The Economic Challenge of Climate Change

I spoke in parliament yesterday on climate change, responding to a scare campaign by the opposition about electricity prices.
The Economic Challenge of Climate Change
21 February 2011

The globe is warming. Those opposite may not like to admit it, though they did vote for a private member’s bill to this effect last year, but climate change is real, it is happening and it is caused by humans. When I say this I normally pause, because sometimes you get chuckles or shouts from the other side. They like to flirt with the denialists and they like to suggest that perhaps climate change is not happening, or to take the ostrich approach: ‘If we just put our heads in the sand for long enough, maybe climate change will go away’.

But the evidence accrues year after year. Since the 1940s, every decade has been warmer than the one that preceded it. Following this pattern, the past decade was indeed the warmest on record. And you can just look in your own backyard to see this effect. Only a few weeks ago, Sydney experienced a record-breaking seven days in a row of temperatures over 30 degrees. Never in 150 years of record keeping had Sydney experienced seven days of temperatures where the maximum went over 30 degrees, but it has now happened—evidence of climate change in one of our own cities.

Higher temperatures and climate change mean more extreme weather events—stronger and more frequent droughts, floods and bushfires. Dealing with climate change is a big challenge for Australia. That is why we need to start early, and we need to use the most efficient mechanisms available. Over 80 per cent of Australian energy is generated through coal fired electricity sources. Two-thirds of the world’s population emit less than 7 tonnes of carbon pollution per person. Australians emit 27 tonnes of carbon pollution per person. The challenge is real. Putting it off, or pretending it is not there, is not an option.

Dealing with climate change will require a substantial transformation of our economy, and the longer we leave it the more difficult it will be and the more costly it will be. Scientists tell us that climate change is happening and economists tell us to deal with it now—and they tell us that we need to use market mechanisms.

Climate change is going to fundamentally affect Australia. It will affect our energy supply, our water security, our agriculture and our health. It will affect our coastal communities and it will affect Australian infrastructure. That means we have an obligation to future generations to act on climate change now, and to do so in the most cost-effective manner.

In support of this I would cite the words of Rupert Murdoch—not normally a man who is cited in favour of propositions on this side of the House, I have to say. But Rupert Murdoch put it as follows:

Climate change poses clear, catastrophic threats. We may not agree on the extent, but we certainly can’t afford the risk of inaction.

Think of it, if you are sceptical of the science, as an insurance policy. Even if you are not 100 per cent sure that climate change is happening, surely you would want to begin to think about the most cost-effective strategies to deal with it. Thirty-two countries and 10 US states already have in place emissions trading schemes, so it is a fallacy that Australia would be leading the world and going first. That is not the case at all. We would be moving in lockstep with international experts and with many other developed countries.

Whenever I speak at schools, universities and the Canberra Institute of Technology in my electorate, always comes up. Young people in Australia want us to act quickly on climate change, and they want us to use market mechanisms. Frankly, they are astounded that we in this parliament have not yet begun to act. They are astounded that the wreckers opposite have managed to trash an emissions trading scheme. They want us to move on climate change.

Market mechanisms are the most efficient way of dealing with climate change, and that means that they are the cheapest way and the fairest way. If we put in place a carbon price, we will cut pollution and we will drive investment in clean energy. We will let the market decide which clean energies are the most effective, rather than taking the coalition’s approach, which is picking winners—McEwenism back from the grave.

As a Labor government, we will always support those who need help to meet an increase in their cost of living, especially pensioners and the most vulnerable. That is in our DNA. The coalition sometimes use the ostrich solution to climate change but, when they take their head out of the sand and admit that something is happening, they have a direct action policy, an anti-market policy, which is very ironic given that those opposite claim to be the defenders of the free market.

As the Australian Treasury has said of it:

Direct action measures alone cannot do the job without imposing significant economic and budget costs.

To take a tonne of carbon out of the atmosphere via direct action costs more than to take a tonne of carbon out of the atmosphere via a carbon price. So how do you do it if you want the same level of abatement with direct action? You have to raise additional revenue. You have to raise income taxes. In the end, to get the same level of abatement via direct action, you will need a huge new tax.

Over the decade, the Department of Climate Change and Energy Efficiency estimates that the purchase of international permits to make up for the coalition’s flawed policy would cost $20.4 billion, and that is in order to meet the bipartisan five per cent reduction target. So on top of the $12 billion cost of the coalition’s policy we would need another $20 billion to meet that bipartisan target.

In support of market mechanisms, you can quote a raft of experts. Pretty much any economist you turn to will say, ‘Market mechanisms are the most effective way to go.’ Let me, for example, quote Treasury executive director David Gruen:

Well-designed economy-wide market-based mechanisms for reducing Australia’s greenhouse gas emissions are projected to reduce annual labour productivity growth by around 0.1 percent, even for quite deep cuts in emissions (Australian Government, 2008). Of course, were alternative regulatory, or other non-market-based, mechanisms for reducing greenhouse gas emissions implemented, that would be expected to have much more adverse effects on the economy’s aggregate labour productivity growth.

Insurance Australia Group have made similar points. They have noted:

Early action can be achieved at modest cost—


Delayed action would be expensive.

The Australian Business Roundtable on Climate Change have said that, in comparison to early action, delaying action to 2022 would result in lower real GDP growth by an average of 0.2 per cent per annum through to 2050 and concentrate any disruptive shocks over a shorter period.

The Australian Business Roundtable on Climate Change have also discussed jobs. They say that an additional 3½ million jobs will still be created in the economy under the early action scenario over the period 2013 to 2050, equating to 250,000 more jobs than under the delayed action scenario. The coalition’s delayed action scenario will cost jobs.

Of course, this is what we would expect from the party of ‘no’. The member for Warringah has always brought a negative approach to public life. We remember that in 1999 his campaign against the republic referendum was: ‘Don’t know? Vote no’. In 2009 he came to the leadership, beating the member for Wentworth, who seems to be curiously absent in this debate. The member for Warringah won the leadership with one promise: he would say no to any sensible policy to tackle dangerous climate change.

The opposition have consistently taken the same ‘Don’t know? Vote no’ policy in this chamber. They have become the party of ‘no’ when it comes to sensible reforms, such as means testing the private health insurance rebate and introducing a Minerals Resource Rent Tax, giving Australians a fair share of their minerals. I know that there are thoughtful people in the Liberal Party caucus. There are probably people who could make a constructive contribution to the Multi-Party Committee on Climate Change—if their leader allowed them to participate. But, alas, the party of ‘no’ consistently says, ‘Do not get involved.’

The current Liberal Party is a Liberal Party which I fear would probably have said no to some of the great Hawke-Keating reforms. They probably would have said no to the tariff cuts, to floating the dollar, to Medicare and to expanding universities. They would have said it would cost too much and was too risky. They would have said no to compulsory superannuation. I shudder to think what Australia would be like if the party of ‘no’ had been in power in the past.

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