Understanding Climate Risk

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Garnaut Review 2011: The Good, the Bad and the Weird

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Actually, this is the title of a terrific Korean noodle western I saw a few weeks ago, but it seems a good title for the post.

Ross Garnaut released the final stage of his report yesterday (May 31st) and it has garnered a wide range of comment, some good, some bad, and some weird. There’s a little GB&W about the report itself, comments later in the post.

Altogether, the report contains few surprises. Many of the themes were developed in the 2008 report and were included in the early papers of this report. Some recommendations are:

  • Australia’s fair share: Australia is punching above its weight in emissions. Current rates of increase projected mean that the risk of Australia overshooting its Cancun pledge is real. More realistic sliding targets to 25% that a proportional to international action are required.
  • Governance: an independent scheme regulator, an independent committee to advise on targets, and an independent agency to advise on trade-exposed industries are recommended.
  • Carbon price: an initial price of $26 t C fixed for three years, then a 4% increase over time as reflected in Treasury modelling. The $26 t C price is consistent with carbon market and social cost of carbon levels currently being set in the EU and the US.
  • The science: beyond reasonable doubt, whereas last time it was on the balance of probabilities. Knowledge of risks is increasing and planetary-scale impacts this century are possible.
  • The electricity sector: transformation will be required, the sector is currently over-invested in infrastructure with rates of return exceeding risk but little detail is given.
  • Land, food and biodiversity: a range of recommendations are made to ensure that biosequestration gets the attention it deserves while food production is improved in efficiency and buffered against climate shocks.


General responses reproduced at the Climate Spectator

The Weird:

Terry McCrann is the Milo Kerrigan of Australian economics churnalism. He goes positively apoplectic in the News tabloids with tales of fantasies, psychotics and relates the carbon tax to danegeld. No Terry, it’s more a case of weregeld. Get it right, Terry! His reference to psychotic fantasies reflects a classic case of mirroring. Why they continue to put this peculiar brand of comedy in the business pages is a mystery.

Graeme Lloyd, the Australian’s environment editor covered the French, Japanese and Canadian declarations to the G8 meeting on the weekend when they said they would only sign an international agreement that required developing country emissions targets. This was combined with a run-down on the Garnaut Review 2011, not bad in itself. Lloyd’s thesis was that this international development sidelined the report. What Lloyd’s article did not cover was that the key principles sustainable development covering poverty, biodiversity and climate change were re-affirmed at the meeting. Of course these principles tend get watered down at the national scale, but they support, rather than repudiate Garnaut’s conclusions.

Gerard Henderson in the SMH. Totally weird. Man’s fallen through a wormhole and is in a parallel universe where the cold war still goes on so the climate never warms.

The Bad:

Siobhan Ryan in The Australian summarising community reaction through a series of quotes from interest groups. Puhleez. This is tat scrambling for a deadline.

The Australian’s editorial. Illogical and insular.

The Good:

Paul Kelly in the Australian writes even-handedly with respect to the politics, discussing how Garnaut’s conclusions back the Gillard government strategy while highlighting the political difficulties.

Garnaut repudiates every basis on which Tony Abbott relies for his campaign against the expected multi-party compromise to put Australia on the historic path to a carbon price. At the same time this report seeks to assist Labor bridge the gulf with the Greens and revive the case for pricing carbon with the Australian people.

Reading Garnaut’s report, the chasm dividing the Labor government and the Coalition opposition only becomes sharper. This is a conflict over the science, the scale of global action, Australia’s “fair share” of mitigation and the method – Labor’s market mechanism v Abbott’s direct action. It constitutes a clash of culture, economics and ideology with huge consequences for Australia.

I’ve been critical of Kelly in the past, not least in the years when he ignored the scientific evidence on climate change because it didn’t fit his political framework but this piece plays the issue with a completely straight bat.

Adam Morton in the Fairfax press. Independent body may be a simple solution to hard issue

Sid Maher in the Australia – straight-up summary.

Giles Parkinson at the Climate Spectator yesterday – Garnaut hits out  and today a Carbon budget for households.

My take

I think this can be divided into the good, the weird and the underdone.

The good

Most of the report. Shots at limiting self interest are a feature of chapter 7: The best of times.

Graham Bradley and the business council of Australia, Graeme Kraehe of Bluescope Steel, Paul Howes of the Australian Workers Union are all named. Garnaut points out that many of Bluescope Steel’s problems are structural caused by the mining boom. Ironically, after being spun out in the BHP-Billiton restructure, Bluescope Steel is disadvantaged by the demand for labour, the high exchange rate and interest rates. They are making a loss without a carbon price as it is. But BHP-Billiton itself, through Jack Nasser, would prefer the carbon price mechanism start with the electricity sector; i.e., not in their backyard. Garnaut quoting government estimates of carbon pricing:

Carbon pricing is estimated to add an average of $2.80 per tonne to the cost of metallurgical coal ($6.70 for particularly gassy mines). But let’s not forget that the price of metallurgical coal has varied between $100 and $400 per tonne during the resources boom.

Many of the suggestions for transformation, institutions and governance are sensible. Even partial uptake of some of the governance suggestions would be useful. For example, an independent body could make recommendations on targets using the best evidence, leaving the final decision up to politicians. The Productivity Commission could do trade exposed industries. This may weaken their scope but will still strengthen the role of evidence in decision-making.

The Weird

The Introduction engages in quite a bit of ego stroking, some of it at the Prime Minister’s expense. Page ix:

I got the feeling that the mention of discount rates had set Prime Minister Gillard’s mind towards what she would say to Hillary Clinton about Afghanistan, Bob Brown’s to the grandeur of the Styx Valley, and Tony Windsor’s to the good rain that was falling on the Northern Tablelands.

But then I said something that brought back the prime minister’s attention.

‘If we used the share market’s discount rate to value the lives of future Australians’, I said, ‘and if we knew that doing something would give lots of benefits now but would cause the extinction of our species in half a century, the calculations would tell us to do it.’

The beginnings of a smile on her face became a hearty laugh.

‘You’ve got us there, Ross’, she said, as the others were infected by the lift in spirits and joined the laughter. ‘That’s a unanimous decision of the committee. We’re all against the extinction of the human species.’

It reads like Biggles Changes the Climate.

This is a symptom of a larger issue with the project. As anyone who read my previous post on the Wegman Report knows, I’m not keen on senior people taking author credits for work done by more junior people. I’d prefer to see a writing team credited to the final report as authors with Garnaut as the name in lights. After all, the conclusions are his, but the effort is not solely his. In both reports his team have been acknowledged but it would be good to see a little more.

In interviews Ross has said a number of times “I’m not a climate scientist, but…”. The intro of the Hungry Beast I’m a Climate Scientist rap video replays him saying just that. But never have I heard him say – “I have a crack team of writers who have linked up with the experts and this is what they conclude. It’s my job to put the best economic face on that that I can.” This would put paid to the criticism “But he’s an economist, what would he know about climate science!”

The Underdone

There are several areas that need substantial improvement but were limited by both time and the state of knowledge.

  1. Biodiversity is underdone, getting about a page and no economic treatment. There is need for a biodiversity fund. It makes sense to obtain that fund either through the removal of perverse tax breaks such as novated car leases and/or through the carbon levy/permit system.
  2. Adaptation is also underdone. The level of climate change currently occurring means that much of what we are doing currently will have long-standing legacies and needs to be fast-tracked. Financing adaptation requires some serious thought and should be mainstreamed into general infrastructure development at the very least. Retrofitting is too expensive and reactive adaptation leads to maladaptation.
  3. Economics. The current tools for assessing costs of impacts and the benefits of avoided damages are totally inadequate. They lead to serious under-estimates in the money saved over time by implementing a carbon price. I realise that’s not the central thrust of the report this time, which is mainly about how to make a reasonable transition to a low carbon economy, but the ordinary person doesn’t really get what they are buying with a carbon price. The balance sheet approach used in framing the economics only starts accruing damages in 2008, and takes until 2070 to get into the black. That looks like a bad deal. A return on investment approach that invests up front then accounts for long-term returns, framed as insurance and super-type payments would be more marketable.

The communication issues with the report are also difficult. It’s clear that the economic benefits of a carbon price and how compensation can shield the consumer from its effects while shifting the economy to low carbon at the production stage is not understood by most in the community. It is too abstract. There are a great many interests in also not having this explained. Several levels of explanation are required.

One at the level of the household budget, taking a micro-economic approach, contrasting the carbon price with other pressures on energy and water prices and showing how the compensatory mechanisms will work. Using nothing more complex than pies.
Options for removing personal exposure to emissions and thus maximising compensation at the household level need to be explained. It will be at least as complex as the GST cake, but needs to be confronted.

More comment at Larvatus Prodeo, John Quiggin and Crikey.


Written by Roger Jones

June 1, 2011 at 6:13 pm

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