Abbott’s love of coal is holding us back on emissions targets – The Drum

Originally published at The Drum (ABC).

Posted 11 Aug 2015, 4:23pm

Tony Abbott visits a newly opened Queensland coal mine in 2014.

PHOTO: Tony Abbott visits a newly opened Queensland coal mine in 2014. (AAP: Dan Peled)

A larger emissions reduction target would have come at very little additional cost to GDP, but it would have involved the loss of jobs in the high emissions industries that our Prime Minister champions, writes Warwick Smith.

Tony Abbott has today confirmed that his Government will commit to reducing Australia’s greenhouse gas emissions by between 26 and 28 per cent on 2005 levels by 2030.

The Government will take this commitment to December’s United Nations climate summit in Paris where post-2020 global targets will be negotiated. This target is among the lowest of any developed country, with even laggard Canada committing to a 30 per cent reduction from 2005 levels.

The barriers to deeper cuts are neither economic nor technical, and it’s abundantly clear that Australia, one of the richest countries in the world, can afford much more substantial cuts to greenhouse gas emissions than the Prime Minister is offering.

The Government has previously committed to targets in line with keeping global temperature increases below 2 degrees Celsius. However, Australia’s Climate Change Authority has calculated that Australia would need cuts of at least 45 per cent on 2005 levels by 2030 if we are to make our fair contribution towards this goal.

The per cent figures can be confusing because different countries are choosing both different reference dates and different target dates. For instance, the US is promising 26 to 28 per cent cuts on 2005 levels but will achieve it by 2025, making it significantly more ambitious than Australia’s 26 to 28 per cent by 2030. The EU have promised to go much further with a 40 per cent cut on 1990 levels by 2030.

Australia already intends to cut emissions by 5 per cent on 2000 levels by 2020. This equates to about a 13 per cent cut on 2005 levels. This means we are only offering an additional 13-15 per cent on top of what will have already been achieved.

There are many paths to such a modest target, the cheapest likely to come from efficiency improvements in the energy sector.

As was revealed in The Guardian today, Government-commissioned modelling by economist Warwick McKibbin found that the target of 26 per cent to 28 per cent below 2005 levels would reduce gross domestic product by around 0.2 per cent or 0.3 per cent by 2030. More interestingly, the modelling reportedly showed that increasing the target to 35 per cent would come at very little additional cost to Gross Domestic Product.

What’s hidden within those small GDP cost figures is that there will be some big losers and big winners. Any genuine effort to keep global temperature increases below 2 degrees will eventually require us to almost entirely stop burning fossil fuels.

While we will see the steady demise of the coal industry, we will also see the emergence of low-emissions alternatives to many products and services. It is this surge in low emissions alternatives that makes it possible for us to achieve substantial emissions reductions with a relatively low national price tag.

Many will lose jobs in high emissions industries, but many jobs will be created in other areas. Such employment transitions have always accompanied technological and social progress. Defending the status quo based on sectoral job losses is to effectively argue against all technological progress.

“The Government’s Direct Action plan for reducing emissions is soundly rejected on efficiency grounds by virtually all economists.”

The economics of emissions reduction is very straightforward. There are a handful of accepted market-based methods to efficiently reduce emissions; from a carbon trading scheme to theCitizen’s Climate Lobby proposal for a carbon tax and dividend (where the proceeds of the tax are divided between all citizens).

By contrast, the Government’s Direct Action plan for reducing emissions is soundly rejected on efficiency grounds by virtually all economists. It’s desirable from a polluter perspective because they get paid for their reductions instead of having to pay for their pollution.

Outside of accepted mainstream options for emissions reductions, there are plenty of more radical options. Our stationary energy production is responsible for around half our greenhouse gas emissions and holds the key to a successful transition to a post-carbon economy. Given the tailing off of the mining construction boom, it would be possible for the Federal Government to employ that spare capacity to build 21st century renewable electricity generation and distribution infrastructure. This would result in dramatic reductions in emissions and would also spark investment in energy-intensive ecologically sustainable industry.

Borrowing costs are at an all-time low and borrowing for such a project would definitely come out favourably in a cost-benefit analysis if climate costs and benefits are included. However, with inflation risk currently very low, and appropriate spare capacity in the economy, it would also be possible to simply create the money necessary for such a project.

We have seen the US Federal Reserve and the European Central Bank create vast sums of money (referred to as quantitative easing) to avert crises in the financial sector. Why not create money to avert a crisis in the atmosphere? I can hear gasps of horror from the financial semi-literate but it’s simply a sign that they don’t understand the reality of post-Bretton Woods monetary economics. If carefully managed to avoid inflation risk, this project could be almost costless and generate substantial economic stimulus.

Options for deeper cuts abound and, given that the Government’s own commissioned economic modelling shows that increasing the target to 35 per cent would cost little extra, it is clear that this low commitment is purely about protecting Tony Abbott’s beloved coal industry at everyone else’s expense.

The sad news for Tony Abbott is that no matter what he does, the coal industry is living on borrowed time. The sooner we understand that in Australia, the sooner we can build new sources of prosperity.

Warwick Smith is a research economist at the University of Melbourne. He blogs at and tweets @RecoEco.

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