The CPRS, Treasury modelling, and the predictable reaction

Now that the long-awaited Treasury modelling for the Carbon Pollution Reduction Scheme has arrived, it is a salutary exercise to check how well the predicted reactions of the players match their actual response.

Predictably the Government has used the modelling to reinforce its determination to start the scheme by 2010.  2010 is a whole year, so there is twelve months’ flexibility in the start date.  But since 2010 is an election year, the timing of the introduction to some extent will be governed by the poll date.  To support its case for an early start, the Government has used the modelling data that shows that delay in implementation will be costly.  Kevin Rudd and his Minister for Climate Change and Water Penny Wong have injected a note of urgency, citing the increasing evidence of steadily accelerating global warming.  They have pointed to the relatively modest cost of a dollar a day increase in electricity and gas prices based on emission prices between $23 and $32 per tonne, leading to a oneoff rise in the consumer price index of between 1 and 1.5 per cent.  They also assert that early global mitigation will reduce longterm costs and that “delaying mitigation action in the global economy will increase climate change risks, lock in more emissionintensive industry and infrastructure, defer cost reductions in lowemission technologies and heighten distortions associated with tradeexposed industries. This will increase the cost of achieving any given environmental goal.”  On the positive side, the report shows that demand for lowemission goods and services will increase with a CPRS and that an emission trading market would create new sources of revenue.  The consolidated fact sheets are here

Predictably, Ross Garnaut agrees that the Government's proposed emissions trading scheme should go ahead as planned despite the global financial crisis and that 2010 is the best possible time to push ahead with the scheme.

For its part the Opposition has been as predictable in its response.  Having called for months for the modelling to be released urgently to inform those preparing a response to the Government’s Green Paper, and insisting that it was ridiculous to expect submissions in its absence, it has bucketed the modelling.  First, it has ridiculed the modelling on the grounds that it has not taken into account the current financial crisis.  The argument sounds plausible enough.  But the report itself says “The modelling focuses on the medium to longterm transformation of the Australian economy.  Market fluctuations, such as the current global financial crisis, will not materially affect the analysis.”  Since the timeframes modelled are 2020 and 2050, it’s hard to see how the 2008 financial crisis is relevant.  It might be to the start date which is likely about two years ahead, but even then the effects of the crisis are likely to be much less than now.  And in any case these effects will govern the trajectory of the introduction.  So the complaint about the current crisis not being factored in is spurious.

The strategy of mounting seemingly plausible arguments, but which on cursory analysis are clearly invalid, is one we have seen from the Opposition before.  Something similar occurred over the Government guarantee when Malcolm Turnbull ridiculed Rudd for not consulting with the Reserve Bank governor prior to the October 12 decision, superficially a preposterous thing to do.  But Turnbull knew full well that a Reserve Bank member, head of Treasury Ken Henry, was present and was the direct conduit from the governor to the PM.  The barb was soon blunted, but no doubt Turnbull hoped that it had had its desired effect.  Is this strategy deliberate and therefore disingenuous, or does the Opposition really believe its own rhetoric, which is even more disturbing. [more]

The other Opposition objection relates to the assumptions, which it says are questionable.  The Report Summary assumptions include those in the CPRS Green Paper, plus a Renewable Energy Target of 45,000 GWh per year by 2020, and  a “multi-stage approach in which developed countries set targets and participate in international emissions trading from 2010, developing countries gradually join the scheme with complete coverage from 2025, that national emission targets gradually diverge from the reference scenario emission level and that scheme participants have equivalent emissions trading scheme policy settings to Australia (for coverage, shielding and limits on import of permits).”  These are in the Summary which is here.  The Opposition has given the impression that these assumptions are implausible, but without suggesting what might be more realistic.  They doubt if other economies will come on board, and have always argued that Australia should not go first and ‘wreck its economy, sacrifice jobs and send industries offshore’.  The object seems to be the creation of fear and uncertainty rather than contributing meaningfully to an informed debate.  The Opposition knows too that if rational debate fails they can always fall back on the well worn argument that the 2010 start date is simply to satisfy Rudd’s ego, that in setting that date Rudd was simply raising John Howard in some sort of crazy poker game.

Predictably, conservationists have warned that 10 of Australia's iconic places will be lost without a commitment to reduce carbon pollution by a third by 2020.  Executive director of the Australian Conservation Foundation Don Henry insists "This may be our last chance to get Australia into a strong leadership position on climate change so we can get a good international agreement that can save our wonderful icons such as the Kakadu Wetlands, the Murray-Darling Basin, the Australian Alps and the Great Barrier Reef.”  Showing great apprehension, a Barrier Reef expert, University of Queensland marine biologist Ove Hoegh-Guldberg, confidently asserts that sea temperatures are likely to rise 2 degrees C over the next three decades, “which would undoubtedly kill the reef”.  Others, such as Tim Flannery, have strongly supported the need for urgent action.  He too exhibits the same apprehension that climate scientists are increasingly feeling.

Lenore Taylor in her well-balanced piece in The Weekend Australian We’re pay for Howard’s inaction points to the predicable pre-emptive attack of the Minerals Council of Australia voiced by Brian Fisher, now of Concept Economics, but previously  head of the Australian Bureau of Agricultural and Resource Economics for 18 years until 2006, where he was the public face of the ‘Megabare’ economic model used to predict the cost of mitigating climate change.  Because its predicted costs were consistently higher than others, John Howard used them in the lead up to the Kyoto Conference to achieve for Australia a far more generous emission target.  Neither Fisher nor the Council has changed position.  Taylor concludes with the unarguable statement that “The other lessons from this brief and potted history of Australian climate change modelling are, of course, that the problem has only got worse during all the decades we have spent modelling it, and that it would have ended up being much cheaper if the world had started taking decisive action back in 1996.”

Bluescope Steel chief executive Paul O'Malley told ABC's Sunday Inside Business programme that he remains worried about the detail underpinning the Government's proposed carbon reduction scheme, which he insists must take into account that there is no global agreement yet on reducing emissions.  Other players, the coal-fired and the energy-intensive industries, such as aluminium production, are vocal in lobbying for special consideration.  There are just a few with a balanced view.  Helen Ridout, chief executive of the Australian Industry Group, whilst agreeing that industry needs certainty about a CPRS, expresses the concern of her members about the cost.

Some journalistic comment has shown a surprising lack of authenticity. 

On the ABC’s  2 November’s Insiders, Chris Uhlmann, in commenting on the Treasury modelling, seemingly dismissed it on the grounds that if Treasury was, in his words, unable to predict the short-term fallout from the Government bank guarantee, how could it possibly predict 40 years ahead.  So in one fell swoop he seems ready to discard months of work from statisticians, climate change gurus and Treasury experts.  So much for quality journalism; so much for the ABC’s reputation.  Uhlmann seems sometimes to be a victim of his urge to be controversial, and ‘funny’.  He should stick to the principles of sound journalism, with which he ought to be familiar.

Andrew Bolt in his 31 October blog in the Herald Sun Thinking hot feeling cold enters the world of the ridiculous by beginning his blog with “Treasurer Wayne Swan had to get out of his woollies yesterday before telling us the world really was warming - and we must pay.  You see, just days before he stood in Canberra, waving a Treasury document he claimed would help stop us heating to hell, his own family had shivered through a day that should make him finally wonder if there really is any global warming.  Brisbane, his home town, had just endured its coldest October morning in 32 years, yet here was Swan telling us to spend billions in the belief the planet was cooking instead.”  So there it is – irrefutable support for Bolt's long-standing contention, back by numerous scientific papers, that the world is cooling, not warming. - the final nail in the climate change coffin.  Say no more.

Dennis Shanahan in his piece of 28 October in which he warns Rudd that although there is still strong public support for action on climate change there is diminishing desire to pay for it, concludes “Popular as he may be at the moment, Rudd however is coming under increasing pressure to give up his politically motivated starting date of 2010 for the emissions trading scheme.”  If Shanahan asserts that it was politically motivated, I guess that’s it.  No doubts he hopes the implementation of the CPRS will give Rudd much grief, and make him a ‘one-term wonder’.

So what’s changed?  The Government’s position has been strengthened by the Treasury modelling so it’s pressing on for a 2010 start date.  The Opposition continues to oppose, but offers no alternative but a later start date and a lower trajectory, sans details, which presumably will be revealed in the fullness of time.  The special pleading of those with vested interests continues as before.  Partisan columnists use their columns to promulgate their own idiosyncratic viewpoints or to berate the Government, while a precious few, like Lenore Taylor, write a balanced appraisal.  How dismal.

Let’s hope that with the advent of the Government’s definitive White Paper on the CPRS at the end of the year, more informed debate might emerge, and a plan materialize with which the majority of the players can agree.  The appalling alternative is that the parties quarrel, quibble and fiddle while the planet burns.

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3/11/2008Well said, Ad astra, always enjoy your pieces. Unfortunately, I think the Opposition and the usual suspects in the MSM will carry on exactly as they have.
T-w-o take away o-n-e equals?