Whether we choose to tally them up or not, the costs of climate change are rising steadily, if not exponentially.
A large part of every dollar we spend on climate damage or adaptation is a subsidy to the fossil fuel industry, which is the single biggest cause of the greenhouse gas emissions that are causing the problem.
To state the obvious: it is not our demand for energy — or Asia’s sudden demand for energy, for example — that is causing the climate problem, because there are plenty of ways to get clean energy. It is our continuing reliance on dirty fossil fuels that is causing the problem.
We only choose fossil fuels because we’re told they’re cheaper (in truth, until recently we haven’t had much choice). But that low price is an illusion — like many up-front bargains, there are higher costs down the track. Energy from fossil fuels is only cheaper than renewable energy partly because climate change costs are not reflected in the price we pay for coal-fired electricity, gas or petrol — in the economists’ jargon, the costs have been “externalised” by the buyer and seller, to be borne instead by the rest of society.
Putting a price on carbon — the most efficient way to tackle climate change — was an attempt to “internalise” these costs so that purchasing decisions would forever more take into account the impact on the climate. Energy from fossil fuels would get more expensive; renewable energy wouldn’t. That’s not a subsidy. That’s a level playing field. The carbon price also gave us a potential revenue stream to pay for climate damages and adaptation.
Now the carbon price is gone, the government is proposing to pay polluters from a taxpayer-funded Emissions Reduction Fund as part of its Direct Action plan, and the public also have to pay for the damage done by climate change.
In short, we are paying through the nose. How much? A staggering amount. The Climate Institute today has put out a fresh estimate that Australia is subsidising carbon emitters across electricity, transport, and the resources industries to the tune of $14 billion to $39 billion a year. As the largest emitter, the electricity sector alone receives a carbon subsidy of $7 billion to $20 billion a year. The figures are based on a recent IMF calculation of the real cost of fossil fuels for over 150 countries, including Australia, using a carbon cost of US$35 a tonne.
This is the mother of all subsidies, the elephant in the room, the one that clinches all the other hard-to-resolve, back-and-forth arguments between the renewable energy industry and the fossil fuel industry about who is subsidising whom. Are people with rooftop solar getting a subsidy from other households, as Environment Minister Greg Hunt claims, or in fact the opposite? Should the cost of fossil fuel backup capacity be counted as a subsidy to intermittent renewable power generators?
“The true carbon cost is only going one way, and the energy industry knows it.”
Such arguments touched on here by Crikey last week fall by the wayside if the costs of climate change are properly attributed to the industries causing climate change.
“For all the talk of subsidies to mining or to renewables, the carbon subsidy to energy is the biggest hand-out of them all,” said Erwin Jackson, deputy CEO of the Climate Institute in a statement this morning:
“Without the Renewable Energy Target, a policy to close ageing, high-polluting coal plant and, or, an explicit price on carbon, this carbon subsidy will continue to grow. Other countries like the United States, Canada and the United Kingdom recognise the economic costs of carbon pollution, and the IMF is calling on all countries to end this subsidy to fossil fuels.”
If you think the IMF carbon cost is probably exaggerated, the fine print of the Climate Institute paper is sobering. While the carbon costs make doubtless arguable assumptions about inter-generational and inter-regional impacts, and include estimates for loss of agricultural productivity, and damage to human health and property, a lot is left out:
“The models currently completely omit the effects of some large ecosystem changes that drive other climate impacts, such as ocean acidification (which leads to decreased fish supplies and a potential large scale ecosystem collapse) and neglect or only partially address potentially catastrophic damages such as the collapse of the Atlantic Meridional Overturning Circulation or the West Antarctic Ice Sheet, or large releases of methane from melting permafrost and warming oceans… with significant harms to human welfare.”
Depressed carbon prices in Europe and therefore the rest of the world have created the false impression that abatement is going to be ridiculously cheap. In 2012 Australia settled on a carbon price of about $23 per tonne, not because the government wanted to be punitive but because that was been a generally accepted rough estimate of the externalised costs of carbon pollution.
The true carbon cost is only going one way, and the energy industry knows it. Last Thursday, in a presentation to an Eastern Australia energy markets conference in Sydney, Electricity Supply Association chief Matthew Warren predicted that “at some point in the not-too-distant future it’s likely to assume carbon will return as a priority issue and it will be hotly debated”.
“We have this unique position in Australia where we’ve effectively cleaned out most of our climate policies. I can prosecute quite a strong case to say that a well designed emissions trading scheme that starts at $25 and dials up to the true scarcity value of carbon – which is about $100 a tonne – is a really economically sound idea that is impossible to execute politically.”
If Warren is right, we might reasonably take today’s figure from the Climate Institute and triple it.