At least economic consultants won’t be too badly affected by the downturn. The emissions trading debate has been a boon for them, with industry groups regularly commissioning modelling to demonstrate the disaster that awaits us if we try to do something serious about reducing carbon emissions — although, of course, they remain committed to facing the very serious challenge of addressing climate change.
We’ve complained a couple of times about environmental groups and the Greens failing to match this onslaught of dodgy numbers and flawed assumptions. However, in September the Climate Institute produced a commissioned report examining the question of whether it cost more to start slowly under an emissions trading scheme and accelerate later, or to go hard early with a higher carbon price, and whether complementary measures such as renewable energy targets could reduce the cost of carbon abatement.
The report looked at the electricity industry specifically, and concluded that long-run electricity price increases were lower under an “early action” approach, especially if coupled with complementary measures. The caveat was that in the first two decades, the costs of early action were higher, but declined after 2030, whereas a soft start meant much higher prices between 2030 and 2050.
The Australian Industry Greenhouse Network, an industry grouping of Australia’s biggest polluters (the coal, aluminium, forestry, electricity, mining and steel industries, including the splendidly named Australasian Slag Association), decided to hit back hard, hiring Access Economics to reply with its own modelling.
Access is of course the biggest name in economic consulting, even if their reputation for accurate prediction has taken a hit – along with everyone else’s — over the last year. Yesterday AIGN released the Access Report , with the not entirely unexpected conclusion that early action will cost more.
However, even the biggest names are not immune from the “rubbish in, rubbish out” principle, and the Climate Institute commendably counter-punched immediately, pointing out the flaws in the AIGN report. It was telling that Access didn’t actually find any fault with the Climate Institute modelling, conducted by McLennan Magasanik Associates. Instead, Access opted to model the economy-wide consequences of the Climate Institute scenarios, rather than those for the electricity industry, which was the subject of the original report.
Fair enough, you might think. Except Access cut off its modelling at 2030, and declared the contest over. “The economic costs projected under the ‘early action scenario are projected 41-45 per cent higher than the ‘soft start’ scenario over the period 2010-30.”
Conveniently, 2030 is about the point in the MMA modelling when the costs of ‘early action’ are overtaken by those under the “soft start” option for most scenarios. Thereafter, the cost of carbon permits under the latter option overtakes that of the “early action” scenario and the gap continues to widen for the next two decades.
The disparity is nicely illustrated by a graph that shows that carbon price the electricity industry would face under the different scenarios — and the benefits of complementary measures.
This makes intuitive sense. Doing more earlier to reduce carbon emissions drives the switch to a low-carbon economy more quickly. Leaving it merely delays the costs associated with that switch — and, although the modelling doesn’t capture it, increases the costs of climate change.
But even when Access stops the game at half-time and declares victory, it can’t muster a convincing set of numbers. It concludes that an “early action” scenario leads to a GNP being 0.5% lower in 2030 that it would have been under a “soft start”. That’s about two months’ economic growth.
To dramatise it, Access relies on the trick made famous by Brian Fisher at ABARE, of calculating the financial value of that GNP difference in current terms to suggest some vast imposition on Australians.
“Australian GDP is a cumulative $200b lower under an ‘early action’ scenario to 2030,” its report says. The only surprise is that they didn’t add that that’s $10,000 for every Australian.
This is about more than duelling models and economists for hire. The arguments of advocates of delays and “soft starts” in emissions trading are relying on our natural tendency to put off difficult tasks. It’s easy to commit ourselves — those of us who’ll still be around then — to harder action on climate change in 2030. Strangely, human nature won’t change by then. Come 2028, the descendants of the AIGN will start lobbying for further delay. There might be another economic slowdown then, or a need to get the details right, or Burkina Faso and Liechtenstein won’t have started emissions trading yet and we don’t want to lead the world now do we. Meantime, carbon levels rise, increasing the costs of climate change and adapting to it.
The economics say act as soon as possible.