Carbon omissions

Over the past four years, there has been immeasurable progress on climate change - in public awareness, in media interest and in the political response to the problem. In early 2005, one of us was completing The Weather Makers; the other was working at 10 Downing Street, advising Tony Blair before the Gleneagles G8 meeting that July. One on the inside, working to achieve a more effective global response; the other on the outside, looking to engage the public; both seeking to build the necessary momentum to tackle this most serious of collective challenges.

Then came Hurricane Katrina and the destruction of New Orleans, Australia's extended drought, Al Gore's An Inconvenient Truth, the Fourth Assessment Report of the Intergovernmental Panel on Climate Change, and a federal-election campaign in which a progressive Opposition sought to contrast itself with an incumbent government that had denied the problem for so long. The symbolism of the Rudd cabinet's first decision - to ratify the Kyoto Protocol, which led to Australia being welcomed back into the international fold at the UN climate conference in Bali, in December 2007 - was powerful.

Now, with one of us still writing and advising business, and the other having established a firm to work with business and government on ways to reduce carbon emissions, what can be made of the federal government's proposed responses to climate change?

Firstly, Labor's Carbon Pollution Reduction Scheme (CPRS) has been so compromised by industrial and political interests that it is now a policy without supporters. All the effort and fanfare of Professor Ross Garnaut's Climate Change Review signified nothing, for the government ignored its conclusions. Generous concessions have been made to polluters; the lion's share of permits has been given, free, to the so-called trade-exposed industries; and further concessions have been made to exporters of coal and natural gas. As a result, we now have a debate about the CPRS, rather than a debate about how Australia might address the enormous, unprecedented challenge of delinking economic growth from energy growth, and promoting other creative means to protect forests and rebalance the carbon cycle.

Despite its weaknesses, the government's scheme is at least designed to set a price on carbon emissions and, for the first time, to make Australian businesses and industry accountable for their emissions, and potentially profit from reducing them. In principle, it is a step forward: putting a price on emissions and polluting activity is essential to tackling climate change.

As a result of its weaknesses, the CPRS has become the focus of a distracting argument about the relative merits of taxation and emissions trading as way to establish a carbon price. A properly established emissions-trading scheme should be a more effective means of doing this: it is a system that can be calibrated around a target, stimulates investment in low-emissions alternatives, and establishes a dynamic price from a range of factors. It secures vital environmental outcomes by providing incentives for best practice. Although taxation might be simpler, advocates of a direct carbon tax must establish who will be taxed and what level of tax will achieve the required reductions. Imposing such a cost for an uncertain future benefit would be hard enough, but having to increase it through time would be even harder. In any case, it is not an either/or matter: carbon taxation and emissions-trading schemes can be complementary, and already are in a number of European economies.

Secondly, the government has been lulled into the belief that effective climate policy and an effective emissions-trading system are one and the same thing. They are not. Many of the senior officials working on the CPRS have come from Treasury with the mindset that the magic of the market will be the primary means of reducing emissions. A falsely ambitious scheme has been developed, covering sectors of the economy where imposing a price signal is unlikely to have the desired effect, and where the political realities make doing so impossible. So transport is included in the scheme, but various caveats mean that the price of fuel will remain as is. The limitation of pricing - even if the required higher prices could be imposed - was the very reason why transport was kept out of the European Union Emissions Trading Scheme and stricter fuel-efficiency standards were implemented.

The UK has taken a very different and more comprehensive approach. Emissions cuts are achieved through a mix of policies: legally binding targets, overseen by a committee independent of government and reporting to parliament; carbon pricing, through an emissions-trading scheme and a levy on energy companies; more stringent regulations for energy efficiency; funding of new supply-side technologies - all driven by a clarity about ends and a pragmatism about means that recognises the market as just one of many ways to achieve an overall reduction in emissions. Rather than the market purists' silver bullet of carbon pricing, this is the "silver buckshot" that Al Gore referred to at Kevin Rudd's pre-election climate summit. Yet, for the Rudd government, the CPRS is the jewel in the crown of climate policy: the primary means of achieving the stated target of reducing Australia's emissions by between 5% and 15%, depending on what other nations are able to agree on at the UN meeting in Copenhagen, in December.

With a mere 20 years of policy experience to draw upon, it is wrongheaded to see any single plan or approach as anything other than an initial step. It is also vital to recognise that addressing climate change is not only an industrial problem: we must foster an ethic of conservation, rather than one of unbridled consumerism. Earth's carbon balance is profoundly influenced by living things. Plants, for example, capture 8% of all atmospheric CO₂ every year; to store a proportion of that in growing forests, healthier soils and charcoal would make a big contribution to solving the problem. Policies that improve ecosystem health, that improve the sustainability of farms, rangelands and commercial forests, and that embed carbon accounting in such enterprises are important, and in all these areas regulation is likely to be at least as successful as market-based mechanisms.

Thirdly, the dilution of Australia's CPRS has revealed the crudity of much industry lobbying. At the same time as the CEOs of companies such as Woodside have been arguing stridently against the imposition of pollution costs, the same companies' scientists have been preparing for the inevitable climate change, working with the CSIRO to examine sea-level rises and extreme-weather events. The bullying by some industries has been extraordinary, from implied threats to let the lights go out, to proposing a shift holus-bolus offshore to more pollution-friendly jurisdictions. From such arguments, you would think that the industries' CEOs would prefer to live in a sewer, for that is what our air and water would be without regulation to limit pollution. And there is scant evidence to suggest that requiring industries to limit their pollution has ever driven any enterprise offshore. In the UK, the director-general of the Confederation of British Industry has actually been arguing for greater policy ambition on climate change from the government.

Indeed, regulation is often in the best interest of companies: witness the very different fates of American automotive and outboard-motor manufacturers. When California sought to impose more stringent emissions standards, the auto manufacturers were big enough to argue the toss, and so continued producing polluting cars which today have a shrinking market share. The outboard industry, however, had no choice but to go back to the drawing board, and today American manufacturers such as Evinrude make the cleanest outboards in the world and are a great success story. Clever companies understand that constraints can be a powerful driver of innovation.

Fourthly, confusion over the CPRS reveals that tackling the climate problem requires an absolute clarity of political purpose and leadership. We were at the second meeting of the Copenhagen Climate Council, at the Royal Institution in London, with Steven Chu, now the American secretary for energy. He spoke compellingly of how he and President Obama have the job of helping to stimulate and shape the political momentum to cut carbon emissions. There is no constituency to be satisfied in the US, but rather a constituency to be established by explaining the urgency of the problem and the environmental, economic, moral and societal wisdom of developing policies to tackle it.

As Chu made clear, this requires a more engaged, positive and intelligent political leadership, for small-minded politics magnifies failure - both real and imagined - and the media primes the public to be highly intolerant of it. In Australia, the difficulty is compounded by a misconception that, to borrow a phrase from advertising, it's easy being green. As Thomas L Friedman argued so brilliantly in his recent book, Hot, Flat and Crowded, there is nothing easy about the transformation we must achieve in our energy, transport and regulatory structures, and insisting otherwise only compounds the difficulties. Any changes of consequence have to involve some loss and pain, and the notion that Australia's low-carbon economic transformation will be achieved solely through green jobs is as fallacious as the view that its energy and export future must be dominated by coal.

Our political leaders have to be honest about how difficult yet critical it is to cut emissions. Barack Obama would likely have made more speeches on this challenge in the past two months than Australia's prime minister has in a year.

With the appointment of Greg Combet as the parliamentary secretary for climate change, under Penny Wong, Kevin Rudd has brought in one of Labor's most able brains and negotiators to bolster his team. Yet no one seems happy with the compromise that is Australia's emerging climate strategy. It is a middle-of-the-road policy in an area where no middle ground exists: you can't half-believe the science of climate change, and you can't half-believe the future risks to the nation.

The government appears to think that the bulk of the electorate wants it to pursue new policies on climate change, but is not sufficiently informed to know - perhaps even to care - whether or not such policies are effective. Yet people trust leaders who say what they believe and believe what they say. They don't expect leaders to wave magic wands to fix complex problems, but they do expect them to confront such problems genuinely and directly.

Cutting emissions cannot be delayed until the economy is stronger, or carbon capture and storage is proven, or the risks to the environment become clearer - or for any other reason. Climate change is not a problem that will go away. It will dominate our lives, and global and domestic politics, over the coming years. As Ian McEwan has said, with the science only becoming more alarming "the matter is passing from virtue, from idealism and sombre invitations to self-denial, which government, markets and the electorate distrust, to self-interest and necessity, for which they all have respect."

Dealing with climate change involves imposing new costs on industries newly recognised as polluting, and imposing new costs in a democracy is never easy. To complicate matters, those costs have to be imposed equitably, and globally, which involves brokering a treaty unlike any other ever conceived. Such a treaty must be agreed upon in December this year, in Copenhagen, for the problem is now so urgent that to delay would be tantamount to global failure. Agreement in Copenhagen is just one more step in a long journey, but it is vital that we take it. Australians must be prepared to shoulder their share of the burden.

Emissions reduction must be pursued with energy and enthusiasm, not the ‘smart' politics of triangulation and positioning political opponents. As President Obama recognises, transformational change can be easier to achieve in bad economic times. The crisis in the global financial system was brought about partly by speculative investment in products that few understood and that turned out to have no value. There can be no starker example of the need to address great risks early. So it is with climate change: to invest in low-emissions energy and transport infrastructure, and other technologies and processes, partly stimulated by a pricing signal, is to invest in tangible infrastructure that Australia needs - not only to tackle the climate problem, but also to secure our future energy and economic security.

The scheme developed by the Rudd government and scheduled to go before the parliament this month has many weaknesses. Some must be addressed now; some can be addressed once the legislation has passed. But time is in short supply. If the CPRS legislation, even with its weaknesses, fails to pass into Australian law, and a trading system is not established in 2010, we fear it will take years for Australia to adopt any proposal that puts a price on carbon pollution.

Up until now, the government's leadership on climate change has been found wanting. Whether the CPRS legislation is passed will also be a test of the Opposition, as well as the Greens and independents. Can they rise above petty point-scoring and support a system which, although weak and inadequate, is a small step forward? If the CPRS fails it will be a major stride backwards - for the country, the economy and our common future.