Modelling that shows Labor’s climate policy could cost billions is ridiculous

Extract from The Guardian

Opinion

Climate change

Frank Jotzo

We should be talking about positioning Australia for a low-carbon future, instead it’s carbon wars again

@frankjotzo

Mon 6 May 2019 11.08 AEST Last modified on Mon 6 May 2019 12.01 AEST

Photograph: Scott Barbour/Getty Images

The national debate about climate policy is off the rails again.
We should be talking about positioning Australia economically for the low-carbon future, making use of our huge opportunities to produce low-cost clean energy, and mobilising investment. We should be having a serious conversation about what are the best policies needed for that. And we should understand the implications of Australia’s climate policy for our long-term competitiveness and international standing.
Instead it’s the carbon wars once more. A confected furore over the presumed cumulative economic cost dominates the headlines, provoked by a single short report with some scary-looking numbers. The paper by Brian Fisher is a private black-box modelling exercise of no particular standing that uses outdated assumptions.
But we still have news reports citing its supposed findings that “the Labor emissions target would subtract at least $264bn from gross national product by 2030”, and numbers as high as $542bn have also been used.

There is a tendency for climate policy modelling assumptions to be highly conservative. Fisher’s modelling is an extreme example, painting the picture of an inflexible economy where clean technology is exorbitantly costly.
Just consider the carbon prices in some of the scenarios, of $300-400 per tonne of carbon dioxide. Any sensible policies to cut emissions will come at a small fraction of that. As a measure of how ridiculous such carbon prices are, consider that it would now cost less than half that amount to suck carbon dioxide straight out of the atmosphere and sequester it, using purpose built plants. That’s the highest cost option one might consider right now if the world were to go all out on climate action. In reality, carbon costs are far lower.
The key for Australia is renewable energy. Wind farms and solar parks built now can provide energy for around $50 per megawatt hour. That is half the current average wholesale price which is set mostly by fossil fuel plants. Renewables keep getting cheaper, and they will push coal out of the market. Intermittent power output can be firmed through storage and better interconnections, at moderate cost.
A $400 carbon price implies a penalty of around $350 per megawatt hour for a typical black coal fired power generator. Just a fraction of that would make all coal power stations immediately uneconomic.
So it is not a question of high carbon prices or higher electricity prices. It is how governments can help that process of transition along.
The answers include stable policy to give investors confidence, a carbon policy for the electricity sector that is integrated with carbon policy for the rest of the economy, sensible investment in transmission and energy storage, making coal plant closures more predictable, and helping with structural adjustment in regions where coal plants close.
Industry will switch from coal and gas to using zero-carbon electricity, and do so faster with a price signal on carbon. Electric vehicles will quickly be cheaper on a lifecycle basis than petrol or diesel cars.

"Thanks to geography and climate, we can produce practically unlimited amounts of cheap renewable energy."

All this is now in reach because clean technologies are becoming cheap. The modelling in the headlines this week seems to assume we’re stuck in the early 2000s.
The Fisher paper also ignores the opportunities for cheap abatement in other sectors, particularly agriculture and land use. Lots can be done at low cost to reduce agricultural emissions and sequester more carbon in vegetation and soils. The Coalition’s Emissions Reduction Fund pays an average of $12 per tonne for emissions reductions from land projects. Under Labor’s policies, industry could fund land-based emissions offsets. There could also be R&D for low-emissions agriculture and rules to stop broad-scale land clearing.

The key is to put policies in place that allow efficient, broad-based and durable action. An economy-wide carbon price would be the ideal centrepiece. That still seems too difficult politically, but a patchwork of price-based policies across the economy could evolve into a consistent system.

And it makes sense to allow international trading of emissions. Australian businesses could trade in emissions markets in the EU, California and many other jurisdictions. The Australian government could partner with developing countries that are happy to do more to cut emissions if rich countries support them. Renewable electrification paid for by Australian aid in the Pacific and Eastern Indonesia comes to mind. The credit for emissions reductions achieved by 2030 could be shared between Australia and the developing country partners.

If Australia met a 45% reduction target in this way, we would encourage other nations to do more, and make a contribution to the planned global ratcheting up of the Paris Agreement. If we stick with a 26% target this would be seen as weak.
The longer term game holds huge opportunity for Australia. In a world that goes towards net zero emissions, Australia is superbly positioned. Thanks to geography and climate, we can produce practically unlimited amounts of cheap renewable energy.
An almost fully decarbonized domestic energy supply is not the end point.
Let’s talk about 200% renewables: half used here, half exported to countries that are less favourably endowed, in the form of hydrogen, higher order synthetic fuels and energy intensive commodities produced in Australia using renewable power.
Then let’s talk about how to facilitate the massive investments for Australia’s renewable energy future, who gets what share of the profits, how we support economic diversification in regions where coal mining will cease, and how this relates to ideas about our future economic prosperity.
Those are the conversations worth having.

• Frank Jotzo is a professor at the ANU Crawford School of Public Policy, and co-director of the Energy Transition Hub