OPINIE - Have a look at the beautiful graph below, which depicts the main trends in Australian emissions and its promised emission reduction targets.



Note: trajectories to the 2020 target range are illustrative.

The dotted orange line shows the amount of greenhouse gas that Australia’s economy produces. It depicts a steadily increasing line from 420 million tonnes in 1990 to 560 million tonnes today, projected to rise to 650 million tonnes in 2020 under a ‘business as usual scenario’. The blue line shows total emissions, which thus adds emissions from deforestation to the ‘economic emissions’.

The three straight lines at the end of the graph show Australia’s promises, and then in particular the -5% line that both parties have committed to. Its a beautifully informative graph, which I have used in several lectures the last few years. It is of course meant to shock the audience into rising to the challenge, but it is also very useful as a guide to discussing the politics of greenhouse emissions:

Actual economic emissions have more or less followed the ‘business as usual scenario’ in the last 20 years, despite several governments tinkering with wind-mills and ‘energy efficiency’. The only reason that Australia now only emits slightly more than in 1990 is because forestry activities are included in the headline numbers (the blue line): there happened to be a lot of deforestation in the early 1990s. It would be much more proper, of course, to exclude this source: you won’t see this source in the reports of the International Energy Agency which calculates world emissions. Hence, a mere ‘accounting trick’, probably cooked up by some clever civil servant years ago, is keeping Australia in the ballpark of its promised reduction. And of course, another accounting trick is needed to exclude bush fires from ‘deforestation’. If you really want to pretend our ‘efforts’ look good, you can just look at the blue line without seeing the orange line and crow about the years with reduced emissions (such as is done here), but if one would look at economic emissions alone, then keeping the 5% reduction target would entail reducing the economic emissions between now and 2020 by about 40% relative to the ‘business as usual scenario’. Even with the ‘forest tricks’ in place one can see that Australia is not going to reach its targets without dramatic action, which its population and industry have time and again rejected.

Tricks

Look at this graph and suppose you are the minister who is supposed to make the promised reductions happen. What can you do? You know it’s hopeless in the political reality of Australia to reduce the economic emissions by the needed amount to get to the 5% economic emission reduction by 2020. So you adopt the forestry tricks. One of your brains in the Treasury on this topic then tells you in a September 2013 OECD report that it would need a 76 dollar a tonne carbon price to get that promised reduction. That price is about three times higher than the price that got Labor laughed out of town, so you reject that one too. Indeed, your adviser tells you that you would have to increase the price much more drastically, easily a 100 fold at current demand elasticity estimates, to reduce emissions by the 90% you really are supposed to achieve if the world is to stabilize CO levels. So you realise you are in pretense mode anyway, but you like to keep that promise, so what do you do? Why not nuclear, you think? Well, your adviser tells you, it simply takes too long for the nuclear plants to come on-line.

Two realistic options

So your adviser gives you two realistic options. One is to cheat and to pretend to reduce the emissions of other countries and then count them as part of the Australian tally. That is what the whole deal with the emission trading scheme in the EU was about: we’d pay Greece (and other EU countries) for the emission permits it wasn’t using anyway because its economy has collapsed, which we would then have trumpeted as doing our bit for the planet. It was of course never likely to fly politically that we would truly send countries like Greece hundreds of millions of dollars, but that was essentially Labor’s plan. Cheered on by many commentators who clearly couldn’t be bothered to investigate properly as to what would really happen, it has to be said.

Though you, the minister, have just walked away from this scam, you can always go back to it by buying ‘Kyoto permits’ from developing countries. They come at a couple of bucks per tonne, so it’s even cheaper than the EU route. Maybe you can even get it to count as development aid, you wonder?

The other option you have is to bribe big businesses and power stations to switch towards a slightly less carbon-emission intensive form of fossil fuel. From coal to shale gas, for instance, could save around 40% of the emissions used (IEA derived calculations), which could mean a difference of perhaps as much as 50 million tonnes or so per year on electricity generation in Australia (which currently belches out around 100 million tonnes in black coal and another 50 million in brown coal). That sounds good, you might think!

Makes no difference

Politically speaking, the second route looks more likely, though not at first glance: the ‘Kyoto permit’ route is cheaper, whilst switching fossil energy sources takes a couple of years and often would happen naturally anyway, so that might at first glance make the first route seem attractive. However, being able to spend lots of public money on particular domestic industries clearly has its political advantages. So from a political point of view, the second one looks like the winner, even though on its own it looks unlikely to hit the promised target either. Hence, one should either expect that promise to disappear off the table in the coming years or for some lucky developing country to be able to sell some permits after all.

Neither option, of course, will do diddly-squat about the greenhouse gas emissions issue. Buying up the left-over permits of others is just a form of pretense: the world as a whole has increased its emissions by 100% in the last 30 years, and again increased its emissions last year according to the International Energy Agency! Buying ‘off-sets’ from countries whose emissions are sky-rocketing, under the pretense that they would otherwise rise even more, is a smoke-and-mirrors trick from start to finish! Maybe they could pay us for not back-burning and hence ‘prevent’ some of our emissions?

Another smoke-and-mirror trick

The problem with the shale gas/oil option is that one is effectively exchanging coal burning in Australia now with coal burning elsewhere on the planet (we’ll keep digging it up!), as well as coal burning in the future once the shale oil/gas is burnt up. So it is really just another smoke-and-mirror trick: you are still waiting for a competitive ‘low emission’ technology to come round to truly challenge fossil fuels as the source of our bulk energy. And even then, energy uses that really only work on combustion, such as air travel, will most likely ensure the planet will still burn through its fossil fuel reserves.

Of course, compared to the 90-95% reduction that Australia ‘should’ achieve if we are truly to ‘do our bit’ to stabilise CO2 levels, it really is quite immaterial who we bribe to pretend to reduce their emissions or which fossil fuel we are burning up first. But such truly significant reductions are not politically feasible, neither here or elsewhere. After all, who amongst you is prepared to stop all long-distance travel and move to a non-airconditioned hovel to reduce the temperature in 50 years time by 1 degree? Certainly not the frequent-flying bureaucrats and economists who advocate you change your way of life!

So this gives you the proper focus to understand the politics of climate change in Australia: you have those who want you to waste tax money overseas and you have those who want you to hand it out locally to friends, neither of which will have a noticeable long-run effect on the climate. Or you can stop the expensive, ineffective, and corrupting pretense.

Via Core Economics/Paul Frijters.