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    An impression of the majestic view of the Australian landscape, probably in the Kimberley in Western Australia

The Garnaut Climate Change Review

Professor Ross Garnaut's Interim Report (Febr 2008)

Image: An impression of the majestic view of the Australian landscape, probably in the Kimberley in Western Australia - from the Garnaut Climate Change Review website.

In the context of the February 2008 Interim Report of Ross Garnaut perhaps the most striking contrast that surfaces from it and from its subsequent reception by the media, community groups and stakeholders, is the fact that the report was received with applause by the environmental lobby right around the country, while the energy and mining industry is not happy and has immediately started on a campaign of undermining its credibility, especially on the fact that Garnaut implicitly names them as the polluters and that they need to pay for their actions: no free handouts of carbon credits will be coming, if Garnaut has any say.

How striking is the contrast indeed: can anyone imagine this balance under the former neo-conservative Howard government? Hasn't Australia changed radically in just a few months: under the former government Ross Garnaut would have been stonewalled, ignored, vilified and sidelined, and Canberra would have followed a lead from industry on its opinion about him.

About this page

This page brings together some of the media and community comment from the third week of March 2008, when the Garnaut Interim Report became public. The Report itself is also stored on our website for your download. The page includes 'sideways related' news coming online in the same week, and concludes with an article from Online Opinion, putting the report in the wider context of climate change issues for the Rudd government. Enjoy!

Download the Report

  • Prof Ross Garnaut Climate Change Review: Interim Report - The Ross Garnaut Interim Report became public in February 2008. Commissioned by the (then) Opposition ALP leadership, now known as the Kevin Rudd Government, it identifies as addressed to the Commonwealth, State and Territory Governments of Australia. (PDF File 634 Kb)

Garnaut confirms need for strong, early action

By Tony Mohr
Posted Fri Feb 22, 2008 2:00pm AEDT

Sir Nicholas Stern re-shaped the way economists thought about climate change when he delivered his groundbreaking report in 2006.

The Stern Review found the global impacts of climate change where far higher than the cost of reducing emissions.

The study currently being conducted by veteran Australian economist Ross Garnaut has been called by some 'the Australian Stern Review'.

Professor Garnaut's interim report says Australia has an "exceptional sensitivity to climate change" and warns we will be "possibly the biggest loser amongst developed countries" if we fail to rein in emissions.

Just as Stern rang the alarm bells for the world, Garnaut has sounded a siren for Australia.

Professor Garnaut also turned another piece of conventional wisdom on its head.

When Australia negotiated an increase of 9 per cent in its emissions at the first round of Kyoto discussions, it was on the basis that our economy would be disproportionately damaged by emission reductions. The argument was that because we use and export so much coal, it would be harder for us than for others.

But in his report yesterday Garnaut debunked this fallacy, saying Australia has "an exceptional opportunity to do well in a world of effective global mitigation". This assessment is based on the fact that Australia has the necessary skills base and the renewable resource base to be a world leading exporter of zero emission technology.

This finding is consistent with the report last week from US economic consultancy McKinsey & Company, which found Australia has larger and cheaper emission reduction opportunities than the global average and that we can make significant emissions cuts "without major technological breakthroughs". The McKinsey report found Australia can survive - and thrive - without needing to employ yet-to-be-proven technologies or resorting to drastic, risky options like nuclear.

Much has been made of Professor Garnaut's suggestion that Australia must be ready to go beyond the emission reduction target of 60 per cent by 2050 as part of a global agreement. Garnaut suggests our 2050 target might have to be more like 70-90 per cent.

These are not new or radical figures, just new to Australian politics. They are consistent with the low emission scenario put forward last year by the UN's Intergovernmental Panel on Climate Change and they are in line with the targets being adopted by other developed economies.

The UK is currently considering upping its 2050 target to 80 per cent and in the US, where progress has been slowest to date, both Democratic presidential hopefuls, Barack Obama and Hillary Clinton, have 80 per cent cuts by 2050 in their policy platforms. So does the Republican Governor of California, Arnold Schwarzenegger.

What about Australia? Well, we are in the process of working out what are the right targets for us.

This report from Ross Garnaut is an interim report. The final report, the constantly evolving scientific evidence and the shift globally towards 80-90 per cent targets amongst developed countries will help the Federal Government decide what sort of mid-century target is right for Australia.

However, the main game now is the setting of an Australian target to reduce emissions by 2020.

For all the chatter about it, you'd think the science was still ambiguous. It's not.

If we want even a 50/50 chance of keeping global warming below 2 degrees, the science is saying developed countries will need to reduce emissions by 25-40 per cent. By 2020.

In Bali, this range was recognised by countries signed up to Kyoto, including Australia. Our delegation gave it "strong support".

The McKinsey report shows Australia can achieve an emission cut within this range (30 per cent) for less than the cost of a local phone call a day for each Australian. That's a small price to pay for a better future for our kids. In fact, it is the very least we can do.

Tony Mohr is the Australian Conservation Foundation's climate change program manager.

Garnaut sets the bar high on climate change

The Age
February 22, 2008

Professor Ross Garnaut has delivered an unexpectedly confronting report on the challenges posed by global warming. It is a message that the Government would do well to take seriously.

THERE is no doubt that global warming is the world's greatest crisis, the real weapon of mass destruction against which a workable defence strategy must be found, and found soon. It is on every agenda of every major meeting of world leaders from G8 to APEC to the European Commission. Indeed, EU President Jose Manuel Barroso last month described the management of climate change as "the great project of our generation".

Prime Minister Kevin Rudd's laudable ratification of the Kyoto Protocol last December ended this country's position as a climate change laggard and reflected the new Government's view that tackling global warming was of critical importance and that no country, including Australia, would be immune to its impact. In Bali, Mr Rudd stopped short of embracing specific targets for cutting greenhouse gas emissions because, he said, he was awaiting a report from Professor Ross Garnaut on the likely effect of climate change on Australia's economy. That report, or at least an interim version of it, was released yesterday and it should send shivers though the Government. Based on the latest science, the report warns that the world is speeding towards more dangerous levels of climate change than previously thought, levels that are a byproduct of increasing carbon dioxide emissions that are a consequence of unexpectedly high growth in the world economy, particularly China. This, he suggests, renders the Bali framework for tackling climate change inadequate and means that emission cuts will have to be deeper, and sooner. If nothing is done, it will be to the greater cost to Australia, and the world.

Professor Garnaut's report, commissioned by state Labor premiers last April, is a warning bell that rings louder than had been anticipated and should provide the Rudd Government with a crucial insight into how the sands have already shifted on previous estimates for global greenhouse gases and rising temperatures and sea levels, and how it may have to respond to such changing science and the fact that the world is no longer dealing with a "business as usual" rate of emissions. And if the interim report is anything to go by, the final version should be an invaluable tool for the Government to enable it to formulate a viable plan for tackling climate change sooner rather than later.

Professor Garnaut sketches a confronting, but sensible and achievable road map for the future, and does so positively and with optimism. But he pulls no punches in calling on Australia, with a dry climate and fragile ecology highly sensitive to climate change, to take a leadership role in cutting emissions. After all, Australia has more to lose than many other countries. He is not content for Australia to simply follow, but rightly calls for the Rudd Government, which has already declared that climate change is "core business" for national economic management, to take the initiative and set an example for other nations. This newspaper believes this would be a responsible approach for the Government to take, particularly in the light of the Howard government's historical inclination to inaction in this area. Whereas in the past Australia has been a brake on the process of tackling climate change, it should now help drive it.

Professor Garnaut takes a tough approach on what has to be done, probably tougher than the Government expected and one that reflects the changing tenor of the available science and the actions of other players such as the European Union, whose members have already pledged to reduce their emissions by 20% by 2020. Furthermore, he calls on Australia to make commitments this year to 2020 and 2050 targets and warns Labor that its core target of a 60% cut in emissions by 2050 will not be enough to meet the increasingly pressing challenges posed by global warming.

Until now Australia has been slow to act on climate change, but in the wake of this country's ratification of the Kyoto Protocol, momentum is building. Professor Garnaut's interim report should only add to the political will to make the necessary changes to protect this country from the potentially catastrophic effects of climate change. There is much more to come from Professor Garnaut's review - a draft report in June and a final report in September. But he has given the Government plenty to chew on until then.

Carbon windfall for coal towns: Garnaut

The Age
Adam Morton
March 21, 2008

POWER producers should be refused the $1 billion compensation they have demanded to cope with new climate change laws, but struggling coal communities should be helped, the Federal Government's chief climate adviser, Ross Garnaut, has said.

Launching his vision for a carbon trading scheme -- the backbone of Government plans to tackle climate change -- Professor Garnaut said that compensating power stations would amount to giving away money, when there was no evidence they would use it to help keep prices down for households.

Professor Garnaut it was both inevitable and intended that the cost of high-polluting energy would increase. "Electricity prices will rise. Petrol prices will rise," he said.

He said the massive Government revenues flowing from carbon permits -- tipped to reach $20 billion a year by 2020 -- should be spent helping communities such as the brown coal-rich Latrobe Valley, initially by boosting funding for research into storing greenhouse gases underground.

"Whether or not these regions are placed under stress is going to depend on whether carbon capture and storage turns out to be commercially viable on a large scale," Professor Garnaut said.

"If carbon capture and storage does not work, I can't see how we can just continue investing in coal-based power stations and deal with the environmental problems. There is a real adjustment that has to be made."

Other potential winners from the new revenue stream under Professor Garnaut's plan include clean energy technology and related infrastructure, public transport and consumers hit by soaring energy prices -- especially the poor.

Designed to cut carbon emissions from 2010 onwards at the lowest cost to the country, Professor Garnaut's proposal would cap emissions and sell pollution permits through auctions.

Only heavy-polluting industries exposed to overseas markets, such as aluminium and cement, would be exempt. They would be granted free permits to stop their business being lost to less environmentally friendly countries.

No carbon gases could be released without a permit. Businesses that breached their limit would face fines and have to buy extra permits to cover their illegal pollution.

Describing his plan as simple and transparent, Professor Garnaut also called on the Government to:

  • Set three emissions trajectories for after the Kyoto Protocol lapses in 2012. This would depend on global commitments -- the stronger the international resolve, the more Australia would slash its pollution.

  • Establish an independent carbon bank that would sell permits and monitor their use.

  • Hold on to some of the new revenue to buy international permits or offset Australia's emissions overseas.

While Professor Garnaut has previously warned emission cuts of between 70% and 90% were likely needed to avoid the worst effects of climate change, his latest report does not recommend specific caps or targets for 2020 or 2050. They will come in a final report to governments due in September.

But it is unclear how much weight the Federal Government will place on the Garnaut review.

Touted as the key climate change adviser by Kevin Rudd before the election, Professor Garnaut was described as just an "input" by Climate Change Minister Penny Wong last month.

The Government is also waiting on a report from Treasury before expanding on its existing target of cutting emissions by 60% by 2050.

The Australian Industry Group has called for a $3 billion tax cut to business to help it cope. And a report backed by the states has supported the power generators' compensation bid.

Emissions trading - the plan

  • Administered by an independent Carbon Bank, similar to the Reserve Bank.

  • All revenue generated spent on climate change related measures.

  • Fewer permits auctioned over time as tighter targets introduced.

  • No price controls on permits.

  • No expiry dates on permits -- they can be hoarded and loaned.

  • Permits to be auctioned, with regular auctions, and no free permits for electricity generators.

  • Low-income households compensated for higher electricity and petrol prices.

Auctioning permits to 'cut value' of generators

The Age
Chris Hammer
March 21, 2008

AUSTRALIA'S electricity generators have accused Ross Garnaut of demonstrating a fundamental lack of understanding of how Australia's energy market operates.

They say his insistence that they buy carbon permits at auction will prevent them investing in low-carbon technology.

"Some businesses would become prematurely non-viable and be unable to make the transition to low-carbon generation," said John Boshier, the executive director of the national generators forum.

Mr Boshier said the proposal for subsidies to help develop clean-coal technologies would not compensate for stripping away the value of generators' assets.

Professor Garnaut's report rejects free permits, saying this led to windfall profits for generators and higher electricity prices when adopted in Europe.

The Australian Conservation Foundation supports auctioning permits.

"It is crucial the big, dirty polluters ... carry their share, otherwise the burden will unfairly fall on the poor," said executive director Don Henry.

But ANU professor Warwick McKibbin, a member of the Reserve Bank board, said: "A price target rather than a quantity target is the best way to deal with the economic costs of climate change uncertainty, yet the draft report ignores the economics in preference to the ideological."

Climate Institute chief executive John Connor described Professor Garnaut's scheme as straightforward and potentially highly effective.

But he said the institute was concerned that the Government might adopt softer interim targets than was in Australia's long-term interest.

The Greens support most of the recommendations, particularly auctioning permits and spending some of the revenue on improving energy efficiency.

However, Senator Christine Milne said hoarding and lending of emission permits would be used by big polluters to borrow from the future even more than they were now doing.

Garnaut's back, and it's not just a carbon copy

The Age
Tim Colebatch
March 21, 2008

ROSS Garnaut's first report on climate change proposed an emissions trading scheme that would be comprehensive, effective and beyond rorting. His second report aims to reassure business -- and the Government -- that he plans to do so at least possible cost.

Garnaut Mk II, a discussion paper on the design of an emissions trading scheme, gives flesh to the principles spelt out in Garnaut I. And in doing so, it proposes new features to make his tough medicine easier to swallow.

The core principles remain. Companies that emit greenhouse gases would need to buy permits to do so. Virtually all permits would be auctioned, not handed out free as the electricity industry wants. Each year fewer permits would be issued, as we follow a defined "trajectory" to lower emissions. The Government would set the trajectory, the targets and the policy framework -- but, as with monetary policy, leave the running of the scheme to an independent carbon bank.

Garnaut's design will have three clear consequences. It will reduce our carbon emissions. It will do so by making it more expensive to emit carbon, and that will cost us. And thus, it will give us incentives to develop and use low-emission sources of energy -- and a disincentive to use high-emission sources, such as traditional coal-fired power, which would become uneconomic.

The ideas in Garnaut II focus on mechanisms to reduce the cost of this transition, for the economy as a whole, and for key groups. The main ones are:

  • The Government should adopt not one trajectory (or set of targets), but three. The first would be geared simply to meeting our 2020 target. The second would be more ambitious, which we would switch to when the West (i.e. the US and Japan) adopts a target to reduce emissions by 60%. The third would be the most ambitious, going beyond a 60% cut, but we would move to it only when developing countries such as China and India adopt "an effective response to global climate change".

    That's a neat way of tackling the understandable fears that Australia could get stranded if it goes too far in front of the world. At the same time it tells the world what we would do if they come with us.

  • All revenues from auctioning permits -- up to $20 billion a year, according to the Climate Institute -- be earmarked to compensate low-income households, to invest in low-emissions technology all the way from the lab to commercial viability, and to invest in public transport and in coal regions where jobs are at risk.

  • To reduce the risk of coal mining regions and power stations shutting down, give priority to testing and using carbon capture and storage systems, so they can be part of new power stations or retrofitted to old ones to bring cleaner coal on stream ASAP.

Climate Minister Penny Wong was cool to Garnaut I, but seemed to warm yesterday to Garnaut II. So she should. This is a tough mind working to resolve complex problems with integrity and creativity. We are on the right track.

Carbon cuts to bring tax boost

The Age
Adam Morton and Chris Hammer
March 20, 2008

AUSTRALIA'S scheme to cut greenhouse gas emissions will pour up to $20 billion a year -- roughly the annual defence budget -- into Federal Government coffers, new modelling shows.

Commissioned by the Climate Institute, a lobby group, it found Canberra will reap at least $400 million in 2011 and between $7.2 billion and $20.6 billion by 2020 if all businesses that emit greenhouse gases are forced to pay.

The Climate Institute called for the revenue to be spent on helping the poor, who face rising electricity and petrol prices once the new system arrives in 2010.

The modelling comes as chief Government climate adviser Ross Garnaut today releases his report into emissions trading, which the Government says will be the biggest shake-up to the economy since the 1980s.

Under the scheme, emissions will be capped and pollution permits sold at a market-set price. The strength of the emissions cap will determine how much the Government collects.

Climate Institute policy director Erwin Jackson said the top priority should be to help people on low incomes through policies that cut carbon emissions.

This could be subsidies for people who choose energy-efficient housing and appliances, or boosting funding for low-cost, low-emission public transport.

Mr Jackson said businesses arguing for compensation under the new system -- including heavy-polluting energy generators and industries that faced losing business overseas such as aluminium, LPG, iron and steel -- should not be ignored, but should not be rewarded just because they were well connected in Canberra.

"We need to make sure that who gets the money isn't decided by who can afford a lobbyist," Mr Jackson said.

"It's a bucket-load of money, it's a big opportunity and we shouldn't be squandering it."

Electricity generators are demanding compensation under the new system, arguing it will lead to soaring costs and disruptions to energy supplies.

  • A scathing report by the OECD has exposed numerous failures in Australia's environmental record, including high levels of air pollution, poor water management, and declining populations among threatened native species.

    It lists 45 recommendations including taking tougher action against major polluters, reducing the run-off of fertilisers and pesticides, and making consumers pay more for water.

    The OECD praises some advances made during the last decade, but lists a number of major concerns. It says the emission intensity of greenhouse gasses is the highest, or among the highest, in the developed world, and that air pollution hot spots adjacent to some smelters and power plants pose serious local health risks.

    It says that, on balance, the conservation status of threatened native species continues to deteriorate, and that some major pressures on biodiversity, such as weeds and invasive species, have not eased.

    Environment Minister Peter Garrett said the report provided the Government with a blueprint for the future and that the 45 recommendations aligned with the Government's policy directions.

    However, Greens leader Bob Brown said the report found the Rudd Government wanting.

Solar hot water for free with new rebate

Canberra Times
19 March 2008 - 11:17AM
Brian Robins and Stephanie Peatling

THE State Government may merge its solar panel rebate scheme with the Federal Government's scheme, which could make buying and installing solar hot water systems virtually cost-free.

This will come as good news for the more than three-quarters of Australians who support government action to make houses more energy-efficient, according to a poll released today.

The Federal Government offers a subsidy to install solar panels for electricity and for solar-powered hot water systems, while the State Government offers rebates of up to $1200 on solar hot water systems.

"There is a case for having the one fund when it comes to solar panels," the NSW Premier, Morris Iemma, said yesterday, saying that combining the rebate schemes could end up almost covering the entire cost of installing a new solar hot water system.

"That requires some analysis and we will do that," he said. "If it works it would be a huge boost to the solar industry."

Electric hot water systems generate as much as 40 per cent of household electricity bills, and shifting that to solar energy would significantly reduce household demand, along with greenhouse gas emissions. Environmentalists claim installing a solar-powered hot water system in the family home is the equivalent of taking a small car off the road every year.

It could also help remove the need for new power stations.

"Heated water is a big consumer of electricity in households," Jeff Angel, of the Total Environment Centre, said. "Eventually, the installations could easily avoid a major new baseload power station."

The poll, commissioned by the Climate Institute, shows more than three-quarters of Australians want greenhouse gas pollution reduced by 2012 and support government action to make houses more energy efficient, source power from clean supplies and act to cut car use.

The poll's release today marks the day on which Australia's ratification of the Kyoto Protocol comes into force. It found only 7 per cent of people opposed the ratification and 64 per cent supported it.

"The take-home message from this is that Australians strongly support the measures that have already been taken on climate change but now want to see further action so that Australia is recognised as a world leader in tackling climate change," the institute's chief executive officer, John Connor, said. "The Rudd Government should treat these findings as an invitation to push forward with decisive policies and ambitious targets on reducing greenhouse pollution."

The poll comes a week before the Federal Government's climate change policy adviser, Ross Garnaut, is due to present his draft paper on an emissions trading system. One of the keys to the system is the time line and amount by which greenhouse gases need to be reduced.

All projections so far show Australia's emissions continuing to grow until at least 2020.

Carbon trading to reap billions

Canberra Times
20 March 2008 - 8:41AM
By Andrew Fraser Political Correspondent
with AAP

Cutting greenhouse-gas emissions is set to reap a bonanza of up to $20 billion for Commonwealth coffers.

In a policy brief out today, the Climate Institute says that, based on economic modelling, an emissions-trading system could yield a dividend of between $7 billion and $20 billion for the nation's revenue in as few as 12 years.

It comes on the same day as the lead government adviser on climate change, Professor Ross Garnaut, brings out his second discussion paper and as the Australian Industry Group's budget submission calls for a $3 billion tax break for business to deal with the Government's climate-change policies.

The Climate Institute said that the lower end of expectations on the emissions-trading dividend, $7billion, was more than what was allocated in last year's budget for community services and the higher end, $20 billion, was more than the allocations for either defence or education. The institute modelling used the target of cutting greenhouse gases by 20 per cent from 1990 levels by 2020.

Climate Change Minister Penny Wong announced this week that a Green Paper on an emissions-trading scheme will be released in July with draft legislation to underpin the system due at the end of the year. The scheme, to begin in 2010, would work by giving domestic polluters the ability to buy carbon credits to off-set their greenhouse-gas emissions. Those credits could be bought in forestry projects in neighbouring countries. The Government is to set a limit on the emissions of greenhouse gases it will allow to be produced under the trading scheme.

The institute brief says, "The size of the emissions trading dividend will be critically dependent on the level of Australia's emission target or 'cap', and design issues such as the treatment of emission-intensive export industries," the policy brief says.

A spokesman for Senator Wong said yesterday that definitive dividends were hard to specify, given the many variables, but welcomed the institute's contribution.

"It would be premature to speculate about revenue from emissions trading," he said. "This would depend on a number of considerations and inputs, including Treasury modelling, the Garnaut review and community and business feedback following the Government's Green Paper in July."

The institute's brief notes Professor Garnaut's warning in his first discussion paper, that emissions trading "will disproportionately affect low-income households", and says that this must be guarded against.

It proposes the dividend could be used for subsidies and incentives for energy-efficient housing and appliances, and increased support for public-transport infrastructure.

It noted suggestions from some stake holders that it could be used on "one-off payments to large emitters to offset the loss of asset value or operating profits" or to "support broader macro-economic reforms such as reductions in payroll and corporate taxation".

"At this stage the core decision facing Government is not how to spend this revenue but what the emission 'cap' or target will be implemented under the trading scheme," the brief says. "Until this is known, it is not possible to comprehensively assess the size of the emissions-trading dividend or consider how it might be appropriately used." The Australian Industry Group Budget submission says the Government should phase in a reduction in company tax to 25 per cent from 30 per cent by 2010 to help business adjust to climate change.

Chief executive Heather Ridout said, "Australian business wants to be part of a global solution to the threats posed by climate change and supports progress on giving shape to a domestic Emissions Trading Scheme.

"However, the scheme will leave many businesses and their employees in trade-exposed industries operating at a disadvantage relative to competitors abroad and it will require a massive investment effort by the business community as products and processes are re-evaluated and re-engineered."

Green groups seek fuel subsidies reversal
March 18, 2008 04:31am
Article from: AAP

ENVIRONMENT groups have urged governments to spend more taxpayers' money on renewable energy than the fossil fuel industry.

Greenpeace today released an opinion poll which found a majority of Australians think renewables should receive more subsidies than fossil fuels like coal.

The Australian Conservation Foundation (ACF) issued a report showing federal and state governments are investing nearly 50 times as much on fossil fuels and uranium mining as they do on technologies like solar and wind power.

Both groups say the vast difference in funding contradicts governments' ambitions to cut greenhouse gas emissions.

The Newspoll commissioned by Greenpeace found 60 per cent of respondents thought renewables should get the most funding.

Another 30 per cent thought the subsidies should be equal for both sectors.

Fifty-six per cent said more money should be ploughed into renewables immediately, and 28 per cent said over the next 12 months.

The poll also showed that only 29 per cent knew fossil fuels received higher funding.

"The legacy of the Howard Government is an abuse of taxpayers' money and out of step with public opinion," Greenpeace climate and energy campaigner Julien Vincent said.

"Rather than adding to their profits, we should be penalising the use of fossil fuels and putting public money into renewable energy solutions."

Greenpeace is seeking signatures for a petition asking Federal Treasurer Wayne Swan to phase out subsidies for fossil fuel companies.

The ACF report, Responsible Public Investment in Australia, said Government-controlled funds are putting $47 into fossil fuels and uranium for every dollar they invest in renewable energy.

"With so much emphasis on climate change from federal, state and territory governments, many people would be shocked," ACF executive director Don Henry said.

"Government-controlled funds that do not manage environmental risks in their portfolios put at risk their financial returns and the world we will leave for our kids."

Separately, a group of eminent climate scientists have called on the Federal Government to stabilise national emissions in two years' time.

The report by the Australian Climate Group released today warns the extent of climate change is likely to be at the extreme end of predictions by the international scientific community.

The group was first convened by WWF-Australia and insurer IAG in 2004.

"Any delay in achieving significant emission reductions could lead to a major disruptive shock to both our economy and our whole way of life," IAG chief risk officer Tony Coleman said.

"If the extent of climate change continues to emerge faster than anticipated, Australia will quickly run out of options unless we have already made good progress down the path of reducing emissions," Mr Coleman said.,23599,23394303-29277,00.html

Think tank says a dam far cheaper than desal

The Age
Ben Doherty and Peter Ker
March 19, 2008

WATER from Victoria's proposed desalination plant is likely to cost nearly three times the price Melburnians currently pay for their household water, a report by the Institute of Public Affairs has found.

And the cost of sourcing water from the $3.1 billion plant at Wonthaggi could be up to six times as expensive as building another dam.

The conservative lobby group's claims come as three senior economists from the Australian National University have also called for a more thorough economic analysis of the desalination project.

The IPA report, released today, argues that the Victorian Government should consider building a new dam to boost Melbourne's water supplies, in preference to pursuing the desalination and the north-south pipeline projects.

Report author Alan Moran, director of the IPA's deregulation unit, found that water from the proposed desalination plant in Wonthaggi would cost 301 cents a kilolitre to harvest and pipe to Melbourne. Currently, Melbourne water users pay an average of 111.8 cents a kilolitre for household water.

Water prices in Victoria are traditionally set by the Essential Services Commission, and the Brumby Government has guaranteed water prices will no more than double by 2012.

No price cap has been set beyond 2012, when the desalination plant becomes operational.

Mr Moran claimed that a new dam built on the Thomson or Macalister rivers in Gippsland would cost in the order of $1 billion, and water sourced from there about 47 cents a kilolitre.

Arguing that other major supply options such as recycling water from the Eastern Treatment Plant and harvesting stormwater were hopelessly expensive, Mr Moran said the Government's ideological opposition to a new dam would cost all Victorians.

But the Government believes dams cannot provide water certainty in an era of climate change and declining rainfall.

Victorian Water Minister Tim Holding said it was easy for people to talk about dams but the reality of choosing locations and avoiding environmental damage was more difficult.

"We now need to complement this network (of dams) with a non-rainfall dependent source of water -- and that is exactly what our desalination plant will provide," Mr Holding said.

However, Professor Quentin Grafton and two other ANU economists have argued that water-saving alternatives such as scarcity pricing -- under which water becomes cheaper in times of abundant supply and more expensive in times of scarcity -- should be seriously considered before the desalination plant is built. Such a model could see Melbourne's water consumption drop and the need for a desalination plant delayed or eliminated, Professor Grafton told The Age.

The economists' submission calls for the scope of the upcoming environmental effects study into the desalination plant to be broadened to include "an economic analysis of scarcity pricing as an alternative".

Compo for green energy casualties

Sydney Morning Herald
Marian Wilkinson and Ben Cubby
March 21, 2008

THE price of electricity and petrol will rise for all Australians under the Rudd Government's plan to slash greenhouse gas emissions, and poorer households will be hardest hit, its chief economic adviser on climate change warned yesterday.

In a blunt report which puts him in conflict with the NSW Government and the nation's power industry, Ross Garnaut argues that coal-fired power generators should not be compensated with free permits to emit greenhouse gases when the federal emissions trading scheme is introduced in two years.

Money raised by selling the permits should be used to compensate the poor instead, and help Australians adjust to the new carbon-constrained economy.

This could include making payments to households, supporting declining communities around the coal-fired generators, investments in clean energy technology, and public transport.

He also says export industries that rely on fossil fuel burning should be compensated.

On the critical issue of what Australia's emission target should be in 2020, Professor Garnaut declined to give a figure until Treasury modelling is completed, possibly in June.

The Government has said it will cut emissions by 60 per cent on 1990 levels by 2050.

Professor Garnaut warned Kevin Rudd that giving away permits would create a "carpetbagger's paradise", and they should be sold. "The Europeans found that when they gave free permits to major electricity generators, the generators pocketed the money and then raised their electricity prices anyway," he said.

Last night the NSW Treasurer, Michael Costa, described Professor Garnaut's report as a "theoretical" study.

Mr Costa raised the political stakes for the Prime Minister, saying the stability of the national electricity market was at risk if the generators were not compensated. He said the electricity generators had property rights that could not be ignored and if they did not receive free permits, they must be compensated by the Rudd Government when emissions trading is introduced.

"If they choose not to compensate they will destroy the national electricity market," Mr Costa told the Herald. He said it was "inconceivable" the generators' property rights would not be recognised by the Rudd Government. He said Professor Garnaut had left the door open on compensation for the generators but said he had "squibbed" the issue by not making it clear in the report.

Mr Costa is attempting to privatise the NSW electricity industry. Market analysts have raised concerns that without free permits the generators will be worth much less.

Mr Costa was backed by the National Generators Forum, whose chief, John Boshier, attacked the report.

"Professor Ross Garnaut has released a report which demonstrates a fundamental lack of understanding of how Australia's energy market operates," he said.

"Professor Garnaut appears unable to accept that if electricity is not available when required, the cost to families and the economy is immediate and immense. These generators cannot operate if not commercially viable."

But Professor Garnaut's report argues that giving free permits would not keep down electricity prices, and that coal-fired power generators could pass on price rises under the scheme.

"If you were handing out free permits to the generators, there is no reason to expect that to have any effect on levels of investments [or] on whether a coal-fired power station closes down," Professor Garnaut said yesterday. "You are effectively handing out money. Those permits could be sold and turned into money. It's not going to affect the price of electricity. It's going to affect income distribution."

But he said he welcomed debating the issue with the generators in a "transparent" way.

"For too long in Australia we had a discussion of these issues behind closed doors," he said. "These are very important questions for the welfare of the Australian community."

The Minister for Climate Change, Penny Wong, said she welcomed the report, but said the Government "will take a careful and methodical approach to finalising the design of emissions trading".

Professor Garnaut's report was backed by environmental groups.

"Free permits to the electricity industry would mean a multi-billion dollar hand-out to polluters that will undermine the credibility and effectiveness of the emissions trading scheme," said Greenpeace's head of campaigns, Stephen Campbell.

Gavin Gilchrist, of the Big Switch, accused coal-fired power producers of a scare campaign to protect their investments.

Australian firms bristle over cap-and-trade proposals

As government publishes paper outlining plans for emissions trading from 2010, leading employers' group calls for tax break to help them cope with new scheme

Joanne McCulloch
20 Mar 2008

Australian businesses are demanding a $3bn windfall from the government to help offset the costs of meeting new emission targets.

In its 2008 budget submission, the Australian Industry Group (AIG), a non-profit organisation representing 10,000 employers, said the government must cut company tax by five per cent from 2010 - the same year the country's new cap-and-trade scheme is scheduled to be introduced.

The group claimed that if the tax break is not granted, Australian businesses - which include international oil giant Rio Tinto - will be hit with billions of dollars worth of extra costs.

"Many businesses and their employees in trade-exposed industries will find themselves operating at a disadvantage relative to competitors abroad," warned AIG chief executive Heather Ridout.

Separately, a band of 22 top electricity companies this week demanded their own $1bn compensation package, claiming the new carbon targets would cost them an extra $28bn a year.

The calls for financial aid - which could set an international precedent for other leading power firms - coincided with the publication of a discussion paper on emissions trading by Australia's top climate change advisor Ross Garnaut.

Professor Garnaut - who earlier this year published an interim report on climate change's impact on Australia - is opposed to any form of compensation to companies who don't meet the new requirements on carbon emissions.

The new paper urged the government to set the budget and targets for the new Emission Trading Scheme immediately. However, he added that Australia should hold off on implementing specific strategies to curb the impact of climate change until other developed countries had announced what measures they would take - something it is hoped will occur over the next two years as talks to agree a successor to the Kyoto Protocol approach their scheduled completion date of December 2009.

"We should establish an emissions budget and reduction targets prior to the emergence of a comprehensive global agreement, but comparable in adjustment effort to those accepted by other developed countries," Garnaut said.

Under the proposals included in Garnaut's report, emissions permits would be auctioned to firms and the government would introduce welfare payments for low-income families to help them cope with the rising cost of electricity.

The government-commissioned report also recommends the setting up of an independent "carbon bank" to regulate the scheme.

It is hoped the cap-and-trade scheme will tackle Australia's reliance on coal and fossil fuels. According a recent study, Australians are the worst polluters per capita in the developed world, deriving 75 per cent of all power supplies from coal.

Ross Garnaut: the green man

Sydney Morning Herald
March 21, 2008

He's no soft touch, but Ross Garnaut's climate change proposals may win more friends in the environmental movement than the boardroom. Stephanie Peatling reports.

As a young career diplomat in Beijing in the 1980s Kevin Rudd served for a brief time as wicket-keeper for the Australian embassy's cricket team. His captain was the economist turned ambassador Ross Garnaut.

Two decades on and the positions on the field have been shuffled - the Prime Minister now relies on his former boss to advise the Federal Government on the potential economic impacts of climate change.

A relative novice to the field, Professor Garnaut says he has been "bumping into climate change" for many years, as he has the Prime Minister.

Rudd came to him in Beijing as a rising star of the Department of Foreign Affairs. Garnaut's star was already shining brightly: he was plucked from the world of academia in his mid-30s to be the then prime minister Bob Hawke's senior economic adviser at a time when the Australian economy was being transformed by the floating of the dollar.

Speaking in his office at the Australian National University, Garnaut remembers Rudd as "very conscientious" and "a fine officer". Neither suffered any lasting tarnish from a "lost in translation" moment at an official event when Rudd reportedly described Australia and China as enjoying "multiple orgasms". The two men have kept in touch with regular chats over the years.

So Garnaut was not surprised when Rudd called him last year and asked to see him. But Garnaut, expecting the conversation to cover the usual subjects of economics and foreign policy, was momentarily surprised when Rudd asked him to return to the world of public policy to take on one of its biggest challenges: global warming.

"I thought about it a little while and thought I had been doing the same things for a long time and thought it would be interesting," Garnaut says.

The Garnaut Climate Change Review, as it is officially known, was commissioned by state and territory leaders last year. All were publicly committed to greater action on global warming but lacked any comprehensive research on what needed to be done and what risks could follow.

As Opposition leader, Rudd promised he would back the review if he was elected. He made good on that promise and the review now has the job of examining "the impacts of climate change on the Australian economy and recommending medium- to long-term policies and policy frameworks to improve the prospects for sustainable prosperity".

This week Garnaut presented his vision for an emissions trading scheme which the Federal Government is relying on to significantly drive down Australia's high level of emissions without devastating the economy. He will hand his final report to the Government in the second half of the year.

It is an Australian version of the 2006 report done by Sir Nicholas Stern for the British Treasury which found the cost of not acting to avert dangerous climate change would be comparable to the combined effects of both world wars and the Great Depression. Stern concluded it was no longer possible to arrest climate change developments over the next 20 to 30 years and instead opted for a strategy to reduce the impact. Stabilising the atmosphere would require cuts in greenhouse gas emissions of about 80 per cent on current levels, a figure supported by Garnaut in an interim report he released last month.

The analysis so far and the papers Garnaut has already produced have "put an H-bomb under the debate", says one person familiar with the review process.

"He's been a bit hot and cold. At the beginning he was a bit wobbly, and interested in China and too many issues that were at the margin. But he's smart and he's challenging and he is outside the box. He doesn't take any crap."

Garnaut's relative lack of knowledge about climate change has turned out to be a plus, this person says, because it has allowed him to have a completely fresh take.

"He is fresh. He is challenging our assumptions. Being from outside the box allows him to ask questions like what will happen to Australia if the region gets hammered, and what will happen to trade. He's not just an economist."

Now 61 and a grandfather, Garnaut is back in the thick of political life and finds himself enthralled by a project that neatly draws together the threads of his professional life: academic, economist, diplomat, bank chairman, director of mining companies and part-time farmer.

Garnaut's review team has been hand-picked from around the country and is formally based within the Victorian Premier's Department. But Garnaut prefers his office at the Australian National University with its Indonesian wooden ox and wooden replica of a Han dynasty horse.

His staff like to warn people about the messiness of his office while also saying he takes a certain pride in it. There is no evidence of mess on an unusually warm Canberra autumn day but piles of papers, journals and books, all neatly stacked or shelved, cover almost every surface of the small office in a building named after the great economist H.C. "Nugget" Coombs.

Coombs's career was set against the backdrop of the Great Depression and the complete economic collapse that came to a country reliant on agricultural commodity exports for its prosperity.

In the 21st century Australia finds itself again grappling with a huge problem created by its dependence on another resource - coal - for both export to energy-hungry developing countries such as China and for its own power needs.

He gave his first public lecture on his work the day Rudd appointed Penny Wong as Australia's first Minister for Climate Change. In that speech, and since then, Garnaut has shown himself to be deeply smitten by the intellectual challenge climate change presents and willing to recommend much tougher action than the Government may be willing to take.

"Is Ross Garnaut becoming Kevin Rudd's green Frankenstein?" one tabloid newspaper asked recently. He has already impressed the environmental movement.

The executive director of the Australian Conservation Foundation, Don Henry, says Garnaut has "taken a lot of time to read the science, including all the new science".

"In some ways he's giving us a rare gift of a thoughtful perspective from outside of government. His reports are well-grounded in science and the analysis is good ... His analysis is taking an international view which is very important. It's in our national interest that Australia is a global leader."

Garnaut's work is based on the economic impact of trying to keep carbon in the atmosphere down to a particular level. He is looking at several different levels and the impact they will have, but no level is below 450 parts per million, the point at which scientists say the world has no better than 50 per cent chance of preventing dangerous climate change.

Henry and other environmental groups say Garnaut should at least model more aggressive scenarios. "We'd say he should go further - at least tell us what those lower levels would mean," Henry says.

A clue to why Garnaut has chosen to model the higher-end limits may come in the former prime minister Bob Hawke's comments to The Australian Financial Review late last year. Hawke could not fault Garnaut's brain, but what fascinated him was that he "operates within the bounds of the do-able not the unobtainable".

These "do-able boundaries" are what Garnaut has set himself. He knows the Government will not accept a reduction in Australia's emissions without an assurance that the economic good times will continue.

For all his fascination with the subject and his cognisance of the latest science which warns the pace and severity of climate change is greater than anyone can imagine, Garnaut is no greenie. He sheepishly admits he still drives a "high-emitting Ford" because he has not had time to switch to a more efficient vehicle.

The only reason his house has energy-efficient light bulbs is because his wife insisted on them; and the choice of trees they planted on their property outside Canberra was not motivated by carbon offsetting concerns alone, Garnaut says with an apologetic smile.

He is not impressed with emotional calls to arms that rely on pictures of polar bears adrift on tiny chunks of ice or photographs of parched and cracked landscapes.

"If concerns for those things is part of what people living in Australia value it's part of the reason for doing something ... Environmental issues are very important to quite a few people. With my background I think more about geosequestration and economic issues but I acknowledge that many Australians place a lot of value on the impacts on the environment."

While he says concern about the future of the Great Barrier Reef or the vulnerability of species are "part of our polity's reason for doing something" they are not the type of concerns "that would move governments".

"It has to be analysis that follows the logical and not the emotional ... We're not appealing to those emotional dimensions."

In an essay written for the Herald earlier this month the novelist Ian McEwan pondered whether the enormous challenge of climate change would be enough for people to act on a global scale for the sake of the quality of life on Earth for future generations.

"Is this the beginning, or the beginning of the end?" he wrote before concluding on a pessimistic note.

Garnaut says the "international community has a mixed record on these things. It managed on some big things to be successful." But he is not prepared to say whether climate change will be one of the things future generations can claim as a success.

"There's a way through this. That's not the same thing as saying that it avoids all prospects of dangerous climate change. If we do things right there's a chance of avoiding it.

"It's by no means certain we will avoid those risks. It's too pessimistic but I don't know more than there's a prospect of humans getting this right."

What's green, transparent, and wears a cap? Garnaut's big idea

The Australian
Rebecca Weisser
March 22, 2008

THOSE who suspect Ross Garnaut has gone soft - or worse, wet and green - in his 60s have got the man wrong.

The father of trade liberalisation in the 1980s brings an equally hard-headed approach to the design of an emissions trading scheme.

Professor Garnaut's tough suggestions in his interim report, delivered last month, about the need to set much higher emissions targets, drew praise from green groups, but left others wondering if the economic rationalist had changed his spots.

But the man who has been riding a bike to work for the past 40 years, long before it became a political statement, remains true to his economic principles.

He was senior economic adviser to Bob Hawke from 1983 to 1985 and he says the experience of trade liberalisation and structural adjustment gave him confidence in the value of using markets and having simple, transparent approaches.

"Australia, in the first three-quarters of its history as a federation, got itself in an enormous tangle because it thought that through trade policy you could serve all sorts of objectives, so you had the elaborate Australian system of protection," he said yesterday.

"It was only when we started applying very simple principles in the middle of the 1980s that we started to unwind the problems that had been there for a very long time."

Coming to the field of climate change as an economist, Garnaut set to work from first principles.

He had his "Eureka!" moment early on in the process.

It quickly became apparent that the easiest way to reduce greenhouse gas emissions was to set a cap, create a limited number of permits for those who wish to emit, which would decrease over time, and auction them off, letting the market determine their value.

The funds generated would be spent on structural adjustment or returned to the community to ensure that government didn't grow in size.

It seemed so straightforward compared with what others were proposing, that he asked himself what he was missing.

He concluded that others had come up with their convoluted schemes because they had been distracted by other objectives.

"(John) Howard's scheme was designed by the big emitters," he said.

"They thought the most important thing was that they didn't change at all, so they had to get all the free allocations, and a lot of the other complexities emerged from the complicated starting point."

However, the European trading scheme showed that giving power generators free permits worth millions of dollars didn't stop them putting up their prices.

"The Europeans have learnt from that. If you look at their post-2012 arrangements, they're much closer to ours. I must say, we, from first principles, had got there before the post-2012 arrangements had come out.

"The Europeans got there from having got themselves in a mess. But we end up at a similar point."

Professor Garnaut is not daunted by the opposition to his scheme from power generators. He's been there before. The tariff reductions that he advocated in the 1980s were bitterly fought by the manufacturers.

"In a democracy, or any political system, vested interests apply pressure to the policy-making process," he said.

"The best counter to that is transparency. That's why the transparent processes of the Productivity Commission were very important in trade policy, just throwing broad light on what was actually happening.

"The transparent processes of our review will play a similar role here.

"I'm not disrespectful of those strong points that have been made and I want to engage those people in discussion.

"I will put a big effort into understanding the arguments, and if they make a good case, I will be the first to acknowledge it.",25197,23413840-5013404,00.html

Families face small price rises despite scare campaign

Sydney Morning Herald
Ben Cubby Environment Reporter
March 21, 2008

MICHAEL WARD and his children, like most Sydney households, are well placed to survive the introduction of the carbon emissions trading scheme outlined by Professor Ross Garnaut yesterday.

Mr Ward, a single parent who lives in Balmain with his daughter, Irena, 11, and son, Max, 10, will see his expenses creep up by a few dollars a week as carbon use becomes more costly.

But the gloomy scenario of soaring power bills coupled with rising retail costs, predicted by some industry groups, may not take place.

Calculations prepared for the Herald by two independent environmental consultancies show that most people will pay more for some products, but that those costs could be offset by energy savings, without changing their lifestyles.

"From what I've seen, the main thing it does is provide an incentive to manage our energy use a bit better," Mr Ward said. "I think the real impact will be on the really big energy users, less so on us."

Mr Ward and his family heat their home with gas, and paid $339 to use 13,841 megajoules in the past six months.

The environmental consultancy Energetics said if the carbon price per tonne ended up at around $30 per tonne, Mr Ward's gas bill would rise about 8 per cent under a carbon trading scheme, leading to an annual price increase of $55.

Gavin Gilchrist, the managing director of environmental consultancy Big Switch Projects, used slightly different calculations to predict that Mr Ward's gas bill would rise by $2.40 a week. Mr Ward's household generates about 1.8 tonnes of greenhouse gas per year by heating the home with gas.

The Ward family used 6706 kilowatt hours of electricity in the last 12 months, the equivalent of releasing about six tonnes of greenhouse gas.

Under a deal with Mr Ward's supplier, Origin Energy, 20 per cent of the power he uses comes from renewable sources. His total electricity bill in the last 12 months came to $1026, and he will face an annual rise of about $171, said Cheryl Bowler, an Energetics consultant.

Without his 20 per cent green power, Mr Ward would face rises of $213 per year, because renewable energy will not be subject to a set carbon price.

The rise of about three dollars a week on electricity bills would not be felt because most people and most businesses would understand the need to make small adjustments to their behaviour, Ms Bowler said.

"People need to be more aware of their energy wastage, but I think it will be at the point where the difference [under an emissions trading scheme] will be so small that most families don't even notice it," Ms Bowler said.

Mr Ward spends about $50 each week on petrol, and that is likely to go up about $3 a week Mr Gilchrist said, while Energetics put the rise at about $5 a week, or $139 a year. Both rises under a carbon trading scheme are much less than petrol price increases seen in the past 18 months as world oil prices went up.

A trading scheme that set a carbon price of $30 a tonne would result in Mr Ward's weekly grocery bill of about $200 going up by about $5 a week.

"In reality, the price rises are really very small, though there is a scare campaign to the contrary," Mr Gilchrist said. "And of course all this assumes that Mr Ward and his family do not change their behaviour at all, that businesses supplying his family don't change their ways at all, and ... it assumes that the Government doesn't spend some of the $7 billion it raises through the scheme helping households shift to lower carbon use."

Dirty old Munmorah at risk in changing times

Sydney Morning Herald
Marian Wilkinson Environment Editor
March 21, 2008

FEW coal-fired power plants are more vulnerable in the energy revolution than Munmorah on the Central Coast. The state-owned Munmorah has a reputation as the oldest and dirtiest coal generator in NSW.

It emits more than a tonne of greenhouse pollution for every megawatt hour of electricity it generates. In 2006 it emitted about 1.5 million tonnes of carbon dioxide, one of the main greenhouse gases, according to figures provided by Hugh Saddler, managing director of Energy Strategies. That meant Munmorah was responsible for about 1 per cent of the state's total carbon dioxide emissions.

Under the emissions trading scheme outlined by Ross Garnaut, coal-fired power stations such as Munmorah would find their costs rising as they were forced to buy permits to emit carbon.

Professor Garnaut argued in his report yesterday that coal-fired power generators should not be compensated with free permits to emit when the Rudd Government brings in the emissions trading scheme from 2010.

He said there was no evidence that free permits would stop electricity price rises being passed on to consumers and could give super-profits to the generators.

He believes the generators can and will pass on the costs of their permits to electricity consumers.

Environmental groups are also strongly arguing against free permits, saying coal-fired plants such as Munmorah must be replaced with cleaner plants sooner rather than later.

They point out that Munmorah's state owners, Delta Electricity, told the state's electricity inquiry last year that its coal-fired power plant needed a big refurbishment otherwise it would need to be shut down in 2012. Free permits could give its heavily emitting coal generators a new lease of life.

But the NSW Government is arguing against Professor Garnaut's advice. Free permits for the state's coal-fired power generators could be critical to plans to privatise the generators this year.

The National Generators Forum argues that free permits are needed to cover what it estimates will be a loss in value of the coal-fired generators of up to $1 billion once the carbon price rises under an emissions trading scheme. The alternative, it argues, will be to send electricity prices soaring or force coal-fired power stations to shut down, creating electricity shortages.

But Jeff Angel of the Total Environment Centre echoed Professor Garnaut's arguments, saying the aim of the emissions trading scheme is to force generators emissions and encourage clean energy alternatives.

Carbon permits promise rivers of cash

Sydney Morning Herald
Marian Wilkinson Environment Editor
March 21, 2008

SELLING permits to businesses that wanted to emit greenhouse gases would raise large amounts of government revenue, the climate change review head, Ross Garnaut, said yesterday.

"It's a big number," he told reporters, but he was reluctant to put a figure on it until Treasury modelling was completed later this year.

The Climate Institute this week estimated that the money raised from permits could total as much as $20 billion by 2020 - more than the current annual defence budget - but Professor Garnaut said only: "There are going to be very large amounts of money."

The emissions trading scheme will be launched by the Rudd Government in 2010.

It is designed to create a carbon market that will help minimise the cost of Australia adjusting to climate change by putting a price on greenhouse gas emission. Most businesses will not be allowed to release carbon dioxide without a permit.

Professor Garnaut said it was important the scheme be simple, credible, fair and easily understood. The community needed to discuss how money raised from permits would be spent because the permits' cost would almost certainly mean price rises for electricity, petrol and energy-intensive goods and services.

Professor Garnaut's draft report on emission trading argues that much of the money should be used to help Australians adjust to economic changes.

"This has very large implications for Australians, very large implications for future prosperity, very large implications for the distribution of income in Australia," he said.

Among those needing compensation from the auction money, Professor Garnaut said, would be low-income households faced with paying more for electricity and petrol.

Claims by low-income households for reductions in real income should be taken seriously.

"One of the intended effects of the scheme is to make emissions-intensive goods and services more expensive. Electricity prices will rise. Petrol will rise."

But he argued there were several ways to approach compensation. These might include investment in public transport, investment in clean coal technology or other clean energy.

Other demands on the auction money would be so-called trade-exposed industries, such as steel, aluminium and black export coal, which used large amounts of energy to produce exports.

But Professor Garnaut warned about costs. "There is not going to be a limitless bucket of money." The Government would have to be disciplined about how it was spent.

Professor Garnaut proposed that all permits to emit be sold, most likely at auction, and that the market for trading permits be supervised by a new regulator called the International Carbon Bank. Permits would become more valuable as Australia and the world adjusted to lower levels of greenhouse gas emissions.

He said Australian support for the emissions trading scheme would be determined largely by how the permit money was raised.

That, he said, was why he was advising against giving free permits to electricity generators.

"You are effectively handing out money. Those permits could be sold and turned into money."

Scheme that will change your life

  • The Government will issue permits to allow businesses to emit greenhouse gases.

  • Permits can be traded on a national carbon market, which will set a price per tonne for emissions. Businesses will pass this price on to consumers.

  • Proceeds from selling permits can be used to help households and businesses save energy.

Calling on China

Sydney Morning Herald
Stephanie Peatling
March 21, 2008

PROFESSOR Ross Garnaut has called for greater focus on international negotiations on global warming and, in particular, what will happen after 2012 when the current phase of the Kyoto Protocol expires.

He has great faith the international approach can work, but only if the developing world plays a significant role. The shape of the plan became clearer after talks in Bali last December, including on the touchy subject of when, and if, developing countries will commit to cut their greenhouse gas emissions.

As the growth rate in countries such as China, India and Indonesia accelerates, their emissions must also be curbed if the challenge of global warming is to be met. Garnaut wants to see developed countries agree to push for a deal that includes binding reduction targets for developing countries. He would like that to start this year as all the countries that are bound by the Kyoto Protocol gear up for the next negotiations in Copenhagen in 2009.

China is "the most urgent" case, Garnaut says. "There's quite an evolution in China. The Premier himself chairs a committee on climate change. Domestically they have said they will reduce the energy intensity of economic activity by 4 per cent per annum.

"[But] I think it's really important China goes from firm domestic commitment to binding international commitments. That's what the developed world needs to do."

Kyoto, Australia and honesty

Online Opinion
By Arthur Thomas
Monday, 17 March 2008

Climate change cannot be ignored and developing the technologies and attitude to reduce and eventually reverse the trends are crucial for our future. Ross Garnaut's Interim Report suggested cuts and timeframes necessary to reduce the impact of climate change on Australia. The Rudd Government considered the 90 per cent cuts extreme and additional advice is being sought. Seeking additional advice is one thing, but there is no silver bullet for reducing the effects of climate change since it can only be confronted by a global co-operation where total emissions are addressed.

Rudd's forthcoming visit to China

Mr Rudd and Mr Garrett have been "informing" us that once Australia has a "seat at the table," Australia becomes a key player in the fight against global warming and the leader in innovative green technologies that will play a critical part in greenhouse gas reduction in the future.

Green house gas emission reduction is crucial in a future in which the OECD Environmental Outlook foresees a doubling of world GPD by 2030. The clear link between such GDP growth, energy production and greenhouse gas emissions cannot be ignored.

As from March 11, Australia is now part of Kyoto and has that "seat at the table" and at the end of March, Mr Rudd will depart for a 16-day tour of three regions considered vital to Australia's military and economic future: the US, Europe and China. Kyoto, is definitely on his agenda.

Garnaut interim climate change report findings

Much was made of Garnaut's Interim Report and its 90 per cent emission cuts, models and varied input, but very little was made of putting that into context. Section 3 of the report quietly said it all: "The extent of Australia's own commitments to mitigation would depend on progress towards effective global mitigation."

In other words, Garnaut's tough targets must be implemented in conjunction with a global mitigation program, not a unilateral commitment by Australia alone. Without global mitigation, implementing these cuts will have no effect on the impact of global warming on Australia.

Mr Rudd was fully aware of the implications when he asked Ross Garnaut to "report on targets that would lower Australian emissions without harming economic growth." Rudd back flipped when he was forced to embrace John Howard's line "We can't have a situation where Australian industry is bound to take steps to curb greenhouse gas emissions, but competitive countries like China are not bound".


Kyoto requires Australia to limit growth in greenhouse-gas emissions to an 8 per cent increase above 1990 levels for the 2008-2012 period. The 1990 date represents a period of growth so far below our current economic growth as to be impractical. The same applies to China. Before that happens, Kyoto MK II needs to see the light of day recognising the real problems and confronting 2008 and beyond with relevant and effective solutions.

Mr Rudd perceives climate change as "... the moral challenge of our generation ..." OECD members and developing nations lauded Mr Rudd when committing Australia to Kyoto. It was inferred that Australia was now on an equal footing with the OECD and trading partners and can now take a lead role in curbing climate change.

And that raises two interesting questions.

Just how important is Australia when it comes to the world economy? And just what is this persuasive "diplomatic approach" of Mr Rudd's to convince China to cut its emissions? Mr Rudd won't get a "yes" from China without a "yes" from India and other developing nations. To wield such proclaimed influence, Australia must be seen to be a vital part in the global economy, not just a raw material supplier.

We are constantly reminded by Mr Garrett and interest groups, both endorsed by Mr Rudd, that Australia is the No4 major global emitter and as a responsible global citizen must act to reduce the impact of climate change.

But how valid is this claim and what does it all really mean?

That No4 ranking is based on outdated, pre-1996 data and calculated on a per capita basis.

When it comes to greenhouse gas emissions, Australia produces less than 1 per cent of the global total. Since the 1996 report was tabled, total global emissions have blown out and Australia's contribution in proportion to the total has plummeted.

Based on total emissions, Australia is ranked 16, producing around 1 per cent. How important and what effect is this ranking on a per capita basis? Australia is ranked 53 in the world with just 3.2 per cent of the world's total population. India and China on the other hand combine to account for about 40 per cent of global population. If Australia complied with the Garnaut recommendation and cut emissions by 90 per cent, the overall effect would be a reduction in global carbon emissions of less than 0.9 per cent. Even if Australia cut emissions by 100 per cent, the overall impact on global warming would be negligible if acting unilaterally and without a global mitigation co-operation agreement.

Considering the foregoing begs the question of just why is Australia being publicly promoted as being so vitally important in the global warming issue?

Signing Kyoto does not place Australia on an equal footing with OECD and our other trading nations. Australia is now committed to playing uphill on an uneven field. Because so much was deliberately made of Australia's now defunct No4 ranking, it got many of the OECD governments off the hook with their own policies and commitments to Kyoto. It is more likely that the OECD strategy was to exploit Rudd's inexperience and commitment to Kyoto policies to isolate Australia from the US and hopefully force the US to sign Kyoto.

Much has been said about the strategies used to cut emissions by many OECD and other nations and held out as a model for Australia to follow even when the majority of developed nations in Kyoto failed miserably to meet their targets. But what are these strategies and just what has been achieved? Can Australia successfully implement these same strategies?

When it comes to emissions, the difference between Australia and many of the OECD countries comes down to two basic strategies.

To reduce their greenhouse gas emissions, the OECD nations have:

  • outsourced energy intensive industries to other countries; and
  • a sizable nuclear component in its energy base loads.

India, China and the former Soviet bloc countries provide low cost manufacturing bases. Australia's remoteness seemed a logical reason to keep its energy intensive industries at home to provide jobs, utilise infrastructure and expand export earnings.

On the nuclear side, OECD nations alone account for 77 per cent of the world's nuclear power generation. Thirty-three per cent of Europe's overall energy demand is met by nuclear. Increasing numbers of reactors are in the design and construction stage. Thirty-one nations worldwide operate 439 nuclear reactors for power generation.

The Australian government prohibits nuclear power and has no nuclear input to offset emissions from its base load power. With the exception of the variable input from Snowy Mountains Hydro and local domestic hydro in Tasmania, Australia's entire energy base load will be subjected to cuts under Kyoto. Solar and wind are minor contributors. In Australia, our per capita emissions represent 16 tonnes of carbon dioxide equivalent. In the OECD, it is only 11.5 tonnes carbon dioxide equivalent helped by a sizable nuclear component.

China's Kyoto windfall

China signed and fully supports Kyoto. Unlike developed nations the rapidly developing giants, China and India, are exempt from the initial 5.2 per cent reduction target of six greenhouse gases by 2008-2012, based on 1990 levels.

China's exemption presents it with a massive economic windfall by enhancing its price competitiveness and increasing exports to fuel foreign consumer spending. It will also experience a jump in foreign direct investment.

If manufacturing and service industries of the developed nations in Kyoto are to produce competitively priced goods and return profits to shareholders the only option will be to outsource their bases to China, India, Vietnam, and so on. The downside is an increase in emissions for the manufacturing-base countries, and a decline in domestic job opportunities and GDP in developed countries. What is Mr Rudd's strategy to confront this possibility? Maybe the answers lie in the Australia 2020 Summit perhaps?

How could China refuse to submit to Mr Rudd's charm and diplomatic persuasion to commit to emission cuts beyond its current obligations? The answer is "easy" Any commitment that would decrease China's high economic growth rate will jeopardise the ambitious growth goals of the 10th and 11th 5-Year Plans. Especially with high inflation and the impact of lower consumer spending in the US.

Hu Jintao has a very ambitious vision for China 2020. During the 17th NPC and presentation of the 11th 5-Year Plan, he appeared to reconfirm the commitment to "quadrupling the GDP value by 2020" as set out in the 10th 5-Year Plan. His ability to play the game however, was highlighted by his subtle change in terminology when he proclaimed the goal was to "quadrupling the per capita GDP by 2020" in place of "quadrupling the GDP value by 2020".

That is a much higher growth target than that set earlier. No one is going to convince those in the Zhongnanhai to give that up.

Signatories to Kyoto strengthened China's hand by granting it the right to continue on a path of massive emission increases that undermined the efforts of the developed nation signatories. The impact of this becomes clear when comparing the differential in growth between 1990 and end 2007. The OECD's 2007 model of doubling global GDP by 2030 will result in massive increases in total global emissions.

China's increasing emissions

China passed the US as the world's biggest carbon emitter and now wears the crown of the world's biggest single polluter of air, soils, rivers and marine environments.

Despite this China is still committed to high economic growth through to 2030. To meet its growth plans China intends to achieve 67 per cent urbanisation by 2030. A review of China's population now confirms the 1.5 billion mark will be reached prior to 2030. Accommodating such growth and demographic change will involve the construction of the equivalent of 1.5 cities the size of Beijing each year over a 14-year period to 2020. That alone will create a massive increase and ongoing demand in energy, steel, glass, cement, timber, plastics and chemicals. This in turn will increase emissions and demands on a rapidly shrinking water resource.

Such change and surge will increase the already massive growth in China's private car ownership, exacerbating emissions and resulting in disproportionate use of resources such as water and energy as rural becomes urban. Although official figures suggest that 140 million cars will be on China's roads by 2020, experts consider this too conservative when taking into account the growth plans for 2020.

Much has been made of China's huge investment in renewable and alternative energies. Except for some PR exercises, it is limited only to hydro and wind. As for nuclear, China has 11 reactors in operation and eight under construction. By 2020 the intended goal is 40 nuclear reactors with two to three being commissioned each year. There is clear evidence of the use of selective data in official statements, but by 2020, 92 per cent of China's base load will continue to rely on coal. Nuclear and renewables will contribute only 4 per cent each.

At this time we should bring some perspective to China's energy growth that has been failing to play catch-up with demand. For 12 months 2005-2006, the rate of energy growth was well in excess of economic growth at just over 20 per cent and in 2007 there is still a serious energy shortfall.

So we can conclude that:

  • China has an excessive and increasing energy demand;
  • demand is outpacing capacity; and
  • wasteful energy use and pricing policies are undermining gains.

If Mr Rudd can convince Hu Jintao to cut back just on emissions alone, he will achieve a monumental economic miracle. It will be a good opportunity for Mr Rudd to vigorously debate the issue in Putonghua to ensure his points are not at risk of distortion in translation.

From political speak, the most likely translation of events in China will be on the "success" of the talks resulting in the "...ongoing joint intent and genuine co-operation by Australia in which Australia, US, India, Japan, South Korea, and China agreed to collaborate on strategies to cut greenhouse gas emissions in half by the end of the 21st century within the agreed framework." A major political coup for Mr Rudd?

Australia in perspective

To put Australia in perspective, we must be honest with ourselves. If we are to make a change then Australia must be able to bargain from a position of strength.

Do we have that strength? If so! Where is the stick and where is the carrot?

It is China's insatiable appetite for raw materials and exports of cheap consumer goods that is driving Australia's economy, not vice versa. Do we impose environmental taxes or penalties on our uranium and iron ore? Possibly impose tariffs on imports?

China is not relying on Australia in the medium to long term. It has substantial mineral reserves that include uranium and is negotiating for investors and partners for exploitation. Look closely at China's rapidly expanding rail network and discussions with India, Mongolia, Kazakhstan, Tajikistan and Russia on iron ore, coal, uranium, gas and oil. The Tibet railway and extensions now under construction will transport Tibet's vast mineral reserves to the processing centres in China. Of course China, India and other countries are interested in Australia's uranium. The reserves are high grade and easily mined as well as being the cheapest and most stable source of supply available.

2030 is the key to global survival and is common to all climate change strategies and with good reason. 2030 also plays a key role in China's planning and the real impact of on our future.

This is not a question of China bashing, Australia bashing or pro nuclear. It is a matter of simple awareness and being informed and being able to gauge the relevance and credibility of our politician's statements and policies, as well as being able to gauge the same in deliverances from the many self interest groups, well meaning and otherwise.

China's growing impact

We ignore the real impact of China on global warming at our peril. Without China any global commitment is meaningless.

An extract from the recent study by UCLA:

"The researchers' most conservative forecast predicts that by 2010, there will be an increase of 600 million tonnes of carbon emissions in China over the country's levels in 2000. This growth from China alone would dramatically overshadow the 116 million tonnes of carbon emissions reductions pledged by all the developed countries in the Kyoto Protocol."

Put another way, the projected annual increase in China alone over the next several years is greater than the current total emissions produced by either Great Britain or Germany.

Good intent, honest belief, intense emotion, self sacrifice or extreme activism won't get us there without the co-operation of key polluting nations on a global scale. Properly channelled these efforts can achieve a green environment for Australia's future generations.

Crunch time

For Mr Rudd, the April visit to China will be more than a courtesy discourse in Putonghua. Now Australia has its seat at the Kyoto table, it will be the time and place for Mr Rudd to demonstrate his powers of political persuasion and deliver on both his and Mr Garrett's electoral promises to use Australia's position as a key player in the fight against climate change by "persuading" China to reduce its emissions.

It is as simple as that.

About the Author

Arthur Thomas is retired. He has extensive experience in the old Soviet, the new Russia, China, Central Asia and South East Asia.

Project SafeCom