ECONOMIC AFFAIRS: by Colin TeeseNews Weekly
Realistic emissions policy torpedoed by ideology
, June 23, 2007
In the last News Weekly (June 9, 2007), Colin Teese argued that Australia could cut its CO2 emissions, with minimal adverse effect, by turning to alternative energy sources such as ethanol and nuclear power. However, as he argues here, such an approach would require government economic management and would hence be strenuously opposed by free-market ideologues.A realistic and practical formula I set out for dealing with the matter of Australia's carbon emissions was constructed after consultation with a well-informed friend on these issues: one who evaluates them particularly from the Australian point of view.
The obvious need is to develop sources of electrical-power generation from less polluting, though more expensive, sources - notably gas (which, in the right circumstances, is abundantly available) and nuclear energy.
We need to compel - yes, that's right, compulsion is necessary - either by means of buying and selling the rights to pollute, or by an outright tax on carbon emissions.Efficient and desirable
The latter is by far the more efficient and desirable. In this way the most polluting source of power generation, coal, could be brought to a point where it would no longer enjoy a cost advantage over gas or nuclear sources of power generation.
Under this scenario, so-called renewable sources of power, e.g., wind and wave, would be used where they were more appropriate, that is, in the operation of desalinisation plants. In fact, such plants, energised by wind power, are already operating satisfactorily in Western Australia.
The problem with the other important source of carbon emissions - petrol and diesel - could be contained in the same way as power generation, provided it was accompanied by a mandatory requirement for the additive, ethanol, to be added to fuels.
Underpinning this would be the requirement to introduce a full-scale ethanol program. Australia is uniquely equipped to do this. We have the availability of land to produce large quantities of ethanol.
So long as such a program was properly organised - say, along the lines of Brazil's ethanol industry - we could make huge inroads into the problem of carbon emissions from petrol and diesel-powered vehicles. At the same time, we would be integrating agriculture into the economy in a manner never achieved since the domination of the wool industry 60 years ago - except that, in this case, for the plan to work, Australian ethanol production would have to be first reserved for domestic purposes. Exports would only be incidental.
Doubtless such an outcome would require a degree of government oversight over production targets, destination of output and, ultimately, price if we were to obtain the best outcomes. However, as we all know, such government intervention is currently unfashionable - certainly in the Coalition, and even in the Labor Party.
The same kind of government coordination would also be needed for the feedstock for gas and nuclear-power generation. Of course, this is not presently an issue, because nuclear power generation has not yet won popular support.
But nuclear must become an essential part of any plan to reduce carbon emissions. When it does, enough uranium must be retained in Australia to be processed here for feedstock for what would be Australia's nuclear-power-generating industry. As with ethanol, for this to be ensured, governments could not avoid becoming involved.
The same is true of gas. There are, according to this writer's information, huge undiscovered gas deposits around the world ensuring certainty of supply for an indefinitely long period into the future. Obviously, these fields need to be developed and, in principle, this is a job the private sector should do best.
But, if the example of Russia is any guide, it has taken a government agency to lead the way towards new techniques for the discovery and exploitation of new deposits of both oil and gas. There seems still to be plenty of both around, but the techniques of identification and exploitation are no longer what they were 70 years ago when not much more was needed than to drill a few holes.
Aside from the future, what about the here and now? Well, first, as to gas, Australia - and that means the Australian Government - must have a plan to manage what gas we have available to us.
Does it have any such plan? The signs are not encouraging. According to Laura Tingle in the Australian Financial Review
(June 8, 2007), even the Government's energy research agency ABARE projects that within five years our demand for gas will exceed supply.
That's Australia-wide: in Western Australia, the shortage is already upon them. And this is despite that state possessing 80 per cent of our gas reserves. The trouble is that most of it is being shipped out to China, which cannot get enough of it. Both industry and households are being starved of supply.
Common sense suggests that domestic needs should take precedence over exports, and the WA State Government obviously thinks so. Yet its policy of reserving 15 per cent of future offshore developments for domestic use is actually being attacked by the Commonwealth Government - presumably because it goes against Canberra's vision of an economy driven entirely by market forces.
What should we conclude from all this? Not much that's positive. The modest proposals by the WA State Government probably don't go far enough, but they are a start. Yet even these are generating hostile responses from Canberra.
Given this reaction, it is hard to believe that the Commonwealth Government is ideologically or otherwise equipped to deal with the more ambitious intervention approach needed to implement any of the worthwhile policies for containing carbon emissions.Carbon-trading
The Coalition's ideas so far seem limited to some kind of carbon-trading arrangement without either real targets or time frames. It has even agreed that the coal industry will be given free carbon credits - which almost guarantees it will be useless. The Labor Opposition's position, so far as it can be discerned, is not essentially better.
What neither side of politics has yet managed to appreciate is that the old rules of market forces probably can't any longer apply in the same way in the new circumstances.
If the question of carbon emissions is to be dealt with - and most of the developed world is rapidly coming to believe it must be - then the means of managing what must be done will require a great deal more interventionist-type government policies than we have been encouraged to support in the last 30 years. In the new circumstances, a collaborative approach between industry and government may be the only means of keeping capitalism working effectively.
Europe, it seems, has already recognised this reality. The United States, through actions initiated by some of its state governments, appears to be on the way to the same conclusion.
If we fail to take note of what others are doing and make the necessary policy adjustments here, we could be left behind to our very great disadvantage - all the more so if other governments framed policies to encourage the movement of goods and services to the fullest extent possible by rail transport.
An incidental and huge additional benefit from the sum of these changes would be a saving in imported fuel costs. This outcome would have very large favourable implications for our current account deficit and for the consequent level of foreign debt. As is now being widely recognised more than ever before, our debt level - still continuing to rise - is already at crisis point.
The practical benefits from this kind of approach can thus be shown to be measurably large and realistically achievable. In addition, there would be a significant intangible gain. At present, Australia generates among the highest carbon emissions per head of population in the developed world. Nevertheless, as a percentage of total world carbon emissions, our share is so small that to reduce them to zero would have no serious impact on the world problem.
The reduction of our carbon emissions to negligible levels would, notwithstanding, deliver benefits to Australia. In a world constantly monitoring emission levels, we would be providing a valuable demonstration of what could be done by the independent actions of individual countries. Further, having done as much as we could, we would be immune from international criticism.
All of this could be achieved with a minor, if any, adverse impact on either our lifestyle or standard of living. Power prices to households would no doubt need to rise, but if the rises were associated with an education program about more prudent use of energy, their impact on household energy bills could turn out to be quite small.
Business costs would rise, but that impact too might be lessened by more prudent use of power.
Besides, as far as our exports are concerned, our European trading partners have already put us on notice. In this context, it needs to be understood that Europe is well on the way to reducing its emissions. This is by means of trading an ever-shrinking volume of carbon emissions being pushed downwards by annual cutbacks based on a starting point of 1990 emissions.
The EU have said clearly that they will not allow their program to be derailed by the admission of cheaper imports produced with the advantage of polluting energy. Given this approach - which may well be followed by others - unless our power generation industry cleans up its act, Australian exporters will pay the price of our pollution - at least in Europe, and quite possibly elsewhere.
From all of this we should be able to say that processes are in place to begin dealing with the problem. Far from it. Instead, all kinds of roadblocks are in place, intended to slow down, if not totally stall, any progress towards reducing our emissions.
Fundamentally these roadblocks result from the Government's commitment to a combination of free market ideology and special pleading.- Colin Teese is a former deputy secretary of the Department of Trade.