Garnaut Review Draft Report: Climate Positive Summary

Written by Nick Witherow, Carbon Manager, Climate Positive.

The Garnaut Review released its draft report on Friday 4th July. The following week Professor Garnaut took his draft report onto the road, and in a series of public forums, presented the preliminary findings of the review and took questions from the floor.

The draft report is a large and detailed piece of work and Professor Garnaut and his team are to be commended for their thorough efforts. Running at 548 pages the draft report is a formidable document. Below is a summary of some of the key points raised by Garnaut Review draft report.

The climate change problem

The draft report takes as its starting point that climate change is manmade. This is not necessarily a belief, but a conclusion that on the balance of probabilities that the majority view of Australian and international scientific communities are correct in their conclusion that climate change is manmade and that continued growth of emissions will generate unacceptably high risks of dangerous climate change.

Garnaut's review from the perspective of economics is contrasted with the position of most environmental groups who call for a mitigation strategy aimed at reducing greenhouse gas levels low enough to avoid all or most of the effects of climate change, no matter what the cost.

Professor Garnaut describes this question as "diabolical" for three reasons.
1. The risk associated with climate change are real, however the extent of the damage to be realised is uncertain.
2. The people who bear the cost of mitigation are not the people who will benefit from the mitigation efforts.
3. It is a global problem that requires global participation to reach an effective solution.

The case to act is clear and the need is urgent
The draft report paints a picture of mounting urgency to act. Drawing on mainstream science, the draft report highlights that, as a result of historical greenhouse gas emissions, the world is already committed to a level of warming that could prove to be dangerous. Further, even with a comprehensive and effective global agreement, adaptation will form a part of the Australian response to climate change for the greater part of the 21st century.

More alarming is the fact that, as acknowledged by both the IPCC and Sir Nicholas Stern, that the growth in greenhouse gas emissions is outpacing even the highest projections of a few short years ago. Without concerted global mitigation, the level of global emissions predicted to be reached in 2050 by the Stern report will be reached by 2030. Garnaut makes it clear that the international community is running out of time to act. Delaying now will eliminate lower cost options and represents a choice to avoid effective steps to reduce the risks of climate change to acceptable levels.

The draft report stresses that it is in Australia's interest more than any other developed countries to achieve an effective global mitigation strategy.
Australia is already a particularly hot and dry continent and small variations in temperature are more damaging to us than other developed counties. Australia's temperature has risen by slightly more than the global average. Any reduction in rainfall or increases in temperature will have adverse effects on the Australian economy, as well as place at risk cultural and natural assets such as Australia's farming heritage or the Great Barrier Reef.

Secondly, Australia is situated within a region of developing countries. Developing countries are in a weaker position to adapt to climate change, due to less robust institutions, lack of scientific capacity and reduced wealth to devote to adaptation. The problems of Australia's neighbours will inevitably become Australia's problems.
Finally, the structure of Australia's economy is especially vulnerable to reduced growth in the developing world. This would be manifested by a reduced demand for Australian export products and a reduction in prices received for Australian goods on the world market.

What will be the cost of climate change

This edition of the draft does not include specific costs associated with climate change mitigation. Two scenarios are being modelled by the Review in partnership with Treasury, the result of which will be available in a supplementary draft available in August.

In this edition of the draft report, Professor Garnaut presents the reference case. This refers to the likely scenario in the absence of climate change or costs of mitigation between 2005 and 2100. That is, it pretends that climate change does not exist and therefore not mitigation or adaptation measures are required. Under the reference case, the Australian population will double to nearly 47 million and per capita output will quadruple. Economic output will increase by over 700%.

Secondly, taking the scientific consensus median view, that is the scientific communities average likely climate change outcomes over the same period in the absence of mitigation, Professor Garnaut suggests that Australian GDP may fall by 4.8% from the reference case. Household consumption could fall by 5.45% and real wages by 7.8% by 2100.

However, these are not the only costs of climate change, they are only the costs that can be readily modelled. The draft report acknowledges that there are other categories of costs which cannot be accurately modelled and therefore have and will not form part of the modelling but which nonetheless need to be taken in consideration. These include, increased health costs, loss of natural assets and the subsequent loss in tourism potential or the social cost of loss of natural and cultural assets.

Further the modelling assumes that the effects of climate change fall within the median views of the scientific community. However if you look at the higher 10% of probable effects of unmitigated climate change, the effects are catastrophic. An additional cost not factored in to the modelling is the insurance effects of mitigation in avoiding the albeit small, but nonetheless very real chance of catastrophic climate change consequences. What value do we place on modest mitigation efforts to avoid a relatively small chance of catastrophic climate change effects?

Towards a global agreement

The draft report suggests that global mitigation efforts are increasing, particularly highlighting developments in the USA, New Zealand, Canada and Japan - the developed countries that have been most opposed to committing to significant cuts in emissions - however the rate of mitigation is currently too slow to avoid the risks of dangerous climate change. More is needed.

Only a comprehensive global agreement can provide the wide country coverage and motivate the deep action that effective abatement requires. The existing framework is inadequate, but effective mitigation will come from building on and not overturning established international efforts. The only realistic chance of achieving the depth, speed and breath of action that is now required from all major emitters is explicit allocation of internationally tradable emissions rights across countries.

For practical reasons, allocations across countries will need to move gradually to a per capita basis. This has serious implications for Australia who is the largest per capita emitter of all OECD countries and whose energy needs are currently largely dependent on coal. Due to the urgency required to make significant global emission reductions, all developing countries, except the least developed need to be subject to binding emission limits from the beginning of the new commitment period in 2013.
Why should Australia act?

Contrary to popular commentary, Australia will never be a leader in global climate change mitigation. The leaders are the collective members of the European Union, who are about to enter the second phase of their emission trading scheme. Australia's early mitigation effort is described by the draft report as being Australia's contribution to keeping alive the possibility of an effective global agreement.

Australia has been particularly influential in global climate change mitigation for other reasons. Australia was one of the only developed countries who originally failed to ratify the Kyoto protocol. Along with the USA, Australia undermined and hampered ongoing global climate change mitigation efforts.

The draft report lays out how Australia can play its part in the global effort. There is no chance of getting the developing world involved in a global agreement to cut emissions if the developed world does not do what it has already agreed to do as part of the Kyoto negotiations - cut emissions.

How will Australia reduce its emissions?

As noted earlier, effective mitigation will only be achieved by building on existing efforts, we simply do not have time overturn them and begin again.

The draft report canvasses the option of a carbon tax, but concludes, on balance, that a broad based uncompromised emissions trading scheme is the most effective and cheapest means of achieving the reductions necessary. This necessarily includes transport as a covered sector within the scheme. The review notes that a carbon tax would be preferred over a heavily compromised emissions trading scheme, where for example, coverage was not broad and permits were allocated rather than auctioned.

The draft report does not comment on emissions targets. These recommendations will come after the economic modelling is completed. However there is a slight change in the reviews messaging. Whilst previously advocating moving directly into an unconstrained scheme, the draft report suggests that in the initial stages, 2010-2012, could be a transition period. This would mean that permits would be issued in line with Australia's Kyoto commitments and as Australia is more or less on target to meet these commitments, the carbon price would be likely to be low in the beginning of the scheme under this scenario.

This would be a politically commitment for the Australian Government to take, as it would essentially be a business as usual approach to the next two years, and give Australian businesses time to adjust to the new compliance requirements which the emissions trading scheme will introduce.

This transition period could then be used to press for a broad, inclusive international agreement, with Australia's new targets will be set in line with the international agreements - or lack of them.

Other Measures

The role of additional measures to reduce emissions should only be considered if they will lower the cost of meeting reductions by correcting market failures. The review does not consider the Mandatory Renewable Energy Target addresses any market failures and therefore should not be adopted.

The voluntary offset market will continue to play a role, with the purchase of voluntary offsets, increasingly becoming more regulated in terms of the standards which are applied to the offsets. Offsets will likely take the form of compliance units traded in the domestic emissions trading scheme as well as domestic and international offsets, such as those developed by the Voluntary Carbon Standard and the Clean Development Mechanism.

But cutting emissions will not be enough according to the draft review. As part of the Kyoto agreement it was agreed that developed countries must take a lead in developing and transferring low emissions technologies to the developing world.

The draft review calls for developed countries to invest in research and commercialisation of low emission technologies. A global agreement is needed to raise investment to $100 billion, of which Australia's proportionate contribution would be $3 billion. Each nation would focus on areas of research that coincided with areas of special interest for them. For Australia this means so called clean coal technologies and these are specifically addressed in the draft review.

What will the revenue from the sale of permits be spent on?

The draft review acknowledges that low income households spend a greater portion of their incomes on emission intensive products. For these households, the direct effects of an emissions trading scheme will be regressive in nature. The draft review proposes approximately half of the revenue derived from the sale of permits could be allocated to the lower half of the income distribution households.

The other portion will be used to compensate trade exposed industries. These are industries who have heavy energy demands and will therefore will face reduced competiveness under the emissions trading scheme. Without compensation, they may be either economically unviable. Or be forced offshore to a country without a price on carbon. Either way the danger is that Australian jobs could be lost.

What next?

The Government will release a Green Paper, which will outline the Governments proposed response to climate change mitigation on the 16th July. This will provide us with the first real insight into how the Government will internalise the provisional finding s of the Garnaut review. This will be followed by a period during which the Government will accept submissions on the Green Paper.

The Garnaut Review will complete the economic modelling and release a supplementary draft in August ahead of the final report in September. The final report will include recommended emissions reduction trajectories.

At some point after that the Government will release their final report which will outline the proposed Government climate change mitigation plan, including emission reduction targets.