More money for low carbon R&D and energy efficiency in Australia – Budget 09 summary

The government tonight released the budget for 2009-10. The big themes were infrastructure spending and debt, but I want to focus specifically on the programs relevant to climate change. Robert Merkel at LP rated it as having a “distinctly camouflage mottled hue”, but I’m a little more positive, albeit with some criticisms. See my analysis below.

RD&D, innovation and skills

The biggest area of spending, and the biggest increase in spending, came in what I have categorised as RD&D, innovation and skills. Then headline items in this area are under the umbrella of the $4.3 billion Clean Energy Initiative, which includes $3 billion of new money – mostly going to Carbon Capture and Storage (CCS) and the Solar Flagships Program (which will fund up to 4 very large solar thermal or photovoltaic installations, totaling 1GW of capacity). There is also a $1.3 billion Green Car Innovation Fund, and $100 million per year for the Global Carbon Capture and Storage Institute, both 10 year programs that were announced last year.

So by my calculations (see below), this adds up to $6.9 billion of commitments in this area, up from $3.4 billion previously. One important point is that in the area of low carbon stationary energy, $4.9 billion is allocated to specific technologies – CCS and large scale solar, compared with only $615 million to technology neutral, competitive funding. Admittedly, there are several competing technology options within CCS and solar, but this amounts to a fairly significant picking of winners by the government. I’ll come back to this difficult issue in a future post.

Energy efficiency and small scale renewables

On the demand side of the energy equation, we have energy efficiency and small scale renewables. By my calculations, this budget is committing about $5 billion to this category, up from $4.1 billion before the CPRS was announced. Most of this is going towards domestic insulation and solar hot water through the Energy Efficient Homes Program. There seems to be a confusing array of 9 overlapping programs in this area, with various timeframes, 5 of which are relevant to domestic and 7 of which are relevant to business. Why so many? The $100 million smart grid funding is welcome, but should be larger and allocated to a wider national roll-out, rather than another demonstration project. The technology is well established and has been demonstrated ad-nauseum.

Miscellaneous spending includes $98 million allocated to Australia Climate Change Regulatory Authority (which will oversee the CPRS) and the National Carbon Accounting Toolbox.

Conclusions

Overall, there are some important boosts to the green economy in this budget. But is it enough, and is it well directed? I would have liked to see more going towards Renewables Australia and the Energy Innovation Fund, which are both good, technology neutral funds. Also, the Clean Business Australia program could have been a lot bigger, particularly in comparison to the massive Energy Efficient Homes package. Business energy efficiency is less visible to voters, but equally important. As I’ve already mentioned, more on Smart Grids would also have been welcome.

But I do support the big spending committments that were made, in CCS, large-scale solar, and green cars. Overall, I give the 2009/10 Budget 6 1/2 green stars out of 10.

Australia shuns the low carbon transition

Update: the government has released a number of amendments that have turned me around on this issue.

The Australian government is conducting a senate inquiry into climate policy, focusing on the recent draft legislation to set up an emissions trading system, called the Carbon Pollution Reduction Scheme. For me, the government’s climate policy increasingly looks like an exercise in avoiding change.

I added my 2 cents worth here (permanent link here) – submission number 391 out of 415 unique submissions posted so far and reportedly over 13,500 total submissions (including standard form letters from activist organisations). Probably it will just be lost in the noise, but there is no harm in trying.

On the “environmental” side of the argument, the criticisms of the scheme mostly fall into these categories:

• targets too weak (5% reduction on 2000 levels by 2020, or 15% if a comprensive global agreement is reached)
• excessive compensation to the big polluters
• “voluntary” emissions reductions not counted – household energy efficiency, for example, will only reduce the obligation of industry to reduce emissions

In the “big business” corner (if that is a fair categorisation), the arguments are mostly:

• targets are excessive
• insufficient compensation to industry X
• there is no climate change / there is climate change but its not anthropogenic / there is anthropogenic climate change but Australia is not the primary cause and shouldn’t be acting alone

That’s a very broad generalisation, and there are many exceptions on both sides, but that seems to be roughly how the argument is playing out.

I took a slightly different angle. To me, the biggest problem with the current draft is that the focus is on meeting our international obligations on emissions reduction at the lowest cost to the economy. There are two glaring problems with that. Firstly, the post-Kyoto negotiations are happening later this year, so why set these below-par national targets in stone now, other than to play the disruptive and self-serving role of – “Oh, we can’t possibly agree to that target because we’re already defined our national target in legislation”.

The second problem, which I concentrated on in my submission, is that the focus should really be on transitioning to a low carbon economy, rather than simply meeting targets. It is possible for us to meet our targets by buying all of our permits internationally, effectively outsourcing our emissions reductions by paying others to do it. This would impose a cost, without the attendant benefits of creating new jobs and industries. The world economy is changing – we simply have no choice – and the change brings with it enormous opportunities to the early movers. If we try to minimise the damage by minimising the extent of the change, we will be left behind. This point seems to be lost in the current debate.

For the record, here are my recommendations:

1. Implement a stronger conditional target of 25% by 2020 (in the event of a substantial international agreement)
2. Explicitly state the importance of the transition to a low carbon economy
3. Place a limit on the proportion of credits that can be purchased internationally
4. Establish a price floor in the permit market
5. Establish a broader innovation framework.

For details see my full submission. For a laugh, also see the sentence before my recommendations: “Four recommendations are addressed in this submission”. I threw that in to make sure they were paying attention.

Hurray for the crash

I was recently asked whether I thought the slow-down/credit crunch/recession/depression might have a positive side effect (specifically for the environment). It’s difficult to think along those lines in the face of the relentlessly apocalyptic news coverage, but the questioner apparently thought I might have a glass-half-full spin on it all.

Why? Because I had an article published in the online magazine New Matilda back in February provocatively entitled “Only a Recession can Save Us“, with the subject line “We should be looking at the slowing of the global economy with relief”. I was making the argument that climate change mitigation was going too slowly, and we needed the economy to ease off for a while before it was too late. Here’s an extract:

Before the Bali Conference last year, the world’s early warning system on climate change, the Intergovernmental Panel on Climate Change (IPCC), released their latest report. It was their most alarming yet. They then proceeded to criticise themselves for being too optimistic.

…

The problems are building too fast and we need to buy some time. A key measure of our efforts to mitigate climate change is called carbon intensity – the amount of carbon released per unit of GDP. It needs to go down, but at the moment, it’s stalling.

Only a recession can save us now.

…

[W]e should be looking at the easing of global demand with relief, not with dread. As well as buying us some time to deal with climate change, a global slow-down would ease the pressure on inflation, ease the housing affordability crisis [in Australia], and give us time to ease the skills deficit. In the long run, we would not be missing out on any opportunities in the resources sector. One of the advantages of relying on non-renewable resources is that anything we leave in the ground today, we are bequeathing to the next generation.

But that is not the way conventional wisdom sees it. The view is that Growth is unambiguously Good. The ‘growth religion’ pervades every aspect of today’s society, from the neoclassical economist’s pulpit to the faithful masses. Politicians argue over whose policies will lead to the most growth, like different denominations bickering over whose doctrine is the most holy. Economists who challenge this dogma – such as ecological economists – are cast aside as heretics.

All of this was written before things turned really ugly. Perhaps I should be more careful what I wish for.

But I should point out that the article was intentionally provocative, and deliberately one-sided. As I said in response to a negative comment:

You’re right, of course, that “let’s hope for a recession” is not an effective policy response. You’re right that there are better options, one of which is encouraging higher efficiency, that we need to aggressively pursue. My central point is really that the innovations are coming too slowly and the problems are coming too quickly. I’m trying to generate a sense of urgency, same as you.

At the same time, I’m calling into question the underlying assumption that pervades mainstream economics, that growth is some kind of cure-all for all our problems.

…

We have to get away from the idea that affluence will save us. The first step is to get these assumptions out in the open, so we can begin to examine them.

Returning to the original question, the events of the last few weeks have also shed some light on another potential positive of all this turmoil. With under-regulated free market capitalism apparently falling apart, western governments are decisively stepping in to take a much more central role. This, I hope, can only be a good thing for the environment. Governments should – and they must – act in the public interest, not in the interests of markets and profits. In the short term, we may see less focus on environmental issues like climate change, but hopefully once the dust settles, we will end up with governments that are more willing to intervene when they need to.

Of course, there are some fairly obvious downsides of a recession for the environment, which I’ll address in my next post.

Technology will save us. Won’t it? (2)

Following on from my previous post about simplistic technological fixes, dk.au at LP found a similar limitation in the debate about an Australian emissions trading system:

We also need to start discussing energy demands as social things, rather than simply a matter of correct pricing or installing a well timed deus ex machina [Ed: improbable solution to an intractable problem], if we’re going to make any real headway on climate change. As we point out, quoting Nicholas Stern and Cameron Hepburn, ‘[c]limate change policy … raises questions that are fundamentally and inescapably ethical’

He expands on this argument in a more academic article here.

Climate change or global warming? And who cares the most?

Who cares about climate change? And what should we call it?

I decided to answer these grand questions, using Google Trends, a tool which allows you to plot search frequency over time and compare different search terms and different countries. It’s a great little tool although it still lacks some important functionality and sometimes the results are a little… unexpected.

The first thing I wanted to know was what terms people are searching for on the topic of climate change. My impression was that the term greenhouse effect was used when the science first started floating around in the 70s and 80s, then global warming came to describe the overall problem, and more recently climate change took over as the dominant phrase. Google trends is the perfect tool to test this hypothesis (although unfortunately it doesn’t go back earlier than 2004). This graph shows the search volume of the three terms over time:

global warming

climate change

greenhouse effect

So, searches for greenhouse effect are small and declining, searches for global warming are large, erratic and increasing, and searches for climate change are somewhere in between. Not quite what I was expecting. The News volume graph (the second graph above) is a bit closer to what I expected – although the scale is too squashed to see very clearly, the two main terms appear to be fairly close together, but climate change has overtaken since the end of 2007.

There are some interesting variations over time. It’s impossible not to notice the sudden dips at the end of each year, and the longer dips mid-year. No-one cares about these serious topics when they’re on holidays. The big spike in climate change in 2006 corresponds to the release of the Stern Review on 30 Oct, which marks the beginning of the turning point in world interest. This was followed by the release of the IPCC’s alarming Fourth Assessment Report on 2 Feb 2007, generating another spike, and then the Bali climate change conference in Nov 2007, when negotiations for a successor to the Kyoto treaty began.

Google Trends can also show which countries are the most prolific searchers for these terms. For global warming for example, the top country is, of course, Indonesia.

Huh? Let’s take a closer look at that. Here are the top ten countries for GW and CC:

Position	Global Warming	Climate Change
1	Indonesia	Australia
2	Philippines	New Zealand
3	South Africa	South Africa
4	India	United Kingdom
5	Australia	Canada
6	New Zealand	Ireland
7	Singapore	Singapore
8	United States	Philippines
9	Malaysia	India
10	Canada	United States

It’s difficult to decode what’s happening here, but I’ll do my best. Indonesia, when plotted on its own, had basically no interest at all in global warming until mid-2006, presumably when preparations and press coverage for the Bali conference began. There is of course a huge spike in November of that year. Indonesia actually has a great deal to loose – and gain – from the current international negotiations. As a vast archipelago of islands it is more vulnerable than many other countries to rising sea levels; on the other hand, if they are able to claim carbon credits for their vast forests, it would bring substantial economic benefits to the country.

The swell of interest in the Philippines is even more of a mystery. Like Indonesia they have thousands of tiny islands which will be threatened by rising seas… perhaps fear is driving them into a desperate search for information?

As for climate change, my chest puffs out in pride to see Australia at the top of that list. It’s good to see we care about something. The US comes a paltry and unsurprising tenth. Tsk tsk – time for some grass roots action, guys.

Of course these comparisons are not entirely fair for linguistic reasons. Most non-english speaking countries have their own translation of global warming – apparently Indonesia and the Philippines just use the english words. Google Trends doesn’t allow any kind of multi-lingual comparison.

Speaking of linguistics, I’m tempted to return to the climate change / global warming distinction. Looking just at Australia (same colours as previously) we get the following graph:

This is pretty much as I expected. CC was virtually unknown before 2004, but has since grown to be just as, if not more important than GW. The UK gives a similar result, whereas the US lookes more like the first graph above. I’m not sure if there is much significance in this other than cultural preference.

Where did the term climate change come from? Here is the Wikipedia explanation:

The term “global warming” refers to the warming in recent decades and its projected continuation, and implies a human influence. The United Nations Framework Convention on Climate Change (UNFCCC) uses the term “climate change” for human-caused change, and “climate variability” for other changes. The term “climate change” recognizes that rising temperatures are not the only effect.

I seem to recall a conspiracy theory a while back that suggested that the term climate change was invented by spin doctors from [insert evil organisation of your choice here] because it sounded more benign than global warming. That’s almost certainly nonsense (Update: Or not. See comments). CC is a more scientifically accurate term, and it more accurately describes the probable negative effects. If the only consequence was the warming of the earth, then the worst we would have to put with would be rising sea levels, diminishing sources of fresh water in some regions and disease epidemics. But focusing on these events, utterly catastrophic though they will be, is only part of the story. The climate will also change in ways that we are only now beginning to be able to predict – floods, droughts, cyclones and hurricanes will become more frequent, and once-reliable rainfall patterns will change, threatening our food production. Climate change, for me, is a more all-encompassing term.

Nevertheless, the (mostly Indonesian?) people have spoken, and they chose global warming. For some reason, that doesn’t satisfy me. I’m going to settle this with a straight, no frills Google search:

Climate change – 55,600,000

Global warming – 52,200,000

CC wins it by a nose!

Responsible economic policy, political compromise, or a victory for big business?

The proposed introduction of an Emissions Trading System in Australia is generating a significant amount of attention. And quite rightly too, as it is the biggest reform of the Australian economy in decades, and will have a significant impact on our government’s ability to negotiate a new global framework on climate change.

Broadly, I think that the proposed system is satisfactory as a national cap-and-trade carbon reduction system. Most of the elements you would expect to see in an ETS are present. It is a genuine attempt at reducing Australia’s carbon emissions on a planned (though yet to be specified) trajectory at least cost to the economy. There were, however, three significant compromises, which I’ll describe below.

Petrol

Perhaps the least significant compromise was the pledge to effectively exempt petrol from the ETS in the short term by providing a cent-for-cent reduction in the petrol excise. As I have said before, this will make little difference as there is already a significant price signal from the current record prices for consumers to reduce their petrol consumption, and this situation is unlikely to change in the short or medium term.

Emissions Intensive Trade Exposed industries

The second compromise was to provide support for Emissions Intensive Trade Exposed industries, by issuing free permits. Around 20% of the carbon permits will be given to companies involved in trade-exposed activities for free, rather than being auctioned. At first glance this seems like a triumph for the big business lobby and a heavy loss for environmentalists. But I’m not so sure. The green paper justifies that:

“trade-exposed industries may not be able to pass on the costs as they face prices set in international markets, and compete against firms that do not at this stage have comparable carbon constraints.”

The assistance will remain in place at least until 2020, unless:

“broadly comparable carbon constraints are introduced in key competitor economies, in which case assistance be withdrawn.”

The concern here is about carbon leakage. If the costs we impose on companies that must compete in international markets are too high, they will simply move their operations off shore, to countries that do not impose carbon constraints. That is the reality of our globalised economy. For example if our aluminum producers move their production facilities to China as a result of our ETS, our national carbon emissions will reduce but the global emissions will stay the same or possibly increase. That’s not a win for the environment.

Assistance for coal-fired power stations

The third compromise is the one that has worried left-leaning commentators and environmentalists the most. The Green Paper is foreshadowing assistance for “strongly-affected” industries, in particular for coal-fired power generators. This is a one-off injection of an as yet unspecified amount of cash. The justification is that investors in power stations, who have significant sunk capital costs, were not aware of this government policy when they made their investment. Therefore, to “ameliorate the risk of adversely affecting the investment environment”, the government will compensate those who stand to lose the most.

I won’t go as far as to call this gutless, but it is a difficult argument to make, given that coal generators must have seen the writing on the wall long ago.

Moreover, we must accept that there will be winners and losers from the introduction of an ETS. Moving to a low-carbon society involves radical innovation in many respects – in the way we use energy, in the technologies we use to produce energy, in our behaviours and attitudes. Radical innovation has another important aspect, described by Joseph Shrumpter as creative destruction. This is the process by which incumbents, trapped in the paradigm of the old, are pushed aside by new entrants. It is a painful, but necessary process, and to deny it is to deny the need for change.

One important point to make, though, is that compensating the “strongly affected” industries does not influence the overall effectiveness of the scheme, which will still be driven by the total carbon that is permitted to be released per year. The big polluters (at least the ones that aren’t trade exposed) will still have to purchase their permits in the auctions, same as everyone else, and the are still incentivised to reduce their emissions over time.

Questions

However, given that we are not about to scrap our coal-fired power stations and replace them with wind farms overnight, a la Al Gore’s challenge for America, the more important question for me is the effect this will have on the implementation of carbon capture and storage (CCS) technology. Currently, while the government is keen to wave a big carrot in the form of the $500 million Clean Coal Fund, it is reluctant to wield the regulatory stick. They are continuing with their softly, softly approach with this decision to compensate our heaviest polluters prior to the introduction of the ETS. Overall, this sends a mixed message – “we want you to do the right thing, but we’ll protect you if you don’t”.

Another interesting question is whether the compromises I have described here were made in the interests of pursuing “responsible economic policies”, as claimed by the Green Paper, or in the interests of getting the legislation through the senate. We might never know the answer to that. For me, these are much more likely explanations than claiming that the government is in the thrall of the big bad lobbyists who are directing things from behind the scenes.

While I’m asking questions, here’s another thorny one. The ETS covers emissions from fossil fuels burnt within our borders. What about the carbon emissions produced from the coal and gas that we export? Are we responsible for them? And while we’re at it, what about the carbon released from the manufacture of the products that we import? I’ll try to address these in future posts.

An oily red herring

The government’s decision to effectively exempt petrol for 3 years from the Emissions Trading System was criticised from several angles – by the Greens as being anti-environment, and by the Liberals, who claim that the government copied their policy. Much of the ideologically pure left blogosphere condemned the decision as political opportunism. More sensibly, Tim has wisely pointed out that to have done otherwise would have condemned the policy to death in the senate.

Despite all the fuss, I agree with Tim that we are missing the point. The reason for establishing an ETS is to provide a price signal for consumers to reduce their carbon emissions. It is hard to imagine a bigger price signal than a seven-fold increase in the price of a barrel of oil since the 1990′s. Adding the price of carbon to the current record pump prices would have an almost laughably small effect of about 4.5c per litre (assuming the government’s reference case of $20/tonne). If the message that we have to reduce our fuel consumption is not getting through already, a few percent extra will make little difference.

Furthermore, the signs are growing that the current high prices are not a temporary situation. The CSIRO recently warned about the possibility of $8/litre petrol. Even the normally optimistic International Energy Agency has predicted that the oil market will remain tight until at least 2013.

That’s market fundamentals. But what about the fundamentalists? Threatening noises from Iran and Israel are also keeping traders wary and prices high. With the next US election looking tight, it must be tempting for Bush to pull a war out of his big Texan hat and save the day for his party. There’s nothing like a good war to scare people away from the Democrats. Nobody would want that totally inexperienced Muslim guy, Barak Osama, holding the reigns if the situation with Iran deteriorates. But surely a US president wouldn’t manufacture a war for political gain, would he?

But I digress. Our obsession with petrol is irrelevant for another reason. That reason is coal. James Hansen, head of the NASA Goddard Institute and one of the most prominent scientific voices for climate change mitigation, points out that coal is king when it comes to the transformation of our climate. He wrote an open letter to our PM in April that makes for some interesting reading. He points out that burning all of the world’s known reserves of oil and gas would take us close to the realm of dangerous climate effects; burning all of our known coal reserves, on the other hand would:

“produce a vastly different planet, a more dangerous and desolate planet, from the one on which civilization developed, a planet without Arctic sea ice, with crumbling ice sheets that ensure sea level catastrophes for our children and grandchildren, with shifting climate zones that cause great hardship for the world’s poor and drive countless species to extinction, and with intensified hydrologic extremes that cause increased drought and wildfires but also stronger rain, floods, and storms.”

This stark vision makes Garnaut’s supposedly alarmist views sound like utopia. Hansen’s main recommendation is for Australia to take a leadership role by phasing out coal use that does not capture and store CO₂. Green campaigners who oppose carbon capture and sequestration on the grounds that it “might not work” should take note. It simply must work, and fast.

The discussion about and ETS for petrol is a distraction. Petrol is already expensive, and coal is the main problem anyway. It’s great to see these issues being debated in the main stream, but we should be careful not to be distracted by those oily red herrings.