A sovereign wealth fund needs to be part of Australia’s response to climate change.
One of the main biases in the climate change debate here is the failure to understand that climate change is primarily out of our hands, as intense but numerically small carbon addicts. Many opponents of climate action like to point out that, at less than 3% of global emissions, there’s no point in Australia taking unilateral action ahead of the world, without accepting the corollary of that: what happens if the world doesn’t do anything, or doesn’t do enough to prevent a significant global temperature rise?
We’re currently well on track for such a rise, with the two-degree target looking increasingly problematic. Prudence suggests we start preparing now for the impacts of a significantly warmer globe. And like the costs of taking action to limit our own carbon emissions, the costs of preparation are lower if we start earlier.
This doesn’t mean abandoning the effort to halt the rise in carbon emissions. If anything, it makes the task for Australian policy makers more urgent — to convince the world’s major emitters to take serious action. Why anyone thinks we can do this while not taking action ourselves is one of the stranger parts of the climate change debate here. And Australia is a long way behind most developed economies in terms of the work needed to reduce our dependence on carbon, making the task of domestic action more urgent still.
But while we will pay the costs of climate change action ourselves, costs of climate change itself will fall on our future selves, and our children and future generations. In effect, future Australians will be paying the price for our own inability to get our policy act together sufficiently to end our carbon addiction. That’s where establishing a sovereign wealth fund designed to last for the rest of the century comes in. It would operate like a permanent national disaster fund, paying for the costs of climate change arising from more extreme weather and in effect representing an intergenerational transfer from those who caused the problem to those who are suffering from the problem. It might even pay for the implementation of mitigation strategies in anticipation of the costs of climate change.
Who would pay for it? Revenue generated by the carbon pricing scheme is the most logical alternative, but all of that will be devoted to compensating households and polluters (in fact, under the CPRS, compensation significantly exceeded revenues for several years). The most sensible alternative is the mining super profits tax, increased from its current paltry level, which has the benefit that the Australian industry contributing the most to global emissions, our coal industry, contributes its share to dealing with the future consequences of its exports.
Several business figures have recently begun talking about the benefit of a sovereign wealth fund, including Roger Corbett, who argued the original RSPT was a good idea if used to establish such a fund. Part of that is recognising that the closest thing we have to a wealth fund, the Future Fund, is pre-committed to paying public sector superannuation liabilities. For them the issue isn’t about climate change but about preparing for when the commodities boom comes to an end, but the goals are complementary. It also squares with the suggestion of a permanent disaster recovery fund to deal with future extreme weather events.