Wednesday, August 07, 2013

The real cost of emissions reduction

As Tony Abbott made clear yesterday in a letter to the secretary to the Department of Prime Minister and Cabinet, the top priority of an incoming Coalition government would be to repeal the carbon tax and associated measures that have dramatically increased the cost of power.

The carbon tax-emissions trading scheme is only one of four broad measures employed to abate greenhouse gas emissions.  The others are the renewables program, direct government budgetary assistance, and regulations.  The costs of all these measures change year by year.  The best way to compare them is to take their measure at 2019-20, when most transitory arrangements are in place.

This year's carbon price of $24.10 a tonne is projected to fall to the EU price of $5.90 next year, then increase to its previously envisaged price of $38 in 2019-20.  Based on Treasury forecasts, the carbon tax-ETS 2019-20 costs are about $13 billion under the ALP (and the Greens) policies.  Under the Coalition, costs would be zero.

The price of high-cost renewable electricity under the ''20 per cent renewables target'', on present policies, is about $5bn a year.  The Greens wish to see this increased to 90 per cent renewables by 2030, requiring a 40 per cent renewables share by 2020.

With regard to direct budgetary expenditure, the ALP has announced some reductions in the almost $5bn program announced in the May budget.  It is to keep its $2bn-plus-a-year Clean Energy Fund, which the opposition would discontinue (and the Greens would expand).  The Coalition's direct action plan would also mean other cutbacks in terms of budget spending.

Regulations (such as energy saving standards on housing) entail costs of $1bn a year and perhaps considerably more.  Despite the Coalition's deregulation agenda, this is unlikely to differ between the main parties.

All these costs are ultimately borne by taxpayers or consumers in higher prices.  Excluding regulations and combining the other abatement programs, approximate costs are shown in the table.

Two minor parties, Family First and the Liberal Democratic Party, which have outlined their positions on climate change measures, oppose all such expenditure.  Many in the Coalition also favour this approach, given the uncertainty about any damage done by climate change and the trivial effect Australia might have on this.  Such views are consistent with those of Danish economist Bjorn Lomborg who, referring to Germany's climate policies, in an estimate nobody has contested, says $100bn of costs would delay the amount of global warming, should this be taking place, by just 37 minutes.

Even for true believers in human-induced climate change the injurious effects appear to be receding.  The Economist has published draft material from the next report of the Intergovernmental Panel on Climate Change which appears to halve the 3C warming forecast of the 2007 report.  This comes after 16 years of no global temperature change and is closer to the forecast by the world's leading atmospheric physicist, Richard Lindzen, of 1C human induced warming (most of which he estimates has already taken place).  A 1C change is little different from the temperature oscillations over the centuries.

Australia is not alone in retreating from economy-battering efforts to reduce emissions.  Even so, our measures, including a carbon tax four times the rate of the EU, remain more costly and comprehensive than others.  In recent weeks Spain further dismantled its ultra-generous subsidies to wind and solar, the Czech Republic has announced a total phase-down of its subsidies and Louisiana is to do likewise by 2017, the state director saying:  ''Now is the time for solar to stand on its own.''

No comments: