Extract from The Guardian
The headlines will hyperventilate about the (frightening) cost of
curbing carbon emissions, so it’s best to be armed with some facts
It appears we are heading for another climate policy “debate” based
on meaningless “scary” numbers. Here are three things to bear in mind
when contemplating the hyperventilating headlines.
1. All costs look big if you add up their dollar value each year for a decade. On Monday, the Sydney Daily Telegraph, outlined a “devastating blow” contained in modelling that has been publicly available for at least two years showing the “massive” cost of a target that Labor hasn’t actually committed to yet. (Labor’s conference agreed to adopt targets recommended by up-to-date advice from bodies like the Climate Change Authority. The CCA previously recommended targets of between 40% and 60% by 2030. What Labor will eventually do is anyone’s guess). The Tele looked at the historic modelling and found Labor’s secret “$600bn carbon bill”. The modelling actually shows the economy would continue to grow strongly while meeting such a target, but by a slightly lower rate than it would if we did nothing. If you add up the dollar value of that slightly lower growth rate from now to 2030, you get $450bn. If you adjust that from 2012 dollars you apparently get $600bn. But that is $600bn reduction in GDP from cumulative GDP increase of $44 trillion. Which makes the number a lot less scary.
2. There are no “free” ways to reduce emissions and neither major party is actually advocating that we do nothing. To be meaningful, the cost of any policy has to be compared with the cost of an alternative policy. Let’s assume the government’s policy is to reduce emissions by 30% using its current policy of “Direct Action”. Modelling done for The Climate Institute suggested that could come as a direct budget cost of at least $16bn in 2030 alone. The government has now commissioned modelling of their own policy options from leading economist Warwick McKibbin, but has not released it.
3. All modelling shows that allowing the purchase of international permits reduces the cost of achieving Australia’s goals. The same CCA modelling shows that trying to achieve even a 25% reduction by 2030 (which many guess is around about what cabinet might decide to do when it considers this issue on Monday night) only using domestic greenhouse gas abatement would cost around $135 per tonne of emission reductions. If you look at Australia’s total projected emissions in 2030, calculate the reduction necessary for them to be 25% lower and multiply that by $135, you come up with a cost in 2030 alone of $25bn. That sure isn’t free. And that’s just for one year, not the cumulative costs for 15 years. Almost all major business groups are pleading with the government to drop its ban on the use of international permits, even though Abbott once described buying international permits as being like sending “money … offshore into dodgy carbon farms in Equatorial Guinea and Kazakhstan”.
Scary numbers about carbon policy costs are only meaningful when they are in context and when they are compared with the alternative costs. But that usually makes them less scary.
1. All costs look big if you add up their dollar value each year for a decade. On Monday, the Sydney Daily Telegraph, outlined a “devastating blow” contained in modelling that has been publicly available for at least two years showing the “massive” cost of a target that Labor hasn’t actually committed to yet. (Labor’s conference agreed to adopt targets recommended by up-to-date advice from bodies like the Climate Change Authority. The CCA previously recommended targets of between 40% and 60% by 2030. What Labor will eventually do is anyone’s guess). The Tele looked at the historic modelling and found Labor’s secret “$600bn carbon bill”. The modelling actually shows the economy would continue to grow strongly while meeting such a target, but by a slightly lower rate than it would if we did nothing. If you add up the dollar value of that slightly lower growth rate from now to 2030, you get $450bn. If you adjust that from 2012 dollars you apparently get $600bn. But that is $600bn reduction in GDP from cumulative GDP increase of $44 trillion. Which makes the number a lot less scary.
2. There are no “free” ways to reduce emissions and neither major party is actually advocating that we do nothing. To be meaningful, the cost of any policy has to be compared with the cost of an alternative policy. Let’s assume the government’s policy is to reduce emissions by 30% using its current policy of “Direct Action”. Modelling done for The Climate Institute suggested that could come as a direct budget cost of at least $16bn in 2030 alone. The government has now commissioned modelling of their own policy options from leading economist Warwick McKibbin, but has not released it.
3. All modelling shows that allowing the purchase of international permits reduces the cost of achieving Australia’s goals. The same CCA modelling shows that trying to achieve even a 25% reduction by 2030 (which many guess is around about what cabinet might decide to do when it considers this issue on Monday night) only using domestic greenhouse gas abatement would cost around $135 per tonne of emission reductions. If you look at Australia’s total projected emissions in 2030, calculate the reduction necessary for them to be 25% lower and multiply that by $135, you come up with a cost in 2030 alone of $25bn. That sure isn’t free. And that’s just for one year, not the cumulative costs for 15 years. Almost all major business groups are pleading with the government to drop its ban on the use of international permits, even though Abbott once described buying international permits as being like sending “money … offshore into dodgy carbon farms in Equatorial Guinea and Kazakhstan”.
Scary numbers about carbon policy costs are only meaningful when they are in context and when they are compared with the alternative costs. But that usually makes them less scary.
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