote speaker at the recent Emissions Reduction Summit held in Melbourne.

Is the emissions reduction fund (ERF) a foundation for stability?

We want stability once we’ve got arrangements that can do the job efficiently, and we’re not there yet.

The ERF does one very important thing. It keeps alive the incentives for reducing emissions in land use that were created by the formation of the Emissions Trading Scheme and the Carbon Farming Initiative. If you got rid of carbon pricing and didn’t have the ERF, then all those carbon farming projects would have been left high and dry.

How do you see the ERF playing out? Will we end up with a de facto baseline and credit scheme or in fact an emissions trading scheme?

The ERF needs baselines and penalties for exceeding them, or one can’t be sure that it leads to any emissions reductions at all. The projects which are associated with reductions in emissions could be swamped by increases in emissions elsewhere.

If you had a disciplined application of baselines and trading credits around that, and those baselines were falling over time, then you could achieve reductions in emissions. It would be more costly than a straightforward emissions trading scheme. I think if we went far down that route then the question would emerge: why not just have a comprehensive emissions trading scheme?

One other disadvantage of baseline and credit is that those enterprises that happened to start with emissions well below the baseline get a windfall. At the same time the costs of emissions-intensive goods and services will rise, and those costs will be passed on to consumers, but there won’t be any government revenue to compensate them. So the income-distribution effects of baseline and credit are much more inequitable than the income-distribution effects of emissions trading if the revenue is distributed equitably.

How has the speed of cost reductions in technology changed since your review, and how has that changed the landscape?

In the modelling for the 2008 review, my team and I had to make assumptions about technological improvement, and we did assume some improvement in the new technologies. We assumed costs would be coming down over time, but what’s actually happened has greatly exceeded the rate of reduction of costs that we built into the model. That means that the actual cost of meeting severe targets is less than we expected.

For example, we had a few percent per annum reduction in the cost of solar. Solar PV panels have come down in cost manufactured in China by 80% since the review.

Is Australia in danger of being left behind on the manufacturing side of renewable energy?

It may be that Australia is not the best place in the world to manufacture a lot of machinery for producing renewable energy. I think the biggest gain we get from our excellent renewables potential in terms of growth to the Australian economy is going to be from reducing the cost of living and business. In the end renewables are going to be cheaper than the big coal-based generation supplied through the grid. Over time that reduction in cost is going to make energy-intensive industries competitive in Australia again. Energy-intensive manufacturing will come back into Australia.

The manufacture here of some components of renewables machinery will make sense. For example, the biggest input into solar panels is pure silicon. We’ve got the high-grade silicon oxide and will have, with the development of renewable resources, low-cost electricity.

There are a number of other low-emissions technologies in which Australia may well have a competitive advantage in the future low-carbon economy, but it is not necessarily the case that we’ll have an advantage as a manufacturer of whole turbines or whole PV panels.

If that happens, great, but that needs to emerge through successful business activity. If it doesn’t, that’s no cause for regret as long as we’re doing everything we can to use our advantages as best we can.

China in 2014 saw a fall in thermal coal emissions, and has now promised to peak emissions before 2030. What more needs to happen to get there?

Now China is on top of emissions for electricity and they’re getting on top of emissions for industry – the two biggest emitters.

The big one left out is transport, and you have very rapid growth in car use. China is doing a lot about that. They’re promoting electricity-based transport such as high-speed rail between cities and rapid transit within cities. The electrification of cars is going quite rapidly but from a low base. One phenomenon in China is the rapid electrification of bikes and motorbikes.

At this stage, despite the fact they’ve got severe regulations on emissions from cars (we don’t have any), simply because so many cars are being put on the road they’ve still got quite strong growth in emissions from internal combustion cars. But I expect Chinese emissions to peak well before 2030.