The greening of Howard and Bush

THE recent agreement on climate change between Australia and the US, Japan, China, India and South Korea represents a welcome development in global greenhouse policy. Although the Asia-Pacific Partnership on Clean Development and Climate is in an early stage, it has the potential to bypass the sterile debate on the Kyoto Protocol and provide the basis of a comprehensive international approach to addressing climate change after 2012.

There are several positive aspects of the deal. Firstly, it focuses on accelerating technological change, particularly in electricity generation. Although technology is obviously the key to reducing greenhouse gas emissions, a weakness of Kyoto is an insufficient emphasis on supply-side incentives to develop greenhouse-friendly technologies.

Secondly, the partnership's six member countries account for half of total global greenhouse gas emissions, double the level of the nations bound by targets under Kyoto.

While clearly important to engage with China and India on a concerted response to climate change, of even greater significance is the fact that the US is playing a leading role. In this context, President George Bush's willingness to accede to the Gleneagles communique of the Group of Eight, acknowledging that climate change is happening and is in part due to human actions, represented something of a breakthrough.

Thirdly, it provides a platform on which to build a global coalition to act after 2012, when the Kyoto Protocol is likely to expire. Most countries now accept that the protocol as it stands will not bring about deep cuts in emissions and that its rigid targets are unlikely to attract major emitters such as the US and China.

While these advantages are all real and important, however, the announcement of the partnership and its emphasis on technology represents only the first step on a long and difficult journey. There remains a major disconnect between what the scientists tell us needs to be done and the policy response of governments worldwide.

In order to avoid catastrophic climate change, the scientific consensus is coalescing around the objective of stabilising carbon concentrations in the atmosphere at a level of 550 parts per million (ppm), against the current level of around 378 ppm. One way to achieve this is to cut global emissions by around 50 per cent by 2050. This approach has been endorsed in principle by most European governments and in Australia by Environment Minister Ian Campbell and former chief scientist Robin Batterham.

Such a reduction represents an enormous challenge. The International Energy Agency (IEA) estimates that a business-as-usual approach will lead to an increase in emissions of about 60 per cent globally by 2030. In Australia, the economy could have grown to three times its present size by 2050 but its greenhouse gas emissions would need to be restricted to around half the current level.

Far-reaching technological changes will be needed to succeed. In the transport sector, for example, we would need to move first to diesel and hybrid powered cars and then to hydrogen fuel cells. Fossil fuels will only be viable for electricity generation if their emissions are kept underground or otherwise removed. A growing emphasis would be placed on gas in the short to medium term, and while renewables would be important they cannot provide a comprehensive solution.

Nuclear power will form an important part of the global response and probably would need to be employed increasingly in Australia after 2020.

While the Asia-Pacific Partnership will be influential in developing these technologies, the supply-side effort will need to be complemented by a market signal. Greenhouse-friendly generation technologies are likely to be more expensive than current fossil fuel technologies for the foreseeable future.

The private sector, therefore, is unlikely to commit significant funds to R&D or invest in deploying new technologies unless it has some degree of confidence that the future price of carbon will make them commercially viable.

If we are to meet a 2050 target of a 50 per cent emissions reduction at an acceptable cost, we need to begin the journey sooner rather than later.

Because major investment decisions will need to be taken soon, a policy decision on a carbon price cannot be delayed for long. New baseload generation capacity will be needed in NSW and Victoria in the next few years. Without a carbon price, brown or black coal would provide the most efficient but least greenhouse-friendly solution. Yet who would invest in a coal generator with a 50-year life in this atmosphere of greenhouse policy uncertainty? Would governments indemnify investors against the greenhouse risk? To do so would seem to be an unacceptable use of public funds.

In its recent report on Australia's energy policy, the IEA goes as far as a polite OECD agency can in suggesting the Howard Government should change current policy and introduce emissions trading.

Faced with investment uncertainty, the states and territories have already said they will develop a national emissions trading regime.

The first meeting of the Asia-Pacific Partnership in Adelaide later this year will provide a valuable opportunity for advancing this issue both nationally and internationally.

Jon Stanford is a director of Allen Consulting Group. The group's report, Climate Change Risk and Vulnerability, was released recently by the federal Environment and Heritage Minister.