Science and emissions targets
There are essentially three stages in setting appropriate targets for
Australia's greenhouse gas emissions targets, drawing on different disciplines.
The first stage is examination of the relevant science to learn the
relationship between alternative levels of greenhouse gas concentrations in the
atmosphere and the associated probability of temperature increases and their
likely consequences. The second stage is to use these data to form a view about
the desirable limits to place on global greenhouse emissions. This process will
be informed by economics but is largely a matter of ethical or moral
considerations concerning what is a 'just' distribution of costs between
current and future generations. The third stage is to translate global
emissions targets into conditional and unconditional targets for Australian
emissions. This introduces considerations of national and international
politics and strategic bargaining.
When concerns emerged in the scientific community that increased
emissions of greenhouse gases might be leading to global warming which if
unchecked could lead to dangerous climate change, the Intergovernmental Panel
on Climate Change (IPCC) was established to assemble and assess the best peer-reviewed
science on the topic from a range of relevant disciplines. Its reports have
been endorsed by the world's leading academies of science. Most scientists
submitting to the committee and appearing before it broadly endorsed the
findings of its 2007 report that warming of the climate system is unequivocal;
and gave evidence, with a very high confidence that the increase in global
average temperature since the mid‑20th century is due to
anthropogenic greenhouse gas concentrations.
A brief account of the science follows.
The greenhouse effect
There are a number of 'greenhouse gases'. The most important is carbon
dioxide (CO2). The others listed under the Kyoto Protocol are
methane, nitrous oxide, sulphur hexafluoride, hydroflurocarbons and perflurocarbons.
To express levels of the various gases as a single number, they are often
converted to carbon dioxide equivalents (CO2e), where the conversion
factors reflect the warming potential of the various gases.
The 'greenhouse effect' involves the sun's light energy travelling
through the Earth's atmosphere to reach the planet's surface, where some of it
is converted to heat energy. Most of that energy is re-radiated towards
space—however, some is re‑re‑radiated back towards the ground by
the greenhouse gases in the Earth's atmosphere. Like a greenhouse, this keeps
temperatures higher than they would otherwise be. The effect has operated for
millions of years.
Human activities such as burning fossil fuels (coal, oil, natural gas),
agriculture and land clearing release large quantities of greenhouse gases into
the atmosphere, which trap more heat and further raise the Earth's surface
The relationship between atmospheric concentrations of CO2
and temperature over time is shown in Chart 2.1. There are two important points
to note from the chart. Firstly, there is a clear long-run correlation between CO2
and temperature. This reflects a two-way mutually reinforcing causation; an
exogenous factor, such as variations in the Earth's orbit around the Sun, that
changes temperature will lead to a change in CO2, and a change in CO2
will lead to changes in temperature.
Chart 2.1: Atmospheric
concentration of CO2 and temperature (deviation from recent)
Source: CSIRO, 'Climate
change: the latest science', 2009.
Professor Robert Carter of James Cook University claimed that
temperature rises always preceded rises in CO2 concentrations.
However, Professor Will Steffen, Executive Director of the Climate Change
Institute at the Australian National University, explained that the record also
includes times when greenhouse gas concentration increases preceded temperature
The second point to note from Chart 2.1 is that, over the 800,000 years
shown, the atmospheric concentration of CO2 varied in a range from
around 180 to 280 parts per million (ppm) until the industrial revolution. It
has now risen to 380 ppm.
Since modern measurements began in the late 1800s, global average
surface temperature has increased by around 0.7ºC–0.8ºC. Tree rings and other
records tell us that average Northern Hemisphere temperatures are likely to
have been the highest in at least the past 1300 years. The 13 hottest years
since the mid-19th century have all occurred in the past 14 years.
Global average annual temperatures from 1850 to the present are shown in
Chart 2.2. While there is a clear uptrend trend in the temperature data there
is volatility from year to year, reflecting factors such as volcanic eruptions
and the El Nino effect.
Source: calculated from data
from Bureau of Meteorology.
Some scientists place great emphasis on the average global temperature
in 2008 being lower than in 1998. Professor Bob Carter of James Cook University
interpreted this as indicating 'there is no warming at all, there is cooling'.
However the climate scientists pointed out that 1998 was an outlying El Nino
year (Chart 2.2) and that 2008 was still hotter than any year prior to 1990.
Professor Steffen, added that the less volatile ocean temperatures show a clear
Media reports claim that an expansion of the ice area in part of
Antarctica provides evidence of global cooling. Dr Ian Allison, of the
Australian Antarctic Division in the Department of the Environment, Water,
Heritage and the Arts, explained that wind changes were spreading a decreasing
volume of ice over a wider area. He also drew attention to the localised impact
of the hole in the ozone layer, which until the reduction in use of CFCs allows
its repair, is likely to result in temperatures in some parts of Antarctica
being warmer than would otherwise be the case.
It was put to the committee by Associate Professor Stewart Franks of the
University of Newcastle that any warming in the 20th century was due
to natural factors.
However, as Chart 2.3 illustrates, climate models relying on natural factors
could not explain the warming in the 20th century but models that
incorporated increased greenhouse gas emissions from human activities could do
Chart 2.3: Modelling temperature increases
Source: CSIRO, The science of climate change.
In a 'business as usual' world the IPCC's median estimate is that
average temperatures will rise four degrees by 2100.
Four degrees may not sound a lot. However, as Chart 2.1 shows, five degrees is
the difference between now and the last ice age.
Implications for Australia
The IPCC has predicted with high confidence that without mitigation, by
2100 a temperature rise of over four degrees in Australia would lead to water
security problems, and risks to coastal development and population growth from
sea-level rise and increases in the severity and frequency of storms. It
predicts with very high confidence that Australia would suffer a significant
loss of biodiversity in such ecologically rich places as the Great Barrier Reef
and the Queensland Wet Tropics, as well as the Kakadu wetlands, south-west
Australia, the sub-Antarctic islands and alpine areas. The IPCC predicts with
high confidence a decline in production from agriculture and forestry by 2030
over much of southern and eastern Australia due to increased drought and fire.
The effects of climate change also carry national security implications:
...the cumulative impact of rising temperatures, sea levels and
more mega droughts on agriculture, fresh water and energy could threaten the
security of states in Australia’s neighbourhood by reducing their carrying
capacity below a minimum threshold, thereby undermining the legitimacy and
response capabilities of their governments and jeopardising the security of their
citizens. Where climate change coincides with other transnational challenges to
security, such as terrorism or pandemic diseases, or adds to pre-existing
ethnic and social tensions, then the impact will be magnified.
More recent scientific observations
More recent evidence suggests that the 2007 IPCC report may prove
...the recent climate change congress in Copenhagen where we
had about 2,500 researchers from around the world [indicated]...We have good
evidence that shows that the climate system is tracking at the upper level of
the IPCC projections...In keeping with that, temperature and sea levels are also
tracking at or near those upper levels of projections.
Support for the views of climate scientists
The bulk of the evidence presented to the committee indicated that the
overwhelming majority of scientists actively researching in the area broadly
support the conclusions of the IPCC.
As one witness pointed out:
All of the major national academies of science—from
Australia, the US, the UK, Canada, Germany, India, Russia, China, Italy, Japan
and so on—have declared that climate change is a major global threat.
The committee heard that medical experts regard climate change as a
major health issue:
Last week one of the world’s top medical journals, the Lancet,
published a report after a year of cooperation with University College London,
declaring that climate change was the greatest threat to global public health
of the 21st century.
The bulk of the thousands of submissions which the committee received
from the public accept that climate change is happening and urge action.
Many of the large companies appearing before the committee (either
directly or via industry organisations) employ many scientists, and would be in
a position to express views about the science of climate change. It was notable
that none questioned the science. Examples of statements made are:
The Australian minerals sector is committed to being part of
a comprehensive global response to prevent dangerous climate change.
We accept the general conclusion of the UK government’s Stern
report that the costs of not acting exceed the costs of acting to address
I have not heard of anyone within our business or most other
businesses who is against an emissions trading scheme. The end point is agreed
Rio Tinto supports effective, coordinated action by
governments to reduce greenhouse gas emissions...
Support was also provided by farmers' organisations:
The Western Australian Farmers Association recognises the
reality of climate change...95
per cent of the climate scientists tell us that humans are causing it and that
we have to do something about it.
Greenhouse gas concentrations and future
The Garnaut Review concluded that stabilisation of greenhouse gas
concentrations at 450 ppm was in Australia's interests. As concentrations are
now around this level, stabilisation will require significant falls in
emissions starting very soon and then reversing some overshooting.
Most of the scientists assembled by the committee supported the
consensus of global science that 450 ppm was the highest acceptable
Just about everyone on the panel has been saying that
achieving a 450 stabilisation by 2050 will give us a 50 per cent probability of
keeping within two degrees...
Dangerous climate change is generally thought to start when
the global average temperature has risen by about two degrees above what it was
in pre-industrial times. In addition, it is generally thought that
stabilisation of greenhouse gases in the atmosphere at a 450 parts per million
CO2 equivalent will give rise to a global temperature rise of about
two degrees centigrade above that of pre-industrial times.
Aiming at 550 ppm CO2e would lead to much greater risks:
...if you stabilise at a 550 parts per million carbon dioxide
equivalent, there is about a 50 per cent chance of Greenland going into this
phase of what could be irreversible melting...If that does shrink significantly,
the potential sea-level rise will be about seven metres.
There are also scientists who regard the risks of settling for
stabilising at 450 ppm as greater than this. Dr Risbey, a CSIRO
(Commonwealth Scientific and Industrial Research Organisation) scientist and researcher
at the centre for Australian Weather and Climate Research, warned:
At 450 parts per million there is a 50 to 90 per cent chance
of exceeding the dangerous threshold of two degrees Celsius...where if we look back to previous
times in earth’s history, we see the ice sheets in Greenland and West Antarctic
would break down or start to break down. The worry is that we get to a point
where that breakdown is irreversible...The last time the temperature was two
degrees Celsius warmer than at present,...was about 130,000 years ago. That was
in the peak of the last major interglacial period. At that time sea level was
about five metres higher than present levels...[450 ppm] also gives us about a 10
to 25 per cent probability of exceeding three degrees,...The last time
temperature was three degrees warmer than the present temperature was about
three million years ago, in the Pliocene where sea level was about 25 metres
higher than at present.
Experts also expressed concern that increasing CO2 was
leading to ocean acidification, which would disrupt the marine food chain by
preventing some organisms forming shells.
Ethical and moral dimensions
The scientific evidence that taking no action is likely to lead to a
rise in temperatures with serious adverse consequences for future generations
is not alone a case for action if there are some short-term costs to action.
The Stern Review was faced with this issue and captured the essence of
...if you care little about future generations you will care
little about climate change, As we have agued that is not a position which has
much foundation in ethics...
The key question is how policymakers should value the welfare of future
generations. If political leaders are meant to follow 'the will of the people',
or act 'in the public interest', does this include future generations who have
no vote? A related question is the extent to which policymakers in wealthy
countries should be concerned with the welfare of those in poor countries.
Professor Glenn Albrecht, an environmental philosopher from Murdoch
...it is ethically repugnant to force on innocent and
non-consenting communities, particularly obviously our children and all future
children, a deliberate decision to increase greenhouse gas emissions or a
calculated failure to reduce them to safe levels. We must do the right thing to
avoid imposing a massive and potentially irreversible risk on them. The idea of
irreversibility is something that our ethical systems have not had to deal with
in the past.... The science
is more than sufficient to deliver an ethical response based on risk
minimisation. The issue of irreversible change to the global climate is not one
that humans can dismiss with scepticism or inaction and Australia’s obligation
as a relatively rich, very wealthy, industrialised and well educated country is
to take the lead on greenhouse gas reductions and to set standards that will
deliver a safe and predictable world to future generations.
An eloquent and moving exposition was provided by Reverend Tim Costello,
Chief Executive Officer of World Vision Australia:
...climate change is no longer [just] an environmental issue;
it is now a humanitarian and a development issue. It is starting to cost lives,
and it will cost many, many more lives... The burden of climate change is going
to fall on the poorest in our own society through higher costs and impact
globally on the poorest nations, which is why World Vision is involved in this
issue. It literally threatens to undo 50 years of development work.
We work with Abdul Mannan, who is 55. He is an elder of the
Dalalkandi on the island of Bhola in Bangladesh. That island has a population
of 2,200. He speaks for many in his community when he says: ‘The place where I
was born lies five kilometres out in the sea. I have already moved my home and
family four times; this is my fifth house. Soon I will have to move again.’ I
have personally seen and listened to these stories...Bangladesh is one of the
poorest and most low-lying coastal areas on earth. Bhola, its biggest island,
is eroding at a phenomenal rate. From a size of 6,400 square kilometres in the
1960s, it is now half its original size. At this rate the entire island of
Bhola will be lost in the next 40 years. So what will become of Bhola’s two
million islanders? Many will be refugees.
...as a child-focused development agency, we are very concerned
about the intergenerational equity of children here and overseas...We in
Australia are enjoying the fruits of our forebears’ thought and work, we have
gratitude for their mobilisation, their sacrifice that saved us from fascism,
and we look forward to our children’s future. But I do not think they will
regard our conduct as fair, looking back, if as a generation they see us as a
selfish generation that left them with problems with no viable solution.
Reverend Costello's point about the impact on the younger and future
generations was echoed by younger witnesses who appeared before the committee:
The terrible irony of climate change is that those who will
be most affected are the ones that have contributed the least. Also, those who
will be the most affected by climate change have the least ability, at the
present time, to contribute to the decision making and have been consistently
left out of the decision-making processes...Climate change is not a political
issue. It is a human issue. It is about Anna’s grandparents farm in Gunnedah.
It is about the tourism operators up on the Great Barrier Reef and in Kakadu.
It is about the victims of natural disasters all over Australia. It is about
our neighbours in the Pacific that are threatened with their whole homes,
livelihoods and cultures disappearing under the ocean, and about our Torres
Strait that may well go the same way. It is about all we value in Australia and
what we imagine as the cultural icons. It is about our beaches and the heritage
that we want to leave to our children.
The economics of global climate change
The Stern Review compared the short-term costs of taking action
to reduce global greenhouse gas emissions with the long-term costs of allowing
climate change to take its course.
Its conclusion was that there was a clear case for action:
Using the results from formal economic models, the review
estimates that if we don't act, the overall costs and risks of climate change
will be equivalent to losing at least 5% of global GDP each year, now and
forever. If a wider range of risks and impacts is taken into account, the
estimates of damage could rise to 20% of GDP or more.
In contrast, the costs of action – reducing greenhouse gas
emissions to avoid the worst impacts of climate change – can be limited to
around 1% of global GDP each year.
The Garnaut Review looked at similar issues from an Australian
perspective. It concluded:
Mitigation on the basis of 550 [ppm atmospheric concentration
of CO2e] objectives was judged to generate benefits that exceeded
the costs. Mitigation on the basis of 450 was thought to generate larger net
benefits than 550.
Committee view on risk management
The balance of the evidence discussed above suggests that climate change
is occurring, is driven by anthropogenic factors and is a grave threat to
accustomed ways of life and natural systems. If this view is right, the
calculations above make a virtually unarguable case for taking global action.
The IPCC makes clear that there is a range of uncertainty around the
projections. But this is not an excuse for inaction.
Prudent risk management would balance the risk of doing nothing when the
climate scientists are right—which would involve very severe and irreversible
damage to human welfare—against the outcome if action is taken unnecessarily,
which would modestly lower economic growth in the short term but mean that
remaining fossil fuel supplies would last longer.
Even acknowledging the possibility that the majority view on the science
could be totally wrong still leaves a powerful case for a 'no regrets' policy.
Taking action amounts to 'giving the planet the benefit of the doubt'. It is a
sensible insurance policy.
Australia's fair and equitable share of global
Prime Minister Kevin Rudd in an address to the international climate
conference in Bali in 2007, said:
Climate change is the defining challenge of our
generation...one of the greatest moral, economic and environmental challenges of
The Government says that Australia's emissions targets are set with
the principle that the stabilisation of atmospheric
concentrations of greenhouse gases at around 450 parts per million of carbon
dioxide equivalence or lower is in Australia's national interest.
The Government's unconditional offer
The White Paper envisaged an unconditional offer of a reduction
of 5 per cent in carbon emissions from 2000 to 2020. A path consistent with
this would see Australian emissions reducing from 109 per cent of 2000 levels
in 2010–11 to 108 per cent in 2011–12, and 107 per cent in 2012–13 (Chart 2.4).
2.4: CPRS targets
Source: White Paper, p
The Government's original conditional offer
The Government had stated it would go to 15 per cent if there were a
global agreement 'where all major economies commit to substantially restrain
emissions and all developed countries take on comparable reductions to that of
The Government's revised conditional offer
The Government announced on 4 May that it was raising the conditional
offer it was taking to Copenhagen to a 25 per cent reduction. It explained:
The Government’s new commitment of 25 per cent below 2000
levels by 2020 follows extensive consultation with environment advocates on the
best way to maximise Australia’s contribution to an ambitious global outcome.
It also reflects that international developments since December 2008 have
improved prospects for such an agreement.
The proposed Australian offer is subject to strict conditions. The main
condition is that there must be an international agreement capable of
stabilising greenhouse gases at 450 ppm or lower by mid-century. The detailed
conditions are quite specific:
1. comprehensive coverage of gases, sources and sectors, with
inclusion of forests (e.g. Reducing Emissions from Deforestation and forest
Degradation - REDD) and the land sector (including soil carbon initiatives
(e.g. bio char) if scientifically demonstrated) in the agreement;
2. a clear global trajectory, where the sum of all economies’
commitments is consistent with 450 ppm CO2-e or lower, and with a
nominated early deadline year for peak global emissions no later than 2020;
3. advanced economy reductions, in aggregate, of at least 25
per cent below 1990 levels by 2020;
4. major developing economy commitments to slow growth and
then reduce their absolute level of emissions over time, with a collective
reduction of at least 20 per cent below business-as-usual by 2020 and a
nominated peak year for individual major developing economies;
5. global action which mobilises greater financial resources,
including from major developing economies, and results in fully functional
global carbon markets.
The Department of Climate Change was asked to clarify what was meant by
'fully functioning carbon markets' and replied:
Operationally, it has really meant that Australia would have
access to a broad range of international trading mechanisms. We are not talking
about how every country has to be participating in a particular market; it is
just that there is a deep and liquid market available. That may not require
enormous enhancements, other than the CDM market expanding access to, for
example, European markets et cetera.
Views differed among witnesses as to whether the conditions were
There has been comment around the conditions that have been
set on the 25 per cent target from the government, but in our view they
are a realistic expression of the kind of agreement which would get us to that
I think that the 25 per cent target is still very low and the
contingencies associated with it are problematic...
...some of those criteria are not helpful, and that the
government should consider revising them.
...the conditions are too stringent.
Australia's offer is compared to that of other economies in
Table 2.1. Comparing different countries' plans is complicated as they
refer to different base years. For example, the US 2009 Budget proposes a 14
per cent reduction in emissions by 2020 but, as this is from 2005 levels, it
represents only about a return to 1990 levels. Table 1 attempts to express the
various plans on a common 1990 base. It uses United Nations population
projections to express the targets in per capita terms; in some cases
(including Australia) these projections differ from those of national
governments. Another reason the table should only be regarded as indicative
rather than definitive is that different sources give differing estimates of
Table 2.1: Comparison
of emission reduction targets for 2020
Targets and proposals
% change from 1990
% change from 1990 per capita
per capita emissions (tonnes of CO2e)
-3 to -24
-30 to -45
15 to 12
-20 to -30
-25 to -34
8 to 7
US (2009 budget proposal)
US (Waxman bill)
Canada (Government target)
Canada (House bill C-311)
-20 to -30
-32 to -40
calculations based on White Paper, p 3-3; Garnaut Report, p 177;
Department of Climate Change Fact Sheet – Emissions, target and global goal;
'Economic cost as an indicator for comparable effort'; 'A new era of responsibility:
renewing America's promise' (US 2009 Budget), p 21; UK Budget 2009: Building
a low-carbon economy- implementing the Climate Change Act 2008. Per capita
percentage changes are calculated from the previous column based on population
projections in United Nations, World Population Prospects and then the
numbers in the final column calculated by applying these per capita percentage
changes to 1990 per capita emissions (including land use change and forestry)
from the United Nations Framework Convention on Climate Change;
Arguments for 25 per cent or higher emissions reductions
As discussed above, the scientific evidence suggests that the global
concentration of greenhouse gases needs to be kept to 450 ppm to avoid the dire
consequences following from increases in average temperatures of over two
degrees. The majority of submitters argued that Australia should therefore make
an offer consistent with its fair share of a global effort to the world
stabilising concentrations at 450 ppm. As Professor Garnaut says:
...to make an unrealistically low offer in the international
negotiations is to negate the prime purpose of our own mitigation, which is to
facilitate the emergence of an effective agreement.
Australia currently has per capita emissions well above the global
average and many submissions regard it as neither fair nor realistic to expect
the world to accept this remaining the case forever.
The Garnaut Review assumes the world agrees to eliminate these
differences in per capita emissions (or emissions entitlements) gradually over
the period to 2050 (in a process know as 'contract and converge'). Under this
arrangement, Professor Garnaut's calculation is that Australia's contribution
would be about a 25 per cent reduction in emissions from 1990 levels.
This calculation was not challenged by any witness or submission.
This conditional target is still Professor Garnaut's preferred position:
...the ETS...would be substantially better than nothing if the
upper limit to emissions reductions were raised to 25 per cent of 2000 levels
by 2020 on condition that other countries had made commitments that added up to
an agreement to hold and to reduce greenhouse gas concentrations in the
atmosphere to 450 parts per million.
Whether there would be global agreement to this timetable for
convergence has been questioned:
I think the fairest way to do it would be along a contraction
and convergence scenario where you converge at around 2030. I think 2050 is the
sort of thing that the developing world is not going to accept.
So contraction and convergence models as proposed
internationally for well over a decade and most recently by Professor Garnaut’s
review are going to be a key part of the debate. One of the issues, of course, is:
when does convergence happen? When is a fair time at which we all arrive at
some global per capita level of emissions? If you look at it as an entitlement
issue with trading between larger emitters and lower emitters in the early
stages, there is nothing to stop that happening in a very early phase. You do
not need to wait until 2050 to do that, and we may see increasing global pressure
for that to occur.
Professor Garnaut's approach was endorsed by other witnesses:
Everybody has to be in the boat, as Garnaut has said. But you
cannot get people into the boat in our judgement unless...you have as your
objective an equitable per capita policy that over time delivers some kind of
social equity in terms of per capita emissions. If not, you are in effect
saying to people in India and elsewhere, ‘Your job is to ride your bike and
cook on cow dung for another 50 years while we enjoy getting around in the big
cars.’ We just think that is unsustainable.
The logic of limiting the Australian offer to a maximum reduction of 15
per cent, as proposed in the White Paper, had been questioned by a
number of witnesses, many of whom argued for the 25 per cent target the
Government subsequently adopted:
...we think it is absolutely critical that Australia puts on
the table at least a 25 per cent target in the upper end of its range as part
of a global effort so it signals that it is actually willing to play its fair
share in an effective global agreement.
...it is terrific that the 25 per cent target is on the
table—it means that Australia need not now go into negotiations as something of
The main problem with the CPRS is that the targets bear no
relationship to the problem that is trying to be solved...the selection of
targets in the CPRS is entirely disconnected from the scientific problem of
reducing greenhouse gas emissions.
If you look at the ways some of the other countries such as
China and India are positioning themselves, if we are taking a half-arsed
approach in Australia it is going to make a global agreement that much harder.
...the stronger target of 25 per cent does move Australia into
an international climate position that is reasonable to negotiate a successful
outcome for an agreement for 450 ppm or less at the critical negotiations in
Copenhagen later this year.
I think the biggest single problem with the CPRS as announced
is that that conditional agreement—the amount we say we will do if everybody
else joins in—is much below what we need to stabilise the climate. The Garnaut
estimate of a 25 per cent reduction by 2020, I think, was at the very low end
of the reduction that is needed.
The view of some eminent scientists is that more ambitious targets are
required, in some cases because they interpret the latest scientific results as
indicating that 450 ppm poses unacceptable risks:
The best estimate for the level of global emission reductions
is between 50 and 85 per cent global emission reductions based on the IPCC
assessments by 2050 and an equal per capita approach globally would suggest 90
per cent to 97 per cent emissions reductions for Australia by 2050...if you want to achieve a 450
parts per million CO2 stabilisation target. At 450 parts per million
we still have a 50 per cent risk of exceeding two degrees of warming...In 2020
emission reductions for developed countries should be between 25 per cent and
40 per cent.
If you aim for a target of 450 parts per million, as we said
in our submission that would require at least a 25 per cent 2020 target for
...there seems to be a disjunct in what has been put forward in
the Government’s White Paper. The Government emphasised in its White
Paper that it would like to pursue a 450 parts per million CO2-e
outcome and it has put forward an emissions target range that seems to be
inconsistent with achieving that ppm outcome. If the Government wants to
achieve a 450 part million CO2 outcome, the bare minimum to which
Australia can commit is at least 30 per cent.
These considerations led some environmentalists to regard even the 25
per cent offer as inadequate:
If such a strong agreement were met then we think that
Australia’s contribution should be significantly higher than 25 per cent,
probably in the order of 50 per cent reductions by 2020 if the global deal
resulted in the conditions that have been stipulated by the government being
met for a 25 per cent reduction.
...we really need domestic reduction targets of closer to 40 to
50 per cent by 2020 if we are going to make the contribution that is needed to
meet that level of ambition that the climate science is saying we need.
The vision of young people is that they will be able to live
in a climate that is somewhat similar to the one their parents and their
grandparents lived in. The current targets...will not ensure this...Even at the
upper range of the government’s target, at 25 per cent, there is a 50 per cent
chance of the temperature increase going above two degrees and having
significantly adverse consequences for Australia.
A study by McKinseys consultants concludes that a 30 per cent target
would be easily affordable for Australia:
A significant reduction in Australian GHG emissions is
achievable—30 percent below 1990 levels by 2020 and 60 percent by 2030 without
major technological breakthroughs or lifestyle changes. These reductions can be
achieved using existing approaches and by deploying mature or rapidly
developing technologies to improve the carbon efficiency of our economy. They
require significant changes to the way we operate in key sectors, for example,
changes in our power mix, but can be achieved without major impact on
consumption patterns or quality of life. Reducing emissions is affordable—with
an average annual gross cost of approximately A$290 per household to reduce
emissions in 2020 to 30 percent below 1990 levels. This compares to an expected
increase in annual household income of over A$20,000 in the same time period.
Reverend Costello and Dr Pearman questioned the Government's (previous)
conditional target on ethical grounds:
It is not fair because the targets do not represent Australia
taking its fair share of the burden, let alone taking leadership on the issue.
We are a relatively wealthy country and we cannot sit back
and expect all countries to take an equal share in this. All of that together
says to me that we should have a 30 per cent reduction by 2020.
As noted above, while Australia 'only' emits 1½ per cent of global emissions, it is one of
the world's highest per capita emitters. Furthermore, these calculations
only include emissions in Australia. If Australia were regarded as
'responsible' for the emissions when our exports are used, on the grounds that
we are benefiting from these emissions, Australia would be regarded as an even
higher emitter. World Vision Australia provided an example of these
calculations to bolster the case for Australia adopting a stricter target:
With respect to our coal exports alone, we exported 252
million tonnes of coal last year, and from that you get approximately 740
million tonnes of CO2. If that was a country by itself, its
emissions would rank higher than Canada’s and slightly below Germany’s. If you
add that to our domestic emissions, we would rank slightly below India in terms
of our contribution to the problem.
Arguments that 5 per cent reduction is already tough
On the other hand, there were some witnesses who regarded even the
unconditional 5 per cent reduction as a tough target:
We do not believe that negative five is a small ask. It is a
big ask for Australian industry. It will require us to reduce emissions by
around 20 per cent on what they otherwise would have been by 2020. So it is not
an insignificant ask and it will have consequences.
...the minus five per cent target, which represents a 25 per
cent reduction in emissions relative to expected trends and a 34 per cent
reduction relative to per capita emissions, is some three to four times
stronger than those proposed by other, wealthier countries such as the USA and
countries of the EU, as measured by an impact on gross national product. AIGN
advocates that Australians shoulder a fair share of the global burden—no more
and no less.
There were industry witnesses who feared for the future if this target
is pursued – or at least pursued under the CPRS as currently formulated (see
...there will be less production, less exports and less
regional employment from both of our [meat and dairy] industries,...
I am absolutely sure that we will see [cement] plants
progressively shutting down prematurely in Australia.
The most immediate and significant impact of increasing the
costs and risks of developing LNG [liquefied natural gas] in Australia is that
it will threaten the industry's competitiveness...
Under the current scheme half of Rio Tinto’s open-cut coal
mines would be likely to close by around 2020.
Some industry witnesses pointed out that they had already made
significant investments to reduce emissions and that further reductions in
emissions intensity were limited by the laws of physics:
In integrated steel works such as Whyalla or Port Kembla,
direct emissions from the use of carbon as a chemical reductant comprise about
80 per cent of emissions...Both companies’ Australian blast furnaces are
efficient by world standards in their reducing agent consumption. Energy costs
such as coal have always been a focus of the industry and significant work has
been ongoing to reduce these costs over a long period of time. There is very
little ability to further reduce these direct emissions without a breakthrough
...since 1990, per tonne of product, we have seen a reduction
of 25 per cent of CO2...The reason for that reduction is primarily
through large technological change.
If you look at the aluminium industry overall over the last
50 years we have reduced direct CO2 emissions by 50 per cent without
a carbon price...[but] in terms of process gains, efficiency gains and business
gains we have reached a plateau.
ALOA’s members have been active in reducing greenhouse gas
emissions from their operations over the last two decades. In fact, the waste
sector is the only sector under the CPRS that has actually recorded reductions
in greenhouse gases in this period. Since 1990, the sector has reduced its
overall emissions by 12.6 per cent.
...60 per cent of lime’s emissions are in fact through the use
of the raw material limestone and do not come from an energy basis...as such,
there is no real opportunity for the lime industry to address that 60 per cent
The Department of Climate Change's special envoy agreed with the
following characterisation of the argument for the targets in the White
...we have got to make up for the fact that at the Kyoto
agreement we were allowed an increase. Some people argue that, therefore, we
have not done our fair share and we need a stronger target. But, in fact, that
makes our trajectory harder to turn around and that is part of the
justification for our target.
Australia's influence in international negotiations
Some have questioned whether Australia's actions will make a difference
to international agreements:
With only one per cent of world GDP, we are neither prominent
among world nations nor particularly influential within world councils. And
while Australia has many well-qualified scientists, few of these are considered
to be world authorities on climate change. Accordingly, it is pure hubris for
Australia to attempt to take the lead in abatement activity.
Professor Garnaut, a former ambassador to China, commented:
That position is ignorant of the realities of Australian
diplomacy. I know from my work on the review that views developed in Australia
are very much respected in some of the developing countries that are going to
be very important for the outcome. I have had lengthy discussions at
ministerial level in Indonesia that confirm that. The Indonesian government
sees Australia as a partner in its efforts to do something about climate
change...In China we have access with ideas and we can play a very important role
in helping to define a global regime that helps solve the problem and secures
our interests in the process. I know from close interaction with those three
countries, for a start, that what we say, so long as it is consistent with what
we do, can have a significant influence on the outcome.
Mr Don Henry, Executive Director of the Australian Conservation
Foundation, believes that Australia can be influential:
Australia can be influential in encouraging key nations, such
as China and the US—and, in our region, Indonesia and India—to strive for a
strong global outcome at Copenhagen...
He gave as an example of past influence:
Australia played a very strong and very positive role in
getting a global agreement for the reduction of ozone depleting substances.
Other witnesses argued that Australia should at least try to exert
influence, and setting a good example was an important means of doing so:
It is hard to see a scenario where Australia helps to achieve
a strong global deal by offering to do very little in Australia.
...while we are not a superpower, we are an influential player
in climate change negotiations. Since the EU negotiates as one block, there is
only the EU, the US, Japan, Canada and Australia—they are the five significant
developed countries in this.
Australia's ethical obligations
There is also an ethical dimension, articulated by environmental
philosopher Professor Albrecht, and supported by other witnesses:
...Australia’s obligation as a relatively rich, very wealthy,
industrialised and well educated country is to take the lead on greenhouse gas
reductions and to set standards that will deliver a safe and predictable world
to future generations...we
in Australia are privileged by virtue of the wealth that we have generated
through our natural resources...That is precisely the kind of society that has to
provide leadership to the rest of the world on all of these major globally
...there is a strong economic and ethical argument for richer
countries such as Australia, the USA and the European Union to take the lead on
Reverend Costello views it as not just a matter of international justice
but inter‑generational justice:
Our generation, which has been the highest spending, worst
saving generation in human history...has had the benefit of not pricing the
carbon. For our generation to actually be locked in the counsel of despair, I
have to say, as an Australian, is a failure of leadership.
Australia's targets in the absence of (adequate)
In the event of no agreement being reached at Copenhagen, as noted
above, the Government has said that Australia's target would be a 5 per cent
reduction from 2000 emissions by 2020.
One view is that the Australian unconditional target should be the same
as the conditional offer.
If doing something is the right thing to do, it remains the
right thing to do whether or not others are doing it too.
Professor John Quiggin of the University of Queensland said:
... if the rest of the world does not do anything, we are in
grave straits. The question is really a political one. We have to make an offer
that is sufficient to be in
earnest and good faith but sufficiently short of what we are going to do in an
agreement. We are indicating the weight we place on an international agreement.
That is to some extent a tactical question.
Direct environmental impact of Australia acting
As Australia is only directly responsible for around 1½ per cent of global greenhouse
emissions, if its actions have absolutely no influence on the rest of the
world, the impact will be correspondingly moderate.
It is sometimes claimed that Australian actions in these circumstances
would have no impact. A number of witnesses believe this is an
Australia’s emissions are at least 1.4 to 1.5 per cent of the
global emissions as well, which may sound insignificant, but when you are
dealing with a non-linear system, every bit matters. It is simply not the case
that a relatively small amount of emissions necessarily has no effect on the
climate. That can push us over the limit and over thresholds.
... a 20 per cent cut in Australian emissions by 2020 will cut
projected global emissions by 0.2 per cent.
To a certain extent, the response of the climate system will
be proportional to the emissions and over small ranges. If the emissions turn
out to be 1½ per cent smaller than they would be otherwise because Australia
reduced its emissions, say, to zero, that would have a significant effect on
the climate. I do not like people saying that there will not be any effect.
There will be an effect.
One witness noted that if every country with smaller emissions than
Australia also took the attitude that it was not worth acting, this would
represent about a third of global emissions that continue to grow.
Another argument is that a failure at Copenhagen does not end the
process. Environmentalists argued that it remains important for Australia to
set an example.
I think that Australia should lead because as an energy
intensive nation we have a good opportunity to show that a country can become
smarter and more efficient and retain its prosperity by using new energy
Is Australia acting alone?
There have been claims that in the absence of a comprehensive global
agreement at Copenhagen that Australia will be acting alone. However, most
witnesses acknowledged this was not the case:
We recognise that Australia is not alone in proposing to take
action to address climate change...
We are not acting alone. The developed world is moving on
this issue. The United States is now taking steps to introduce emission trading
schemes. Japan and New Zealand are doing so and Europe already has one.
...my view is that other countries over time will come on
board, establishing various different ways of pricing carbon within their own economies...The
trend that we have seen is that there are carbon prices out there in the world.
In various places there are voluntary trading schemes, the European scheme of
course, and a couple of regional schemes in the US that are proposed to start
A number of witnesses pointed to advantages in Australia acting before
all other (advanced) economies have agreed to act:
One obvious big benefit would be to avoid having new
investments that later turn out to be inappropriate in a low carbon world.
From a strategic point of view in terms of industry, it is
actually about adopting the practices, growing the skill base and understanding
this process that will be global in my view within less than a decade, and I
think probably less than five years.
If the Australian government and Australian industry embrace
this as an opportunity to play our part, then Australians will benefit from the
jobs and the technology that we will develop. If our national policy settings
focus on resisting change, we will allow other nations to get a head start on
us that we may never recover from.
It is argued that there is a need to encourage industry restructuring
regardless of whether most countries in the world move quickly or slowly:
I think the aluminium industry is a case in point. The
question is how we develop industry restructuring to assist them to actually
take advantage of Australia’s huge resources of renewable energy. One way we
may fail to do that is if we offer them free trading permits to allow them to
continue to emit.
On this view, if Australia waits it risks a poor outcome:
...those countries that locked themselves in to a high-carbon
future would be economic losers in the future—because the world will change.
Risks of carbon tariffs if Australia does not act
Another disadvantage of inaction raised was the risk of facing carbon
The EU in the context of cement is already talking about
imposing border taxes on non-compliant countries, countries which do not sign
up to the general terms available to people. So I think a developed country
which just says, ‘Look, we can’t do this and we won’t do it,’ is also taking a
very substantial risk with its trade.
Deciding an appropriate emissions target for Australia requires an
assessment of the economic costs involved, which can be informed by economic
Treasury's modelling was released in October 2008, and was described by
the Treasurer and Minister for Climate Change as 'one of the largest and most
complex economic modelling projects ever undertaken in Australia'.
The work drew on a range of models with differing characteristics.
The key conclusions reached are:
...early global action is less expensive than later action;
that a market-based approach allows robust economic growth into the future even
as emissions fall; and that many of Australia’s industries will maintain or
improve their competitiveness under an international agreement...
The impacts on real income of differing emissions scenarios are
illustrated in Chart 2.5. The key quantitative conclusion is that:
From 2010 to 2050, Australia’s real GNP per capita grows at
an average annual rate of 1.1 per cent in the policy scenarios, compared to 1.2
per cent in the reference scenario.
2.5: Treasury modelling
Source: Treasury (2008, p
Criticisms and commentary on the Treasury modelling
Modelling based on outdated
specification of CPRS
There has been criticism that the Treasury modelling does not refer to
the latest specification of the CPRS. The modelling refers to the ETS envisaged
in the Green Paper and so does not incorporate the changes made in the White
Paper. There have since been further changes to the CPRS announced by the
Government on 4 May.
Ms Meghan Quinn, who led the Treasury's modelling team, explained:
The main differences between the analysis that was undertaken
in the modelling and the White Paper announcements were around the
emission‑intensive trade-exposed sectors. It is the case that the
arrangements in the white paper were altered such that more transition
assistance was provided to emission intensive trade exposed compared with the Green
In general, the aggregate economic costs as a result of the
changes between the Green Paper and the White Paper would not be
expected to be very large at all, but there would be different distributional
implications for both households and for sectors.
On the specific issue of carbon leakage, the modifications to the scheme
have been in the direction of reducing the imposts on large emitters, so
revised modelling would presumably show smaller leakage effects.
No modelling of alternative schemes
The Treasury modelling compares the consequences of a few variants of
the CPRS with 'business as usual'. It does not model some of the alternative
schemes (discussed further in Chapter 3) such as a standard carbon tax,
Carmody's consumption-based approach or the 'baseline-and-credit'/'intensity'
approach, or indeed a purer version of cap-and-trade:
...the claim in the White Paper that the CPRS will
achieve abatement at lowest possible cost...is nowhere tested or demonstrated...It
is fundamentally important that the abatement measures we adopt are in fact
least cost, because that will mean we can afford to do more. I would like to
see some explicit modelling to test that claim—that is, to test whether it
really is the least possible cost of abatement.
I would love Treasury to model a consumption based approach.
... the standard benchmark that economists would use to assess
low cost abatement would be to simulate an emissions trading scheme with full
auctioning where that auction revenue is used to lower other distorting
taxes...That simulation has not been done...
To some extent the models used by Treasury may not be well-suited to
this task. They are able to track through the system the consequences of a
price being established for carbon, but are probably indifferent to the means
by which the price is set. Some modelling at the level of individual companies
may be needed to tease out the differences between baseline-and-credit and
No modelling of 'Australia going alone'
There has been criticism that Treasury has not modelled a 'worst case
scenario' where Australia acts well in advance of competitors:
What we do not see at the moment is an analysis, if you like,
of the risks to Australia of different countries not imposing their own carbon price.
The Treasury did not even model what would happen if
Australia acted on its own.
Given the nature of the collective action problem and the
historical record of slow, partial and fragmented action, it is difficult to
conceive why Treasury did not model and publicly release at least one policy
scenario where comprehensive and coordinated global action fails to develop in
the next decade.
Treasury has responded that such a scenario would be very unlikely,
especially given that many countries are already implementing an ETS.
Furthermore, Treasury has defended the assumption by arguing that:
To assume otherwise — that is, to presume that the world’s
major emitters will not act at any time to decisively reduce greenhouse gas
emissions — is to presume that the world will gradually succumb to potentially
catastrophic damage to the global environment...The prehistoric peoples of Easter
Island took this path, and paid the price (Collapse, Jared Diamond,
2005). We would do well not to follow their lead. Another logical possibility
is that majority scientific opinion is simply misguided and will turn out to be
a fad. However, to invoke such a possibility as a basis for deciding on public
policy seems to me extraordinarily foolhardy.
Indeed, Treasury argues that their modelling already covers very
...it was judged that having China take on no targets until
2015, despite currently doing quite a lot in the greenhouse gas space to reduce
emissions, we are being more pessimistic than current government policies out
to 2015. Then from 2015, China’s emissions allocation continues to grow until
2030, which was judged to be realistic. Similarly, India does not do anything
at all in the greenhouse gas space until 2020 and then its emissions allocation
continues to grow until 2040. Other developing low income countries do not do
anything until 2025.
This progressive adoption of carbon pricing was viewed as too optimistic
a programme by some witnesses:
It is going to be an extremely long time before we have a
comprehensive international scheme. Firstly, the negotiations are incredibly
difficult and it is extremely unlikely that countries will sign up on the sort
of timetable that is assumed, for example, in the Treasury modelling
Revised modelling to incorporate the global economic
Treasury has also been criticised for not redoing the modelling to use a
baseline incorporating the impact of the global financial crisis. Ms Quinn
explained that they had not been asked by the Government to do such modelling:
We have not been asked to examine in detail the implications
of the GFC [Global Financial Crisis] through the suite of economic models that
we used for the report.
Moreover, Treasury felt that revising the modelling in the light of the
crisis would not substantially change the results:
...the long-term economic consequences for Australia of placing
a price on emissions is largely unaffected by cyclical variations in output.
...we do not believe that short-term cyclical influences on the
Australian or global economy necessarily have a significant implication for the
medium- and long-term impacts of emissions pricing on the Australian economy.
That still stands true.
Professor Garnaut provided some support to this view:
...the global financial crisis and recession does not
materially affect the costs of mitigation...
The deterioration in economic prospects is illustrated by Chart 2.6.
This shows the growth of global real GDP since 1950 (the upper line) and two
forecasts—the current International Monetary Fund projections and that made a
(The lower line in the chart shows the path of global CO2 emissions;
the lines diverge when the mid-1970s oil crisis led to increased interest in
2.6: World real GDP and CO2 emissions
Sources: Chart generated by
Secretariat based on data from IMF, World Economic Outlook; A Maddison, The
World Economy: Historical Statistics, OECD, 2003; World Resources
Institute, CAIT database.
Full employment assumption
The Treasury modelling has been criticised for applying a full
employment closure rule in the long run. This implies that the lack of impact
on unemployment of introducing an ETS is an assumption rather than a result
of the modelling.
Mr David Pearce of the Centre for International Economics, who has
reviewed the Treasury modelling, was not critical of this for the long-term
I think it is an appropriate closure in the long run, and
these particular models are good at long-run analysis...
Ms Quinn, who led the Treasury modelling team, explained that they used
three models, one of which has the labour market adjusting rapidly and two of
which have a more gradual adjustment. Models assuming a rapid adjustment in
employment reflect a slowing in output in lower real wage growth rather than a
rise in unemployment.
Lack of modelling the transition
The Treasury modelling focuses on the long-run consequences; on the
position of the economy once it has settled down into a new, lower-emission,
equilibrium. It has less to say about the impact during the adjustment phase:
The economic modelling solves each year of the scenario, so
there are results for 2010, 2011, 2012 and 2013...Chapter 2 of the report
outlines some of the limitations of the economic models that we have available
to us. They do not necessarily capture all the transition elements and in some
cases they are too fast in terms of their adjustment. They are typically, in
our judgement, better for looking at after the first few years...What is
important to look at for these economic models for these types of questions are
averages and time frames.
Mrs Heather Ridout of the Australian Industry Group emphasised to the
committee that more attention should be paid to the difficulties of transition:
... some people think that we will get in the Tardis booth in
2010 and get out in 2020 and everything will be hunky-dory... The Treasury’s
modelling acknowledged that they could not fully capture those transition
costs...I go back to what I said after the Treasury modelling came out: it is not
easy to capture the transition costs and we are not in a Dr Who Tardis box.
This aspect of the modelling was criticised by Dr Brian Fisher, director
of Concept Economics:
...you can see that there are no transaction costs and there
are no transition costs represented in that modelling...It simply is not
Dr Fisher is therefore critical of the modest costs of introducing a
carbon price in the Treasury modelling:
...that is what every piece of modelling will say to you if you
do it in this particular way, that does not pick up the costs of taking people
in regional Australia, getting them better jobs, putting them someplace else,
retraining them and dealing with the fact that our energy intensive emissions
associated with the aluminium industry, the alumina refining industry and so on
effectively are no longer competitive in the world.
Mr Pearce commented:
transitional analysis is not easy to do. The frameworks that we use generally
take a long-term perspective, but it can be addressed. It is important to do so
and to walk in with our eyes open about what the transitional consequences are.
The fact that there are transitional costs is not a reason not to proceed with
the policy, because mitigation has costs but those costs will hopefully be
offset by benefits in the future.
Lack of regional or more disaggregated modelling
The Treasury modellers presented results disaggregated by state and by
industry. There was a call that Treasury should have done modelling at a finer
degree of disaggregation:
We had hoped the Treasury modelling exercise might have
addressed the impact of higher energy prices on a sectoral, firm or regional
We were hoping for some more detail in that information
regarding the impact on particular industry segments across each of the states
and so on.
I believe there needs to be more extensive modelling so that
we can assess the effects of an ETS scheme...I think drilling down into the
detail is a component that I see missing so far...
Frontier Economics prepared a report for the NSW Government, which
contained results at a regional level. Unfortunately the NSW Government has not
publicly released this report, although it has been discussed in the media.
Ms Quinn doubted whether modelling at a regional level would be
sufficiently robust to aid in analysis of the CPRS:
...we did not use the regional component of the MMRF [Monash
Multi Regional Forecasting] model in the Treasury modelling because we did not
think it was robust enough. The results coming out of it were nonsensical... Unfortunately
the data sets available make it very difficult to do robust analysis at a
quantitative level for regional economies.
Questions were also asked about reconciling Treasury's modelling results
with claims of imminent job losses by individual companies. Ms Quinn responded:
Our economic modelling does suggest resources will move
between sectors. You have had people say that they will be adversely affected
and you have had people say that they will benefit from this scheme. What
happens is that there is a shift between industries and that means a movement
of capital and labour between industries in response to relative price.
Lack of peer review and transparency
Treasury have been criticised for not making more detailed results
public and having their modelling subject to the kind of 'peer review' that
would apply to an academic paper published in a leading journal.
Mr Pearce cast a critical eye over Treasury's work. He said:
I agree that those models themselves are sound. However, I
believe in any modelling analysis it is very important to do a lot of
sensitivity analysis to understand the importance of particular parameter
choices within those models. That is one of the things that has not been done
A useful check on Treasury's use of the models was that Frontier
Economics, as part of their regional analysis, replicated some of the Treasury
The modelling results that we produced on one scenario—the
one that has been reported most widely—is in fact the same modelling result, as
far as we can tell, as that produced by the Treasury.
The Senate Select Committee on Fuel and Energy commissioned a review
from Concept Economics of the Treasury modelling. The author, Dr Brian Fisher,
questioned some assumptions in the modelling which he thought 'likely to result
in the Treasury modelling seriously underestimating the economy-wide and
sectoral challenges associated with particular emissions reductions targets'.
The Select Committee on Fuel and Energy sought unrestricted access to
all the model codes and databases used in the Treasury modelling but it was not
provided. The Government referred to the extensive documentation that had been
made publicly available and claimed contractual arrangements with external
consultants limited the additional information that could be provided.
Inadequate modelling of consequences for the rural sector
Agricultural emissions are not included in the CPRS, at least in the
initial years of its operations. However, this does not mean that the rural
sector is unaffected. Farmers will face higher prices for electricity. They may
also face lower prices for the animals and products they sell to food
manufacturers as the manufacturers try to 'pass back' some of the additional
cost they face in having to buy permits.
The committee heard claims that these impacts have not been properly
addressed by the Treasury and Australian Bureau of Agricultural and Resource
Economics (ABARE) modelling:
As to most of the general equilibrium models that operate at
the moment...they do not have the linkage back in terms of cost.
CHAIR—But none of the modelling that I have read
through seems to take into account the impact on farm of the CPRS on the
processing sector of agriculture... Mr Keogh—No, and the difficulty is
that you cannot do that modelling until you know with some degree of certainty
what proportion of the processing sector exceeds the 25 kilotonne threshold and
therefore is required to pay a price for their emissions.
Ms Quinn believed these effects were adequately reflected in the
My understanding is that this analysis is quite comprehensive
and...looks at the implications of, and has much more detail on, disaggregating
the meat processing and dairy processing from the input side, so that you can
get a feel for what is going to happen through the process chain in
Can I clarify that the computational general equilibrium
models used do link together agriculture and processing industries back and
forward, just as occurs in the economy.
There were more general requests for more detailed modelling of the
effects on the farm sector:
The government has done no sectoral modelling around
agriculture, other than the broad general equilibrium model.
The committee notes that the Treasury modelling was conducted in
economic circumstances that were markedly different to those in which the
legislation is proposed to now be introduced. Since the modelling was conducted
the global financial crisis has led to a marked deterioration in the short-term
Whilst the CPRS package has been revised on two occasions,
the modelling continues to fail to take into account the impact of these
changed economic circumstances. The committee considers the modelling
undertaken by Treasury to be inadequate and recommends that the Government
direct Treasury to undertake further modelling. The further modelling should:
consider in detail the short-term adjustment costs;
respond to criticisms made of Treasury's initial modelling
taking into account the deterioration of the Australian economy
the likely effect of the CPRS upon jobs and upon the environment
the absence of any modelling of the impact of the CPRS on
regional Australia; and
model other types of schemes that have been proposed as alternatives
to CPRS, including:
a conventional baseline-and-credit scheme
an intensity model
a carbon tax
a consumption-based carbon tax, and
the McKibbin hybrid approach.
The Garnaut Review modelling
The Garnaut Review modelling was broader than the Treasury modelling,
as it also considered some of the costs of not addressing climate
change. In particular it covered impacts on primary production, human health,
infrastructure, tropical cyclones and international trade.
By 2100 real GNP, GDP, consumption and wages are 6-10 per cent lower than they
otherwise would be as a result of climate change and the impact is continuing
Adding in the increased risk of absolutely catastrophic outcomes, and the
non-market impacts, would raise these estimates considerably. Garnaut notes
that other modelling has shown that costs in the 22nd century will
be dramatically higher—perhaps approaching 70 per cent of global GDP by 2300.
Concerning the costs of restricting emissions, the Garnaut modelling
closely agrees with the results of the Treasury modelling, about a 0.1 per cent
a year reduction in economic growth.
The net costs of mitigation become negative by 2060 (i.e. GDP growth is stronger with mitigation than under business‑as‑usual). Agriculture is
the big winner (as crops are more sensitive to temperature than manufacturing)
but by the latter half of the century mining also is doing better.
The modelling also throws some light on the difference between aiming to
stabilise at 450 and 550 ppm. The more ambitious target costs an extra 0.7–0.9
per cent of GDP (in net present value terms). Given the environmental benefits
and the insurance value of reducing the risk of catastrophic impacts, Garnaut:
...judges that it is worth paying less than an additional 1 per
cent of GNP as a premium in order to achieve a 450 result.
Garnaut's conclusion is that:
The costs of well-designed mitigation, substantial as they
are, would not end economic growth in Australia, its developing country
neighbours, or the global economy. Unmitigated climate change probably would.
He also comments that modelling of large changes to the structure of the
economy is likely to overstate the costs of these changes:
Experience shows that once consumers and producers have
accepted the inevitability of change, and face predictable incentive
structures, they will alter their behaviour to account for the new conditions
more efficiently and effectively than previously predicted. This experience
suggests that economic models are more likely to underestimate the benefits or
overestimate the costs of changes in economic conditions, so long as the change
is to stable institutional arrangements and predictable incentives. This bias
may be further exacerbated by lack of data about the full costs of climate
change impacts and a corresponding downward bias in the estimated benefits of
avoided climate change.
Australian Bureau of Agricultural and Resource Economics
ABARE referred to their recent modelling:
...we had a look at what the Government’s settings are in the
CPRS and the policy in the White Paper for the emissions-intensive
trade-exposed assistance. Our examination of that showed that it did maintain
the competitiveness of the trade exposed agricultural industries...you have very small impacts on
the production costs of the agricultural sector...they vary between 0.1 per cent
and a little bit under 0.5 per cent.
As noted above, the cost impact on the agricultural sector is only part
of the story. The impact on their prices from the effect of a carbon price on
the food manufacturing sector is also relevant, so a whole-economy perspective
is needed. Once these linkages are considered in their general equilibrium
modelling, ABARE's modelling shows:
In 2020 the carbon price under the CPRS minus five scenario
is estimated to be $35 a tonne and also the shielding is in place for the
emissions intensive and trade exposed sectors. What you see are small increases
in production for beef and sheep meat and dairy cattle, a large increase for
grains and small decreases for other animals and other crops.
Some of the modelling results are dependant on the proportion of food
manufacturing plants and abattoirs that are over the threshold to be captured
by the scheme, currently 25,000 tonnes.
This may vary once the scheme is introduced: the committee heard of a company
that was thinking of scaling back its large abattoir and recommissioning a
number of smaller ones to stay under the threshold.
There were also criticisms that the ABARE modelling as it dealt with
forestry paid insufficient attention to physical constraints on the available
Finally, looking at some of the economic modelling by
Treasury and ABARE that addresses just one of these aspects, and that is the Kyoto
compliant afforestation... the total forestation area potential, according to
their modelling, is about 5.8 million hectares, or about 20 megatonnes per
annum on average. CPRS 15 rises to 26 megatonnes or 80 megatonnes per annum,
which as I mentioned yesterday, in spatial area represents something like 20
per cent of the Murray-Darling Basin. If you go to Garnaut 25 and adopt a
deeper short-term target and a long-term target, the total afforestation area
rises dramatically to 40 million hectares...[which] spatially would be 30 to 35
per cent of the Murray- Darling Basin, but that would be spread across the
It is very implausible modelling. The ABARE models are not
well constrained physically. Their assumptions about whether the land is going
to be suitable for growing trees...I do not think that it is biophysically
There is a further discussion of modelling of the rural sector by ABARE
and others in Chapter 6.
Concept Economics modelling of the minerals sector
Some modelling by Concept Economics commissioned by the Minerals Council
of Australia argued that employment in the minerals (including smelting)
industry would be 23,500 lower in 2020 if the CPRS was introduced than if it
was not introduced.
Among other organisations to conduct relevant modelling are the CSIRO,
Allen Consulting Group and Frontier Economics. They gave comparable results at
a national level to the Treasury modelling, although the Frontier Economics
study warned that some regions could incur larger than average costs.
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