The European solution

Age
Tuesday 24/10/2006, Page: 15

By degrees, John Howard is warming to the idea of tackling climate change. He should look to Europe.

TONY Blair and his Dutch counterpart, Jan Peter Balkenende, are two European politicians John Howard likes. Blair is from the left and Balkenende from the right, but last week they joined to send European leaders a stark wake-up call on the issue Australians rate as more serious than terrorism: global warming.

"The science of climate change has never been clearer," the two PMs wrote. "Without further action, scientists now estimate we may be heading for temperature rises of at least three to four degrees above pre-industrial levels.

"We have a window of only 10 to 15 years to avoid crossing catastrophic tipping points. These would have serious consequences for our economic growth prospects, the safety of our people and the supply of resources, most notably energy. "Europe has the opportunity to lead the world in making the technology transition to a low-carbon economy ... The technologies are already available or within reach.

A historic political choice faces us.

The need to respond to climate change can be seen as a burden. Or it can be seen as a once-in-a-generation opportunity for Europe to mobilise the political will and resources to transform and modernise our energy system." This is Europe, mind you. It already has the world's most advanced emissions trading scheme. The European Union has 36 action plans to cut emissions from everything from buildings to power generators to cars.

John Howard, now rethinking his own policies on global warming, might marvel at his European mates saying they must do far more. While Europe has pledged to cut its greenhouse gas emissions by 8 per cent between 1990 and 2010 - and insists it will meet the target, though others are sceptical
- Australia has pledged only to hold its growth in emissions to 8 per cent.

Even that will require some tricky accounting. The Australian Greenhouse Office estimates that by 2010, we will be pumping out 45 per cent more carbon emissions to produce energy, and 53 per cent more from industrial use. We get down to 8 per cent growth only because threequarters of the growth in energy and industrial emissions will be offset by a one-off decline in land-clearing and new plantations.

By 2020, the Greenhouse Office predicts Australia's emissions will have swollen 22 per cent from their 1990 levels. Transport would be emitting 78 per cent more gases than in 1990, power generation 70 per cent more, industry 75 per cent more. The gap between us and Europe would be stark.

Blair and Balkenende have both been here recently and, among other things, asking Howard to do more on global warming. Now that he is interested, he might look at what they propose. They argue for: Strengthening the EU's emissions trading system, which has had a bumpy start, by tightening the caps (i.e. reducing emission levels), extending it to cover more than the 11,500 firms so far included, and linking it to other countries.

Adopting a wide-ranging plan presented last week by EU energy commissioner Andris Piebalgs to cut Europe's energy consumption by 20 per cent by lifting energy efficiency in appliances, cars, buildings, power generators, the lot.

Among other things, it envisages higher taxes on fuel-inefficient cars, minimum efficiency standards for appliances (including in stand-by mode, which accounts for 7 per cent of European energy consumption) and ad campaigns to persuade households to turn down thermostats, insulate their homes and turn off lights when they leave the room.

Investing more in biofuels and wind farms at sea, accelerating development of clean coal technology and establishing policies for "an effective and durable post-2012 (i.e. post-Kyoto) framework".

How does this help Howard frame his own policy? Well, he must start by creating a financial disincentive to emitting greenhouse gases. Without that, there will be no carbon capture and storage, no clean coal technology, and no nuclear power stations. Without a carbon tax, or European-style emissions trading scheme, dirty coal will remain by far the cheapest source of baseload power, and the only one any firm wanting to stay competitive could use.

The arithmetic is simple. Dirty coal (A) plus the cost of cleaning it (B) must cost more than dirty coal (A). A+B must be more than A. The Government has to admit that and bite the bullet.

Around the world, emission targets are in, and Kim Beazley and the states have embraced them as Labor's solution. But if Howard wants to differentiate himself, in the long term, he would do better to go for a carbon tax.

Why? Because it is more likely to be adopted in any global agreement after Kyoto.

Howard won't want to be seen to back down by signing Kyoto or adopting an emissions trading scheme. That's not important. What really matters is the post-Kyoto agreement, and to have Australia lead the way towards it.

A global agreement on emissions trading would be a Swiss cheese. Every country would demand special deals to protect industries. It would be far 6 By 2020, the Greenhouse Office predicts our emissions will have swollen 22 per cent from 1990. A cleaner and simpler to have a common global tax on carbon emissions, whether in Mumbai, Mombasa or Melbourne.

This is not a time for Howard to play politics. We are going to need a lot of new investment in energy over coming years, and it ought to start now. But what investors need is policy certainty. We are asking them to commit to very expensive, very long-tens projects on time scales over which prices of rival fuels and resources could change dramatically.

They deserve to have a stable longterm policy environment. In this area, as much as possible, policies should be bipartisan. Play politics with it, and Australia will be the loser.