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Lateline – what I actually said.

Published on: May 20, 2011

Politicians complaining about the press are, as Churchill observed, like mariners complaining about the sea. But nonetheless from time to time it is interesting to compare what has been said by a politician and what the media has said that he said.

With that scientific objective in mind, let us consider what was actually said on Lateline on Wednesday night with what I have been reported as saying.

The Australian, for example, criticised me in one of its editorials today for stating that one of the virtues claimed by advocates of the Coalition’s direct action policy was that it could be easily terminated.

“By suggesting the best feature of the Coalition climate policy was that it could be terminated easily, Mr Turnbull showed a contemptuous disloyalty that would not be tolerated in others.”

But at no point did I say that the ease of terminating a direct action programme was its “best feature”. I simply noted this flexibility was a virtue attributed to direct action by its own keenest advocates.

Climate change policy is made in the midst of considerable uncertainty. Is global warming happening? How fast is it happening? What changes will it cause? And even if you take the view (as a majority of Australians do) that global warming is occurring, humans are contributing to it and we should do something about it, what will the rest of the world do? Will the planet finally get its act together and act, or will our generation throw the issue into the too hard basket and condemn future generations to a hotter and more dangerous world?

If the theory of climate change was proved to be nonsense, then obviously there would be no point in cutting CO2 emissions at all. If the rest of the world ultimately resolved to do nothing then we would very likely be be better off spending the resources available to us on adaptation – moving to higher ground, preparing for more volatile weather and so on.

Both sides of Australian politics are unequivocally committed to a cut in emissions by 2020 as a contribution to the global effort and in the hope that comprehensive global action will follow. The difference is in the method used to achieve that cut.

The object of an ETS or indeed a carbon tax is to influence long term investment decisions about energy infrastructure – to divert capital spending to windfarms and gas fired power generation instead of coal fired power stations for example.

If a future government decided that emission reduction was no longer required, terminating an ETS or carbon tax would eliminate the change in relative prices which permitted lower emission generation infrastructure to be built – a gas fired power station which made sense with a carbon price of, say, $25 a tonne, would be a financial disaster with no carbon price at all.

Furthermore, an ETS creates property rights in the form of the permits acquired under the scheme – terminating an ETS would render those permits valueless.

As the Coalition’s policy document states:

“Labor’s ETS will also create a system of quasi-property rights that will be hard to amend or abolish should the understanding of these issues change or the best treatment of them be altered by new global agreements.”

Of course these problems can be partly mitigated by starting a carbon price low and increasingly it slowly in line with global action – or if there is none keeping it low. But it would be hard to abandon entirely.

Direct action on the other hand does not impose any financial burden on emitting industries, nor does it impose any financial cost on households and businesses in their capacity as energy users. Emitting industries operate on a business as usual basis. The cost of offsetting emissions is borne by the taxpayer as the Government pays for sufficient carbon offsets to ensure net emissions meet the bipartisan target of of a 5% reduction from 2000 levels by 2020.

If anthropogenic global warming were proved to be nonsense (most unlikely) or if it were concluded that there was simply no prospect of global action, then direct action could be terminated. Obviously farmers who had been selling carbon credits to the Government would be unhappy, but there would be no dislocation of industry and no long-lived capital assets stranded in the energy sector. Taxpayers would be relieved of a substantial financial burden, although it may well be replaced by additional investments in adaptation, as noted above.

This flexibility therefore is one argument proponents of direct action have all made in its favour.

As the Coalition policy document states:

“Unlike Labor’s emissions trading scheme, the Emissions Reduction Fund will give Australia maximum possible flexibility to adapt to changes in global developments.”

I did not dismiss or criticise that argument, but put it fairly as part of the case made for direct action. How can it be “contemptuous disloyalty” to the supporters of direct action to repeat an argument they themselves make in support of the policy – including in the Coalition’s own policy document?

The second point I made in the interview which has been the subject of criticism in the media is my remark that direct action would be a charge on the budget. Well, let’s be fair dinkum about this. The whole point of direct action is that abatement is funded out of the budget as opposed to being funded by an impost on emitting industries who then pass it on to their customers in higher electricity or fuel prices. In other words emitting industries do not face an uniform economic incentive to cut their emissions under direct action. Instead the Government is obliged to pay for carbon credits to offset enough of those emissions to meet the target and the Government may choose to pay particular firms to convert their operations to lower emission intensities. Either way the Government picks up the tab – that’s the whole idea.

The Coalition’s direct action policy is designed to meet the 2020 5% target, which requires a a reduction of about 140 million tonnes of CO2 equivalent from business as usual emissions. That is the key objective which the policy is designed to achieve. This cut would be met in a variety of ways, but mostly from buying carbon offsets from farmers and landowners. The Coalition’s spokesman, Greg Hunt, has estimated a range of prices for these offsets; to be conservative let’s assume the average cost will be $15 per tonne. Offsetting 140 million tonnes @ $15 a tonne means a cost of $2.1 billion. You can vary either the amount of abatement needed or cost per tonne to arrive at other conclusions of course.

The point I made on Lateline was looking forward to mid century, when scientists contend we will need to cut our emissions by up to 80% from 2000 levels to stabilize the climate. Making any assumptions that far out is always speculative, but if you assume that Australia’s business as usual emissions continue to grow at the current rate, which reflects increasing population and energy use, then our business as usual emissions in 2050 would be something in the order of 1.3 billion tonnes. If the goal was to cut emissions to 20% of 2000 levels (which were 550 million tonnes of CO2 equivalent), that would mean a reduction from business as usual of around 1.2 billion tonnes. Even if the cut was to a less aggressive 50% of 2000 emissions, the amount of abatement would still be over 1 billion tonnes. The 2050 abatement task, however it is achieved, is a formidable one.

If that were to be achieved by the Government buying offsets or otherwise directly paying for abatement the cost would be enormous – at $15 a tonne it would amount to an $18 billion annual cost to the budget.

That is the context in which I said on Lateline:

“…if you want to have a long-term technique of cutting carbon emissions, you know, in a very substantial way to the levels that the scientists are telling us we need to do by mid-century to avoid dangerous climate change, then a direct action policy where the Government – where industry was able to freely pollute, if you like, and the Government was just spending more and more taxpayers’ money to offset it, that would become a very expensive charge on the budget in the years ahead.”

In other words I was not commenting on the charge to the budget from direct action in 2020 (which is likely to be in the order of $2 billion) but rather what it could be by 2050 if direct action (as opposed to other policies) was the means of achieving the very substantial cuts scientists say will be needed by then.

It will not have escaped the attention of the astute reader that in the media extracts of the interview, whether in print or on television, the reference to mid-century in the first part of the passage quoted above was left out.

Phil Coorey’s piece in the SMH today is a good example:

“Mr Turnbull, who lost his leadership in late 2009 because of his support for an emissions trading scheme, told the ABC program Lateline on Wednesday night that the Coalition’s scheme would be an indefinite and heavy impost on taxpayers.

”Where industry was able to freely pollute, if you like, and the government was just spending more and more taxpayers’ money to offset it, that would become a very expensive charge on the budget in the years ahead.””

I made no comment on whether the cost up to 2020 was very expensive or not. The reference clearly and expressly was to “mid-century” and a figure which, on any view, would be a very large one expressed in the money of today. That is no doubt why the Coalition policy document states:

“A Coalition Government will support direct action on climate change to reduce Australian CO2 “emissions by five per cent by 2020, while at the same time delivering real environmental benefits.”

Action past that date will be determined later and in the light of global developments.

Finally, some people were critical that I had said direct action was not a market based mechanism. In fact this is what I said in answer to the question whether direct action was a market based mechanism:

“…you could say it is in the sense that they would – there would be competition for farmers and landowners to provide the cheapest abatement, but, no, it’s not a market-based mechanism in the way that an emissions trading scheme is…”

That was a fair and accurate response. Under direct action there would be only buyer of carbon credits – the Government. However farmers and other landowners would compete to provide offsets and so there would be competition and hence some of the characteristics of a market. It could be compared to the Government tendering to buy back water, but in that case of course the Government is competing with many other buyers of water.

An ETS on the other hand involves trade in emission permits and offset credits across the economy and indeed across borders. Emitters can buy and sell them, as can other parties – there is a large universe of buyers and sellers and, consequently, a market in the more complete sense of the word.

So far from criticising the Coalition’s direct action policy, I explained it fairly and pointed out important arguments in its favour, in addition to the obvious one that it does not put up electricity prices. I did not question the assumptions behind it and accepted them as a given. Tony Jones repeatedly invited me to repeat the criticisms of direct action I had made in 2009; I declined to do so.

I made it very clear that I had no plans to cross the floor in the future and, as I have pointed out previously, unlike many others I have never at any stage advocated a carbon tax

Finally, it is worth noting the Coalition’s plan is at least a detailed proposal. Right now we have no details on the Labor Party’s proposed carbon tax – it is nothing more than an abstraction, and contributing to greater and greater uncertainty as a consequence.

136 Responses to “Lateline – what I actually said.”

Barry Green says:

In response to Ted O’Brien, before farming most Australian soils had around 5% organic matter (carbon). Modern agricultural practice, especially the use of nitrogenous fertilisers has seen this fall to around 2%. A key component of organic farming is to increase the soil organic matter to hold more water and nutrients. Nitrogenous fertilisers not only burn of soil organic matter releasing CO2 but release tones of CO2 in the manufacturing process. As energy prices rise as demand exceeds supply, many current farming practices will become uneconomic. There will be a transition to organic farming practice driven by pure economics not greenie ideology. Refer http://www.organicfoodwa.net.au

tweq says: