Hey Mr Garrett! Time to get off our arts and do nothing

If everything goes to plan, soon Australia will have its very own national cultural policy.

This is great news if you have been concerned that Australian literature, TV, music, film, theatre, painting and performance art is a bit, well, aimless.  Sure, cultural products inform and reflect our views of ourselves -- but so what?  What's the end game?  Think of what our culture could achieve if it had a policy!

Announced recently by Peter Garrett, what the national cultural policy lacks in ambition, it more than makes up for in discussion points.

Right now it's just a website, described pompously as a "national conversation".  But the publicly funded arts community has wanted some sort of grandiose policy for a long time.  They have always assumed that "national policy" is code for "buckets of cash".  They're probably right.

According to the Arts Minister, culture does pretty much everything -- it creates jobs, attracts tourists, harnesses "understandings" (yeah, I'm not sure what that is either) and lifts our fragile economy.  So in Garrett's opinion, it should be co-ordinated by him.

But when government mates with culture, it breeds bureaucracy.  Unless there is a big change in direction, a national cultural policy could easily make this worse;  filtering Australia's artistic output through yet another mesh of subsidy and red tape.

The Commonwealth Arts Council talks about culture as if it can be reduced to key performance indicators -- "strategic priorities", "aims", "outcomes" and "outputs".  Let's say you want a few grand for your interpretative dance version of An Inconvenient Truth.  I suspect the government would quite like that idea.  And once you slog through the 11-stage grant application, provide the dozens of pages of supporting material, CVs and letters of support, you'll find out if they do.  After you successful defend your idea at an assessment panel meeting, of course.

Certainly if we're going to give money to artists, we might want to run a background check on who we are giving it away to.  But government policy seems be aimed at taming our wild culture, burying it in a pile of red tape, and keeping it alive with taxpayers' money fed through a tube.

After all, it isn't just bad luck that Australian movies are routinely commercial failures.  Filmmakers have realised it's more important to please funding bodies with depictions of the hollowness of contemporary society than it is trying to please audiences.  (I mean, come on, not every movie has to expose the "dark undercurrents of suburbia".)

But there is an alternative.  If Peter Garrett really wants his national cultural policy to make a difference, he should adopt just one principle:  Australia's culture can look after itself.

Which culture would you consider more vibrant:  one in which artists are entrepreneurs -- testing their work against an audience and in a competitive marketplace, or one that shepherds them into a departmental grant application process?

The entrepreneurial spirit should be as central to the art world as it is to the economy.

It's not like the marketplace can't produce culture.  Even high culture can be popular.  Nearly 40,000 people came to see Andre Rieu's Docklands show last year.  The National Gallery of Victoria puts on exhibitions all Melbourne lines up to see.  And while the largest share of Arts Council funding is spent on expensive things such as orchestras, there are privately funded orchestras around the world.  Profit-making culture just takes an entrepreneurial passion.

Anyway, there has never been a more futile time to try to define and direct a national culture.  The very the idea of an "Australian" culture seems outdated.  The internet has put the globalisation of culture into hyperdrive.  Most importantly, it has allowed us to choose cultural products that are important to us as individuals, not as a "nation".

Culture comes from the meanings that individuals derive from art, dance, theatre or film, not from a departmental funding matrix that allocates money to politically favoured art forms.  So let's scrap the idea of a national cultural policy, and embrace our 21 million individual cultural policies.  A vibrant culture will come from what people want, not what the Commonwealth funds.

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Stimulus over, time for Rudd to rein in spending

The global financial crisis left vast holes in the world's major advanced economies.  The US, Japan and European Union all ended 2009 with their national income levels 2.5 to 5.5 per cent lower than in 2007.

For the first time in more than a year, the recent September quarter saw the world's major economies record positive growth.

However, with unemployment above 10 per cent in the EU and US and expected to continue increasing for another year, there are no voices suggesting a roaring recovery.

Australia is a stand-out within the developed world.  We ended 2009 with our national income more than 3 per cent higher than in 2007.

Modest further growth is forecast, though not enough to stop unemployment rising.

But why have we fared so relatively well?

Notwithstanding Prime Minister Kevin Rudd's self congratulations, it cannot be due to the Federal Government's massive fiscal stimulus.

The US, Japan and Britain all introduced similar measures and still experienced recession.

Like all other governments that pump-primed their economies to counteract the downturn, Canberra must now rein in the spending -- a task made even more difficult by its insisting upon introducing the ETS tax and spend program.

One obvious reason for Australia's relatively good performance is China.

China is now our biggest export market and its growth has remained at an effervescent 8-9 per cent over the past two years.

The Hawke-Keating-Howard reforms were vitally important in creating a more flexible Australian economy and allowing the China opportunity to be taken up.

Those reforms included deregulation of labour markets and of business investment decisions.

Unfortunately, the Rudd Government is steadily dismantling this growth platform.

One outcome of the present Government's increased regulatory intrusion is seen in Telstra's inability to proceed with a planned $500 million bond issue to finance investment.

Senator Stephen Conroy has impaired Telstra's credit rating by creating uncertainty in his ego-driven determination to bring the company to heel and split it up.

His reign as Communications Minister shows that the tricks learned kicking your way to the top in the Victorian ALP can cause considerable harm and costs when applied to the art of government.

Government anti-business measures that raise investment costs have added to longer-standing problems with regard to the savings that supply investment funds.

In normal years, non-dwelling investment in Australia is equivalent to 20 per cent of national income.  But for a long time now, over a quarter of our investment has been provided by overseas funds.

This is a large dependence on foreign savings for a country as wealthy as Australia with an ageing population.

Not only must foreign investment be serviced with interest and dividends but its flipside -- an under-saving by Australians -- has significant repercussions.

The long-standing inadequate levels of savings by baby boomers must translate into either them facing lower future living standards as retirees or higher taxation levels for their children and grandchildren.

Already we are seeing one outcome in old age poverty.  Compared with the developed world as a whole, Australia has twice as many people over 65 years living on half of the average income levels.

While Mr Rudd's various stimulus packages may have boosted immediate consumption levels, they have done so by further raiding the pool of domestic savings.

That is storing up additional problems for the future.

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No longer business as usual

The business lobby groups wanted a carbon emissions trading scheme -- and now, thanks to Malcolm Turnbull, they have one.  The Business Council of Australia "welcomed" the deal between the government and opposition on Tuesday, while the Australian Industry Group repeated its "support" for an ETS.

On paper, the events of this week look like a victory for the business organisations.  But what happened in Canberra in the past few days may prove to be the high-water mark of the influence of big business in Australian politics.  Despite high-profile and high-powered lobbying from business organisations in favour of the ETS, nearly half (and by some accounts, more than half) of federal Liberal Party MPs wanted either to delay or block it.

Ten years ago, even five years ago, this sort of reaction from Liberals against something big business said it wanted would have been unheard of.  It shows how much Australian politics has changed when, on an issue such as emissions trading, the ALP is more eager to follow the line of big business than is the Liberal Party.

The split between the Liberals and big business says more about big business than it does about the Liberal Party.  These days the objective of the organisations that represent big business is more likely to be to maintain a working relationship with the government of the day.

If in a few years somehow the ETS is not the disaster many predict it to be, and if somehow the rest of the world follows Australia's lead, then these business organisations will deserve congratulations for their wisdom and leadership.  But if China and India, for example, don't sign up to cut their emissions, what happens then?  Will the switchboard operator at the Business Council take the telephone calls of the former employees of the Gladstone aluminium smelter in Queensland?

At the moment it seems as though everyone (except Kevin Rudd) is angry with Malcolm Turnbull.  His backbenchers are angry with him.  Liberal Party members are angry with him.  And everyone who thinks either that Australia shouldn't have an ETS or should have an ETS in a different form is angry with him.  But while perhaps you can blame Turnbull for the way he's handled the politics of the situation, he shouldn't shoulder all of the opprobrium.  Turnbull and Rudd have a point.  What they've agreed to is not very different from the emissions reduction scheme that John Howard took to the last election.  Many people are complicit in the Liberals' ETS debacle -- not just Turnbull and his shadow cabinet.

In the lead-up to the 2007 federal election it was the influence of the business lobby on Howard that finally convinced him to sanction the coalition having an ETS policy.

Business sold the need for an Australian ETS because it was prudent to take out "insurance" against the risk of climate change.  Business has stayed staunchly behind an ETS even as it became clear that because of Australia's reliance on cheap and plentiful coal an ETS would have a proportionately greater impact on this country than on any other developed country.  Even after it was revealed that the Prime Minister's much-vaunted Treasury modelling -- which purported to demonstrate an ETS would have a minimal impact on employment -- was based on the patently false assumption that if Australia had an ETS every other country would have one, too, business remained firmly for an ETS.

In recent months it's been claimed that as imperfect as the ETS is, nonetheless it's necessary because of the need for business certainty.  The strength of this argument is debatable.  What the price of carbon will be is unknown and any legislation passed in the next few days will inevitably be amended before the start of the ETS on July I, 2011.

On many of the big policy issues of the Rudd government's first two years, the Liberal Party has taken a different policy position from the business organisations.  The business organisations said the stimulus package was timely and the correct size.  The Liberals opposed the stimulus package.  And on industrial relations a significant proportion of the Liberal party room want to reopen the debate about Work Choices.  Big business doesn't.  Given all of this, one can only imagine the degree of sympathy Liberal MPs will have for the pleading from business organisations to lower the corporate tax rate when the recommendations from Ken Henry's tax review are released.

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The perils of a fat tax

If the legislation for the Orwellian-sounding Australian National Preventive Health Agency passes, then expect an avalanche of make-work exercises by the Agency all for the cause of making us healthier.

Armed with a budget of $133 million of your money over four years, the agency would get to work advising commonwealth and state health ministers about health issues surrounding alcohol and tobacco consumption and obesity.

It will look to create new policies about interventions in settings such as schools, workplaces and communities.

Backed by an exponential funding increase for "social marketing" in its first two years, the health nanny agency is setting itself up to be a pestering one.

Perhaps the only respite for ordinary Australians from the agency's push-marketing will be in their sleep.

The agency will also administer research grants from a "preventive health research fund" to universities, academics, states and territories and NGOs.

The public health lobby will be keen to hitch a ride on that fiscal (gluten­free) gravy train, and perhaps the climate change vegans will want their share of the budgetary lentil soup too.

The research script for the agency is already mapped out in the form of the final report of the National Preventative Health Taskforce.  The problem with that is the taskforce report gave scant regard for any evidence critical of its paternalist policy inclinations.

This sets a worrying precedent for the future under a preventive health agency.  With little effective internal or external restraints imposed on it, the agency will likely present findings confirming the interventionist leanings of health ministers keen to change what we eat, drink and inhale.

One area the agency will be keen to sink its teeth into (excuse the pun!) would be on the issue of an Australian fat tax, to possibly add to the distortionary hodge­podge of 125 different taxes already levied by governments.

The health taskforce report stated that a corrective fat tax might be needed to shift production incentives so that manufacturers produce healthier foods, and also re-weight consumer choices by lowering spending on fatty and sugary foods and drinks.

Perhaps unsurprisingly, the taskforce recommended a commission to review how taxation, grants, pricing, incentives and subsidies could "decrease production, promotion and consumption of unhealthy food and beverage products."

Such a review is likely to be one of the preventive health agency's first items of work.

While the health nannies suggest that a fat tax will discourage unhealthy consumption, and help fund the health costs of obesity, the research base in favour of this tax grab is not strong.

A study by researchers at the University of California Berkeley find that a ten per cent fat tax on dairy products such as whole milk, cheese, ice cream and margarine will raise more revenue for governments, but will not lead to significant reduction in consumption.

The taxes are also likely to be regressive, hitting poor families harder than the rich.

The researchers state "people could reduce their consumption of fattier products without government intervention.  Forcing them to do so by raising prices lowers their short­run welfare."

A paper presented to the 2006 international agricultural economics conference found that a fat tax on meats to fund social marketing efforts may actually increase total fat consumption.  This is because consumers will switch to poorer, less nutritional cuts of meat.

American researchers Michael Anderson and Daniel Matsa wrote a paper last year finding no evidence of a causal link between restaurants and obesity.

When considering the effect of a fat tax of 50 per cent on restaurant meals, they also concluded that "although a restaurant 'fat tax' would have little effect on obesity, it could produce substantial dead-weight losses" that reduce consumer welfare.

An active front for the nanny statists "let's tax obese people" crusade in the US at least has been the idea, supported by Barack Obama, to levy a national soft drink tax.

A study by Fletcher, Frisvold and Tefft analysed the impact of changes in US state soft drink taxation rates from 1990 to 2006 on changes in the body mass index.  It found that a one percentage point increase in tax rates reduced average adult BMI by a miniscule 0.003 points.

Of course, Australia already has its own implicit "fat tax" in the form of the GST.  According to former Democrats leader and GST negotiating powerbroker Meg Lees, the GST "serves public health interests in that the price of fresh, healthy food would actually fall but the price of some junk food would rise."

However, ABS data on turnover in the takeaway food retailing industry shows that sales have increased since 2000 implying an increase in food consumption.

Data from the household expenditure survey also indicates that average weekly household consumption of fast food rose between 1998­-99 and 2003­-04.

There is enough evidence to suggest that a fat tax would do a fat lot of food for reducing obesity prevalence.

If the preventive health agency becomes a reality, one can be almost certain it will waste precious time and scarce resources on potentially self-defeating nanny policies.

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Do taxpayers really need to pay for the ABC any more?

Mark Latham is a fine example of the economic principle of specialisation and the division of labour.  He is an excellent public intellectual but was a woeful politician.  His passion and strong views are ill-suited for Canberra, but make for delightful reading in the op-ed pages of the Australian Financial Review.

Unfortunately, that paper has an extraordinary subscription-only policy and many of his excellent ideas and arguments will be lost.  His recent articles on bad parenting are must reading.  Today he is having a go at the ABC.  There are so many arguments against the ABC that is hard to imagine any new contributions.  Yet Latham manages to produce one.

He does raise the argument that government ownership of the ABC is no longer necessary because the market already provides a very broad spectrum of entertainment and news.

This is, of course, true.  Yet the ABC is able to provide some entertainment that commercial operators would never show.  For example, several years ago the ABC put on, in an early timeslot, the magnificent Angels in America mini-series.

Unfortunately, that sort of thing is rare.  Latham suggests we're getting less quality and more trivia.  He bemoans the flight of quality to subscription media (while writing for the AFR).

His complaint isn't that the ABC is an out-of-touch elitist organisation, but rather that ABC viewers are out-of-touch elitists; ABC employees apparently are "cornball comics".  I don't know -- my understanding is that ABC viewers tend to be AB income group and Liberal voters.

The complaint often heard from Liberals is that the ABC is "our enemies talking to our friends".  Latham tells us that the Rudd government "needs to be tough on trendies but humane to the much abused federal budget".

I agree.  The Rudd government has spent money irresponsibly and the federal budget is a disaster.  It is disgraceful to have planned a budget deficit in peace-time, even if the economy has slowed down.  But it isn't clear that privatising the ABC is the solution to fiscal indiscipline.  The federal government needs to stop spending money, not find new sources of revenue.

But what of the idea of privatising the ABC anyway?  There is an apocryphal story that the great Austrian economist Ludwig von Mises once suggested that he would privatise everything, except the opera.

But Mises also believed that the full costs and benefits of choices should be known to decision makers before they make decisions.  If after a cost-benefit analysis voters and tax-payers still supported subsidy to the opera, or the ABC, or whatever, then a subsidy should be made.

The ABC costs a bit more than seven cents per day, and what are we getting for our money?

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A perfect political storm

The past 48 hours have been probably the most divisive in the history of the modern Liberal Party.

But there needn't be lasting damage.  Malcolm Turnbull has to reunify his team by finding common ground among Liberal and National parliamentarians.

The membership of the Liberal Party is diverse and attitudes to social and environmental issues divide entire state divisions, let alone individual MPs and party members.  But the party always unites on its commitment to real economic conservatism, and there are two issues that the Opposition can campaign on immediately.

The first is to refocus on its pre-emissions trading campaign against the Rudd Government's profligate stimulus spending.  There are stories about the blatant waste of taxpayers' dollars, with interest rate rises apparently the only outcome.

In fact, Turnbull should focus on his ambitious policy to cut the size of government by 12.5 per cent -- a plan that went all but unnoticed due to the seemingly never-ending leadership speculation.

The second is the tax reform ball that Turnbull should never have dropped.  By the end of the year, the Henry review of the tax system will deliver its final report.

The review's outcome is unknown, but the Opposition should be outlining a set of core principles for a decentralised, low-tax Australia to promote entrepreneurship, wealth creation and cut red tape.  By doing so, Turnbull will have laid the foundations for the Opposition's response and be ready to take the Government to task in the new year.

But to win back government, Turnbull also needs to learn from Kevin Rudd and develop a demarcating narrative that unites his party, focuses public attention on the common ground between the public and the Opposition against the Government, and that brings in new constituencies.

Rudd developed a narrative capturing the public's support against the Howard government on climate change by stating he would ratify the Kyoto Protocol.

Now Turnbull should do the same by establishing a long-term campaign against the Rudd Government's nanny-state agenda that will encroach on individual liberties.

Rudd's National Preventative Health Agency to implement the Preventative Health Taskforce bible is one of the largest threats to individual freedom as regulators seek to fiddle with what every Australian eats and drinks, and then how they have to exercise it off.

It won't take long before average Australians get tired of being told by health tsars that they've had one too many beers and exceeded their recommended daily salt intake.

The Opposition should also commit to scrapping the Government's internet blacklist and rededicate the funding to policing those who abuse the internet.  Such a campaign gives the Opposition what it sorely needs -- a policy bridge with young Australians, contrasting with Labor's statist sympathies.

The Opposition also needs to move on from recent events and realise it isn't fundamentally broken.  It's a healthy sign of Opposition when members can still get together in one room and shout it out.

The debate wasn't a breakdown within the Liberal Party between "conservatives" who opposed Labor's ETS and "liberals" who supported it.  Victorian senators Mitch Fifield and Scott Ryan, and Queensland senator Brett Mason are small-government "liberals" who spoke against Labor's ETS.

And liberals such as Fifield, Ryan and Mason had good philosophical reasons to do so.  Labor's ETS will introduce one of the largest non-revenue neutral taxes in Australian history and commit the transfer of billions of dollars from taxpayers to big business.

The divide was also not about the party's commitment to the environment.  Many Liberal climate change believers want to reduce carbon emissions, but opposed Labor's ETS because it would not actually achieve that.  Few outside Rudd's office seriously believe this ETS will substantially reduce our carbon footprint.

From the outside, the Opposition may appear to be breaking apart, but the climate change bunfight was really just the Coalition's perfect political storm.

The ETS divides climate change sceptics in the National Party from pragmatic sceptics and believers in the Liberals.  Within the Liberal Party, it divides science sceptics, climate change believers who are against the ETS and those who are eager to support an ETS outright.  And it has divided the rank-and-file Liberal Party members from some in the parliamentary leadership.

To rebuild his leadership and authority, Turnbull needs to foster team momentum after the crash.  He needs to spend the summer parliamentary break reflecting on how, in the words of one of his colleagues, he can "start acting like a leader and stop acting like a boss".

The job of a political leader isn't just to make decisions, it's to lead a team and take them with you.  A leader cannot do that when they're shoving decisions down their colleagues' throats and fudging the numbers to deliver their preferred outcome.

And Turnbull has the perfect mould to shape himself around -- John Howard.  Howard's success was built on years of swallowing his pride, cultivating the backbench by listening to their opinions, even if the conclusion was polite disagreement.  Even as prime minister, Howard had to suck-it-up every now and again.

Philosophically, Turnbull and Howard are different leaders in different times.  But like the party they have each led, their challenge has been to unite against the economic recklessness of the Government they oppose.

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Too much pain, too little to gain

The government says its emissions trading scheme tax will bring no risk to the economy.  Indeed, Kevin Rudd constantly harps about savings of 15 per cent if we move early to implement the tax.

In fact, there is a considerable risk to the economy from the ETS tax and any alternative measures designed to force marked reductions in carbon dioxide emissions.  Policies to force such reductions inevitably entail large hikes in energy prices.  Even the super-optimists recognise that decarbonising the economy means dislocations in transforming the Australian economy.  And the likelier outcome is that the price increases necessary to force abatement of CO₂ emissions will cause dramatic reductions in living standards.

The ETS tax measures before the parliament seek a 5 per cent reduction in emissions by 2020.  This is only the first rung on a ladder that will require Australia to reduce emissions by 80 per cent.

The purpose of the ETS is to ensure Australia plays a fair role in reducing global emissions of greenhouse gases.  Britain's Stern report put the global cost of countries taking no action at 5 per cent to 20 per cent of gross domestic product by 2050.  Although Stern foreshadows further losses beyond 2050, these are difficult to reconcile with the science of climate change whereby any warming effect of increased concentrations of carbon dioxide is logarithmic.  Any warming effect from increased emissions of otherwise harmless gases therefore tails off rapidly.  Moreover, no other estimates go close to the level of damage envisaged by Stern.

Twenty or so peer-reviewed studies examined by Dutch economist Richard Tol put the global costs from the temperature increases envisaged by the Intergovernmental Panel on Climate Change at plus 0.5 per cent to minus 5 per cent of GDP by 2050.

Like Stern's estimates of the damage costs from global warming, those by the Treasury are outliers among economic studies worldwide.  Treasury puts Australia's loss if no emission-reducing action is taken at about 5 per cent per capita by 2050 (8 per cent by 2100).

Although this is significant, it is in the context of a business-as-usual increase in GDP of 66 per cent per capita by 2050.

On the other side of the ledger is the cost of carbon abatement measures that entail the total economic revamp of the Australian economy, including the sacrifice of our natural advantage of very low cost energy.  Treasury estimates this cost at just a few percentage points of GDP by 2050.

However, Treasury's cost estimates are based on hopelessly heroic assumptions.

As well as requiring us to buy emission rights from overseas, they assume we will have 30 per cent of our electricity generated by wind and other high cost, non-controllable exotic renewables, with most of the rest generated from coal or gas incorporating carbon capture and storage.

The latter technologies have yet to be invented and many people, ironically including Al Gore, doubt they can be viable.

Treasury's forecasts of relatively benign costs of radical abatement action have little credibility.  They stem from assumptions about technological developments, without which the costs of trying to force the projected 80 per cent reduction in Australian emissions would be likely to drive down Australian incomes to Third World standards.

Risks cut more than one way.  There is a risk from climate change of a loss in GDP per capita.  This amounts to a few percentage points in the context of business-as-usual per capita growth of more than two-thirds.

But there is also a risk of severe economic consequences of addressing such change.

The Prime Minister has said:  "The [Carbon Pollution Reduction Scheme] holds in its hands our children's fate, and our grandchildren's fate.  It's time to remove any polite veneer from this debate.  The stakes are that high."

This is incontestable.  If we take early action that involves imposing draconian taxes on our energy industries and the assumptions of a rapid and low-cost adjustment response are misplaced, we condemn our offspring to a marked reduction in living standards.

It is clear to everyone that Australia going it alone, in accordance with the government's policies, makes no difference to the world climate unless, as Rudd narcissistically claims, our leadership results in all other countries coming on board.  Deferring action until other countries have shown similar resolve is the appropriate response.

Moreover the costs of delay, in the event radical carbon abatement measures do prove necessary, is small.  Delaying implementing an ETS tax for 10 years, even on the Treasury's shamelessly lily-gilded estimates, brings a loss of only 0.3 per cent of GDP by 2050.  In the context of per capita GDP levels under business-as-usual estimated at 66 per cent above those presently prevailing, this is a cheap insurance payment.

Such a strategy has become more persuasive in view of hacked emails from leading research scientists.  The emails appear to indicate some scientists who claim to have identified a warming of the climate have been knowingly using questionable data.

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Little to gain, a lot to lose

The Federal Government's proposed Emissions Trading Scheme (ETS) has already crippled parliamentary proceedings and cost taxpayers millions.  And it has not even been enacted yet.

Labelling those opposed to the scheme as deniers or sceptics will not make the real problems associated with the ETS just disappear.

A well publicised concern with the ETS is that the economic impact of the scheme will far outweigh any environmental benefits realised by its implementation.

For instance, Australia emits more than 550 million tonnes of CO₂ and CO₂ equivalents each year and if we multiply that by the estimated cost of carbon rights during the first year of the scheme at $10 a tonne we can conclude the first year cost of the implementation of the ETS is a hefty $5.5 billion.

And this estimate does not take into account the time, resources and money spent in drafting, debating and marketing the scheme.

The government's proposal also falls short against long serving legal principles.

The Rule of Law is a democratic tradition that, simply stated, means that people should be governed by impartial laws and not by arbitrary decisions.  In order for such a tradition to exist, laws must meet certain minimal legislative requirements.  To name just a few, laws should be intelligible, consistent and practicable.

The ETS legislation fails to meet even these basic requirements.

The ETS is designed to count the output of certain greenhouse gases and convert all gases back to a carbon dioxide equivalent.  The system is not designed to count the output of oxygen produced by vegetation; neither does it fully acknowledge the ability of a land mass to sequester carbon.

So, the ETS only penalises carbon dioxide producers but fails to reward or fully acknowledge carbon dioxide eliminators.

In order for the Australian domestic carbon market to trade with international carbon markets, it is important that the accounting mechanisms incorporated in the domestic ETS scheme be consistent and uniform as with international greenhouse accounting rules.  This will be necessary to facilitate international trade.  However, there is no real international consensus on a uniform greenhouse gas accounting framework.

The ETS scheme will also operate inconsistently across the domestic market.  The ETS is not set to apply to the agricultural sector, however if the ETS is adopted nationwide there are still likely to be disastrous results for primary food producers.

The agricultural sector receives inventory from industries which are set to be included in the scheme.  Such stock will have a price tag that reflects carbon output and thus the price will increase with the introduction of the ETS.

Domestic agricultural producers cannot simply just offset increased cost to the consumers as they will purchase the same goods from other markets that come without such a high carbon price tag.

Further, because the sector is not included in the scheme it is not considered an emissions-intensive, trade-exposed (EITE) industry and as such is not entitled to assistance available to other industries.

Whilst it is important to protect the earth and ourselves for our own survival, so too is food essential for our survival.  Even if we ignore recent leaks that cast doubt on the credibility that warming is occurring and will entail catastrophe, drought and mass flooding, we should be strengthening and not weakening the very industries that we will depend upon for our survival.

Name calling is no substitute for careful scrutiny of views and data.  It is unreasonable to deny the possibility that for likely very little gain, the ETS will put a price tag on carbon emissions which may leave us all hungry.

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CRU emails reveal a worrying pattern of bad behaviour

Sometime last week the Climatic Research Unit (CRU) at the University of East Anglia was hacked and materials stolen off its server.  That information, including thousands of emails, has been posted on the internet (including at Wikileaks) and has caused a weekend of frantic blogging.  There is more or less a rather juicy scandal brewing.

There is more to this story than the "ho hum, nothing to see here, the making of sausages, and science, shouldn't be seen by the public" attitude being displayed by warmenists.  There is, however, less to the story than the "this proves the greatest scientific fraud in human history" attitude being taken by denialists.

So far, there is no evidence I have seen that suggests the fabrication of the anthropogenic global warming hypothesis.  Certainly, scientists at the CRU are not the only scientists working on climate science.  These emails do not provide a silver bullet to kill off that theory.

Much has been made of an email by Professor Phil Jones, head of the CRU, where he says:  "I've just completed Mike's Nature trick of adding in the real temps to each series for the last 20 years (i.e. from 1981 onwards) and from 1961 for Keith's to hide the decline."  The word "trick" doesn't suggest anything untoward, rather being somewhat clever about some technique.  "Hide" could be a problem.

This email is dated November 16, 1999, so it cannot relate to more recent arguments over the extent of global warming.

It is clear, however, that statements suggesting "the science is settled" can no longer be sustained.  In an email from Mike Kelly to Phil Jones (dated October 26, 2008), we find this gem, "I'll maybe cut the last few points off the filtered curve before I give the talk again as that's trending down as a result of the end effects and the recent cold-ish years."  While on July 5, 2005, Phil Jones wrote:  "The scientific community would come down on me in no uncertain terms if I said the world had cooled from 1998.  OK it has but it is only seven years of data and it isn't statistically significant."

It is possible that plausible explanations can and will be made to explain these sorts of statements.  At the same time the emails do provide evidence of attempts to subvert the peer-review process, refusal to make data available to journals, attempts to manipulate the editorial stance of journals, attempts to avoid releasing data following FOI requests, tax evasion, rejoicing at the deaths of opponents, manipulation of results, apparent misappropriation of grant money, and threats to physically assault rivals.

This is not a good look at all.  Some of this behaviour is bad form, some of it unethical, and some of it potentially illegal.  The destruction of data subject to a freedom-of-information request is illegal.  The CRU has argued that a lot of their early raw data was destroyed because they couldn't store it.  That explanation is, unfortunately, all too plausible.  We live in a world where as recently as 20 years ago, data would have been thrown away for want of storage space.  These irreplaceable and valuable historical documents are likely to have been tossed.  Why then find a 2005 email from Phil Jones:  "If they ever hear there is a Freedom of Information Act now in the UK, I think I'll delete the file rather than send to anyone"?

If this is a global Godwin Grech moment and the incriminating emails have been seeded with misinformation, then they are in the clear.  Since the scandal has broken that argument is yet to be made.  Indeed, several individuals have confirmed the authenticity of emails and condemned the invasion of their privacy.

This incident reflects poorly on academics and universities everywhere.

It is important to remember that the taxpaying public invests a lot of trust and respect in academic processes;  not to mention, money.  The peer-review process, for example, has been held up as the "gold standard" of integrity.  Yet we see numerous emails subverting peer-review.  We see attempts to avoid freedom-of-information requests -- something the media and the public are increasingly impatient about.

We see overall a pattern of poor behaviour.  Some have chosen to represent that behaviour as the workings of elite scientists going about their business.  I am not convinced that the public, whose taxes finance that behaviour, are going to be pleased.  Nor should they be.

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Hypocrisy at work in pay claims

Australian Workplace Agreements:  how ironic that the individual workplace instruments unions spent a decade vehemently attacking should now become the benchmark for wage parity in workplace negotiations over terms and conditions.

It is clear that higher rates of pay in individual agreements will increasingly set the standard for general wage increases as part of collective negotiations.

How did this happen?  Well, it goes like this.  When the Rudd government started to introduce its industrial relations regime, it began by stopping employers and employees from entering into any further AWAs.  Existing AWAs could continue and transitional arrangements allowed some individual agreements to be made in limited circumstances.

Then, early this year, the government introduced the transitional framework by which existing workplace arrangements would gradually move into the new system now regulated under the Fair Work Act.

Part of this transitional framework allows employers and employees to terminate existing AWAs under certain conditions.  The termination of AWAs is an outcome the government very much wants and the new framework imposes few hurdles to their demise.  In another irony, however, its policy, while hostile to the concept of AWAs, was amenable to the need for individual statutory contracts known as individual flexibility arrangements.

Specifically, if an AWA has not passed its nominal expiry date, the parties can agree to terminate it.  If the AWA has passed that date, either party can unilaterally apply to Fair Work Australia to terminate the AWA, although this takes about four months.  So here's how it all comes together.

Many employers negotiating upcoming workplace agreements with unions under the new regime are trying to transition AWA employees across to existing collective agreements in anticipation of having all employees covered in the new deals that will eventuate.

In order to elicit the early agreement of their employees to come off their AWAs and on to the collective agreement, employers are often agreeing to maintain relativities between the rates of pay AWA employees received as part of the flexibility they accepted when entering into their AWAs and the present rates otherwise payable under the existing collective agreement.

So, for example, an employee who entered into an AWA might have accepted greater flexibility in hours and duties in exchange for a rate of pay fixed at 5 per cent higher than the corresponding rate in the collective agreement.  In order then to persuade that employee to come across to the collective agreement without the employer having to wait for the nominal expiry date and then apply over a four-month period to Fair Work Australia, the employer will offer to maintain the differential over time.  AWA employees are, as you would imagine, quite happy to maintain their wage relativities.

Enter the unions.

What we are seeing under the new system is unions exploiting this process by campaigning for wage parity between those on collective agreements and AWA employees coming from AWAs on to collective agreements.

The refrain is:  why should two people "doing the same job" receive different rates of pay?  The solution?  Everyone should receive the AWA rate in addition to the normal percentage increases over the life of agreements.

Forget that this completely ignores the fact that two people can occupy the same role but perform it differently or within different parameters.  That's precisely what higher AWA rates were intended to buy in the first place.

There is no explanation from unions on the grounds of productivity, whether by way of greater flexibility or some other quid pro quo.

For an instrument so maligned, AWAs seem to be playing an important part in the unions' case for higher wages, which are not at all controversial if justified and neutral on jobs.

Perhaps you can now see why under the new industrial relations system the more prudent union negotiators will not hamper the use of individual flexibility arrangements by employers wanting to use them to pay higher rates.

This is why the Australian Manufacturing Workers Union's opposition to the use of these arrangements at Campbell's Soup earlier this year made little sense and did not serve the interests of its members in the longer term.

Let's finish remembering what this is not about.

Committed and passionate union advocacy to advance the interests of their members is perfectly legitimate.

What we should deprecate is the hypocrisy associated with criticisms of the very flexibility that is now being relied on to campaign for higher wages.

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Solution needed to taxing issue

In recent weeks a land tax revolt has been brewing in Tasmania.  Thousands of taxpayers have already lodged objections against strongly rising property valuations, which have led to land tax bill increases of 1000 per cent in some instances.

A recent protest rally reinforced public concerns about land tax bills growing between eight- and tenfold.  For example, one rally participant spoke about how land tax liability for a bed and breakfast lodging had grown from $4800 to more than $20,000:  a 317 per cent increase.

Other business owners at the rally referred to rapid land tax hikes amid a slowdown in retail activity.

Looking at the Tasmanian land tax structure, it is easy to see why there is a growing sense of angst against the tax.

For a start, Tasmania has the lowest tax-free threshold of all the states, with tax applied from the measly land value of $25,000.  South Australia has the second lowest threshold, which cuts out at more than $110,000.

The state's top land tax rate is also relatively uncompetitive compared with the mainland states.  My state tax benchmarking report last year found that Tasmania's reference business land tax liability was the second highest across the states and more than 50 per cent higher than the states' average.

The latest Commonwealth Grants Commission report finds that the Tasmanian State Government makes the greatest effort out of all jurisdictions in raising revenue from its land tax.

There is little question that the Bartlett Government has every incentive to squeeze the land tax lemon to plug a projected Budget deficit for this financial year.

Last financial year the Government raised $80 million in land tax revenue.  In the Labor Government's first full fiscal year it raised just $26 million.  This represents a rise of 208 per cent.

On the back of expectations of rising land values throughout the Apple Isle, the Bartlett Government is anticipating to rake in an additional $10 million in land tax revenue in 2009-10.

Given the real-life accounts of exorbitant increases in land tax liabilities, it is most likely that the State Government's estimate of $90 million in total land taxes for this financial year will be an underestimate.

Some economists and supporters of American writer Henry George's tax ideas dismiss complaints levelled against land tax.  They argue that a tax on the unimproved, ground rental value of land represents a perfect, nondistortionary tax that ought to replace most, if not all, other taxes.

Others do not go so far as perceiving land tax as a magic pudding revenue-raiser, but nonetheless argue for more money to be taken from this tax source.

For example, it is likely that the federal state tax review, chaired by Commonwealth Treasury secretary Ken Henry, might recommend an extension of the land tax base as a way of dragging more taxpayers into the government revenue net.

But it is in this area of land tax that there is a justifiably wide gap between the perceptions of the policy elite and everyday taxpayers.

While the founder of modern economics, Adam Smith, favoured a tax on land rents, he recognised the potential problems surrounding frequent revaluations of land values.

If anything, Smith wanted certainty upheld in tax administration.  However, it is clear that the independent land valuation process in Tasmania gives rise to the fiscal illusion of significant, often surprising and mostly unwelcome changes to implied land tax liabilities.

Anecdotal reports suggesting recent land tax hikes threaten not only local jobs but the closure of entire businesses indicate the land tax system can indeed influence the allocation of labour and capital.

Tasmania's land tax system is far from being the perfect tax.  So, what should be done to make it better?  Capping the land tax revenue collected this financial year to the State Treasury estimate of $90 million, and returning excess revenue back to taxpayers, would be a start.

Any future tax relief could be focused on reducing the progressivity of the tax structure by knocking out the top land tax rates.  Addressing the low threshold might also be in order.  These steps would play a role in improving Tasmania's overall tax competitiveness.  They could also be the start of a broader movement to institute stronger fiscal rules to ensure the State Government lives within its means.

If these reforms eventuate, then it could be said that the latest land tax revolt would well and truly punch above its weight, delivering real economic gains for all Tasmanians.

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Sinking benefits for landholders

Agriculture is the latest frontier on which skirmishes are taking place between protagonists on the need for an emissions trading scheme tax.  The federal government has indicated it will agree to exclude direct emissions from agriculture from the ETS ambit.

Agriculture accounts for about 18 per cent of Australia's annual 550 million tonnes of greenhouse gas emissions -- or about 90 million tonnes.

Among the representatives of the farming community, National Farmers Federation president David Crombie and the Nationals' Barnaby Joyce have taken contrary views on the best approach for farmers to the government's carbon tax proposals.

Crombie says a carbon tax is inevitable and that farmers should therefore move to damage limitation and try to gain some benefits from it.  He has in mind gaining credits from shifting to different forms of farming (for example, forestry) or ceasing to farm.

Joyce says the carbon tax will be a disaster for all productive sectors of the economy and that farmers will also inevitably be victims.

While Joyce is undoubtedly right, little in the debate on greenhouse gases is wholly as it appears.

Land is a natural greenhouse sink as well as a source of emissions.  The greenhouse-gas diplomats planned for only a limited ability for land use to claim credits.  Originally such credits were to be confined to changing land from productive to the wasteful uses much applauded by the green zealots who have captured the debate.

The notion of carbon credits from land was widened somewhat by the "Australia clause" -- article 3.7 in the Kyoto protocol.  That clause permits countries to count changes to land use and forestry as part of their aggregate net emissions estimates.

By largely banning new land clearing for agricultural production, Australia has claimed offsetting emission credits, bringing us nominally close to meeting our Kyoto target.  Without such claimed offsets our emissions will be some 30 per cent greater than 1990's levels and considerably above the 8 per cent target.

But the usage of land does not need to be changed for it to be a greenhouse gas sink.

Globally, land absorbs more than 9 billion tonnes of carbon dioxide annually, says the CSIRO's Michael Raupach.  Given Australia's share of the world's land area, that means we are likely to be a sink for some 137 million tonnes a year, which is considerably more than the 90 million tonnes of emissions attributed to agriculture.  The open spaces of Australian farms, forests, national parks and Aboriginal land actually sequestrate considerably more carbon dioxide than they emit.

The Garnaut report recognises this point.  Ross Garnaut quotes one authority as saying that, "rangelands (accounting for 70 per cent of Australia) could absorb at least half of Australia's current annual emissions, or some 250 Mt, for several decades".

Hence, paying landholders for their land's sink attributes while taxing them for the emissions is likely to leave farmers net gainer.

With Australia emitting more than 550 million tonnes of CO2 and its equivalent a year, the annual value of emission rights at a price of $50 a tonne is more than $25 billion.  That's equivalent to half of what the goods and services tax collects.

If the government is to recognise land's absorption of CO2 and allow landowners to benefit and trade in carbon credits like others who hold carbon emission rights, these rights will be worth close to $7 billion a year.  And if, as is likely, land were also to be a sink for other greenhouse gases the sums will be even greater.

As the ETS now stands, even if agriculture per se is excluded, farmers will end up paying tax through their purchases of fertiliser, electricity and other inputs as well as in the processing of farm products that must compete with untaxed farm output from overseas.

Introducing a true accounting system would change this radically.  But it would also emasculate the revenue bonanza the Rudd government is hoping to reap for itself from the carbon tax.

The government wants the revenue from the ETS for its war chest to buy future elections.  So it's not going to happen.

Indeed, as things stand, excluding the 18 per cent of emissions that stem from agriculture means even more draconian tax measures on the remaining users.  Will we see a compensatory tightening of other emissions or is this all simply about dressing the turkey for a December political feast?

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Writers have a right to get as rich as they can

The Rudd government was criticised by a near consensus of journalists and media commentators for its decision to leave in place parallel import restrictions on books.  These restrictions allow authors to negotiate contracts that prevent work they have published overseas from being imported back into Australia.

The US and Britain have similar provisions.  Opposition to the government's decision focuses on its apparent intent in protecting local book publishing and printing from overseas competition.  The concern is that local publishing and printing is likely to be more expensive than overseas supply, especially if it is shielded from competition.

But another dimension concerns the rights of authors to exercise control over their work.  Removing such control prevents them from selling their products at different prices in different markets and means authors would earn less.

Take the case of a cricket book.  An author might think he could maximise revenues if his book were to be sold in Australia at $20 but in India for $10.  But unless the author could prevent the cheaper Indian copies being imported back into Australia, the books would effectively be sold at the same price across the world.  This would mean the author would either have to sell at the $10 charged in India and see lower revenues in Australia, or sell across the world at $20 and see lower revenues from India.

There are already restrictions on the ability of publishers (the agents of the author) to prevent books from being reimported.  Moreover, copyright owners face practical difficulties in enforcing import restraints because of cross-border sales and supply from internet sellers such as Amazon.  Regulations that allowed cheaper copies to be imported would exacerbate these difficulties.

The Productivity Commission recommended a reduction in the time the publisher could prevent an author's work being imported, arguing:  "Most of the benefits of protection accrue to publishers and authors, with demand for local printing also increased.

"Most of the costs are met by consumers, who fund these benefits in a non-transparent manner through higher book prices.

"But the restrictions also cause economic inefficiencies and a significant transfer of income from Australian consumers to overseas authors and publishers."

In his former position as chairman of the Australian Competition and Consumer Commission and since, Allan Fels has campaigned against copyright holders being allowed to restrain resale of their work by the use of contracts entered into with the printers and publishers.  He argues, as does the PC, that such restraints mean higher prices for consumers.

While there is no merit in protecting industries from import competition, there is a compelling case for allowing copyright owners to sell their work at whatever price they wish.  It is the copyright owner's property.  The owner, or his or her agent, is not forcing anyone to buy the product, merely agreeing to sell it only on condition that resale is restrained.

The ability to charge a higher price in those markets where the work has a higher value allows authors to earn more.  It is common with syndicated newspaper columns that are published almost simultaneously across the world.

In fact, many goods ranging from weapons to land parcels to tram tickets are sold under contracts that restrain their resale.  Sometimes such contracts mean the owner sacrifices revenue as a result and sometimes, as with authors, it is an attempt to segment the market to improve earnings.  Whatever the reason, a fundamental basis of economic efficiency (as well as of justice) is that it is an owner's prerogative to sell or otherwise dispose of their goods on the terms they wish.

To forbid a property owner from seeking the best return from that ownership in order to bring about a lower price for consumers is expropriation.  The PC appears to have recognised this.  It proposed that financial assistance be provided to authors to compensate them for the reduced value of their copyright.  But such measures bring their own complications.  As is the case with Australian film funding, the grants would tend to go to politically correct works that have no resonance with the public.

The immediate consequence to authors of measures that impede their marketing options is lower remuneration.  The secondary effect is a diminished incentive to create original material, which is likely to rebound on the interests of consumers as well as producers.

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Science of Climate Change is only a Small Part of the Discussion

Upon reading Clive Hamilton's comments in yesterday's Crikey (Hamilton:  denying the coming climate Holocaust, Item 3), I opened up my copy of Martin Gilbert's "The Holocaust:  The Jewish Tragedy" at random to page 230 where I discovered this passage:

A further fifteen thousand German Jews were sent to Kovno, principally from Berlin, Munich, Vienna, Breslau and Frankfurt.

An eye-witness in Kovno, Dr Aharon Peretz, later recalled how, as the deportees were being led along the road which went past the ghetto, towards the Ninth Fort, they could be heard asking the guards, "Is the camp still far?"

They had been told they were being sent to a work camp.  But, Peretz added, "We know were that road led.  It led to the Ninth Fort, to the prepared pits."

But first, the Jews from Germany were kept for three days in underground cellars, with ice-covered walls, and without food or drink.  Only then, frozen and starving, were they ordered to undress, taken to the pits, and shot.

The challenge for Clive Hamilton is to explain how an argument over appropriate policy for the future is equivalent to the Holocaust where millions of people were deliberately put to death.  The Jews and the Gypsies and the homosexuals and the clergymen and the trade-unionists and others of Europe did not die through inaction, but rather they were deliberately and systematically hunted down, and murdered in what can only be described as an industrial scale slaughter.

Hamilton can make as many fancy-pants arguments he likes about "consequentialism" and what-not.  To equate climate change scepticism (however defined -- Kevin Rudd has three different definitions) with the Holocaust is the mark of a moral dwarf.  It is a good thing that Hamilton speaks of morality and the science of climate change, because it turns out there is more to climate change than just the science.

Climate change involves scientific questions, economic questions, technological questions and, yes, moral questions too.  Unfortunately we run out of the science very early in the piece.  Even if we assume, for argument sake, that the IPCC version of the science is correct, that still does not take us very far.  So imagine we know with more than 90 percent confidence that anthropogenic global warming is occurring, what next?  We have exhausted our scientific knowledge already.

The questions, "Should we do anything?" "What should we do?", and "How should we do it?" remain unanswered.  These are not scientific questions at all.  In the first instance there are economic questions, "How much will doing 'something' cost?"

Perhaps it would be cheaper to do nothing and adapt.  Perhaps not.  We simply do not know.  The Australian Treasury modelling does not answer that question;  indeed it doesn't model the actual policy under consideration.

But Hamilton invites us to consider "morality".  So let's raise some of those questions.  Who should pay the costs of fixing the climate change problem assuming that it can be fixed?  Perhaps the industrialised world;  after all it is they who first caused the problem.  But it is the developing world that will benefit most from solving the problem, so perhaps they should pay.  On the other hand, it is previous generations that caused the problem and future generations that will benefit, so why should current generations bear all the costs?

That suggests that the costs of climate change abatement should be financed through some or other long-lived debt instrument that will transfer the burden (as well as the benefits) to future generations.  Should costs be apportioned on an aggregate basis or a per capita basis?  And so on.

There are heaps of unanswered questions and issues beyond the science that so excites the commentariat.  All we really know is that the Australian government and other world governments want some sort of cap and trade scheme, and this is because of the science.  What is lacking is a discussion of the issues beyond the science.  This important consideration has been lost in the name calling.

In simple terms, the science makes up a very small component of our decision making.

All the other aspects of the decision have not been adequately debated, and have not been well explained to the community, and labelling doubters and dissenters as mass-murdering war criminals is not appropriate in a democracy.

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Damned decision

The decision last week by Kevin Rudd, delivered by his environment minister Peter Garrett, to veto the proposed Traveston dam near Gympie represents a failure of governments all round to secure adequate water supplies for a rapidly growing south-east Queensland.

By concluding that the proposed dam would have "unacceptable impacts on matters of national environmental significance", the minister has made a decision in favour of fish and rear end-breathing turtles over the water needs of people.

And it is not as if the species would have been endangered by the dam.  As with other such constructions, creatures and human needs can co-exist.

As a consequence, the south-east corner of the state will be deprived of water storage infrastructure capacity of at least 75,000 megalitres each year, building up to 150,000 megalitres to 2035 as the regional population expands.

The Bligh government already spent $545 million to resume land in the Mary Valley area.  Now it faces an embarrassing backflip of offering properties for sale back to their original owners.

With Traveston now relegated to the dustbin, there is a clear need for alternatives if the state is to cater for the expected growth in south-east Queensland residents from 2.8 million today to 4.4 million in two decades' time.

Already Premier Anna Bligh is softening up local residents for significant water price hikes for the financing and production of water from up to four new, energy-intensive desalination plants stretching from the Sunshine to Gold coasts.

Typically, desalination costs five times as much as a dam to deliver water to urban areas.  This is the implicit tax penalty that Rudd and Garrett have imposed on Queenslanders.

Given the hefty price tag for desal, the relative costs and benefits of alternative options such as raising the capacity of existing dams should be assessed as a matter of priority.

Other policies, such as recycling and the rollout of rainwater tanks including in urban areas, will also have to be pursued now that the door on the new big dam option is in the process of being closed shut.

Notwithstanding that Peter Garrett previously approved the 21,000 megalitre capacity Wyaralong dam near Beaudesert, the veto powers of the federal government sends a signal that there will never be a new major dam in Australia at least on Rudd's watch.

The lack of sufficient water security confronting south-east Queenslanders today is also a product of another fateful decision, albeit made almost two decades ago.

After its election in 1989 the Labor government, led by Wayne Goss and advised by current Prime Minister Kevin Rudd, cancelled plans to proceed with the Wolfdene dam on the Albert River.

The cancelation of the Wolfdene project by Goss and Rudd no doubt proved to be a popular one amongst the emerging environmental movement in Queensland.

However this decision, which reeked of political opportunism, quickly emerged as a curse bedevilling water policy in Queensland for decades to come.

With a capacity equivalent to that of the Wivenhoe dam, Wolfdene would have played a critical role in boosting the region's absolute water storage capacity in the face of prolonged droughts.

Instead of the buffer of greater water reserves, Queenslanders living in the south-east have borne the major inconveniences of inefficient and often heavy-handed water rationing juxtaposed with a massive increase in the local population including interstate and overseas migration.

From the wasted opportunity of Wolfdene to the travesty of Traveston, no level of government has emerged unscathed from the murky depth of troubles that is Queensland water politics.

Even worse, the lack of foresight when it comes to major dam developments have done little but to threaten the quality of life for which Brisbane and its surrounds have been long renowned.

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The meter's running as Canberra eyes states' powers

Reorganisation, wrote journalist Charlton Ogburn, is a wonderful way of creating the illusion of progress.

So last week the Federal Government decided that we need "nationally consistent" taxi standards.  It is concerned that the geography and language tests given to taxi drivers are slightly different in Victoria and, say, Queensland.

For 108 years our federal system has been trying to divvy up tasks between the Commonwealth and the states.  In Canberra's view, it's time to give a little bit more of that up:  those states can no longer be trusted with taxis.

It's trivial, but hardly the only trivial issue the Federal Government wants to take over.  Disability parking permits is another.  Not only does the Commonwealth want every state to have the same eligibility rules, but even the design of parking permits needs to be indistinguishable from Broome to Launceston.

But why?  It's hard to think of a less national issue.  Permits from one state are completely and unambiguously recognised in other states.  So couldn't Canberra just leave that one for them to sort out?  But no, the Federal Government wants to make sure every permit includes a Southern Cross logo and map of Australia, just in case someone wants to take their disabled parking permit overseas.

Perhaps it would be best if we just cut out the middleman and let the United Nations handle it.

Not everything the Federal Government wants to take over is so petty.  In July, the National Health and Hospitals Reform Commission argued that the Commonwealth should be responsible for large swathes of the health system.

We could go on.  Kevin Rudd wants Canberra to be in charge of urban planning.  The Preventive Health Taskforce wants Canberra to set bottleshop opening hours.  The Greens want Canberra to be in charge of pokies licensing.

But where on earth does everybody get this faith in the Federal Government?  Why does everybody assume Canberra will succeed where states have failed?  The Commonwealth Government has, after all, racked up its fair share of failures.

There's hardly a more obvious example than the Education Revolution.  The Government's election pledge to give every school one computer per child has, after two years, delivered just 154,933 of the 820,000 promised.  At this rate, it will be a promise for the next election too.

Failure abounds in Canberra.  It was the Immigration Department that lost Cornelia Rau, and kicked Australian citizen Vivian Alvarez Solon out of the country.  And remember GroceryChoice?

Nevertheless, most Federal Government absurdities come out of the Defence Department.  Recall the Collins-class submarines.  Or the joint strike fighter program, now two years behind schedule.  Defence is not even sure it wants it any more.

Oh, and each plane is now twice the price.  Don't dwell on it too much, but in 2005 the army apparently ran out of ammunition.

Nevertheless, dragging policy away from the states -- let's call it Canberra-isation -- seems to have become for many federal ministers the whole purpose of going into politics in the first place.

In a way, it's our fault.

Young politicians might run for Federal Parliament because they have ideas for foreign relations, or a grand scheme for economic policy.  But local campaigns always come down to local issues.  Aspiring foreign affairs ministers will quickly find themselves campaigning on issues such as graffiti vandals, or lights at a local intersection.

Terry Moran, head of the Department of Prime Minister and Cabinet, threatened last week that if the states did not do more of what Canberra wants, "the future direction of the federation will change" -- the Commonwealth will seize even more stuff.

State and territory ministers are now preparing for the meeting of the Council of Australian Governments on December 7.

If Moran's comments are anything to go by, they should expect a haranguing about how their states are insufficiently obedient to Rudd.  But as they sit down opposite their Commonwealth counterparts next month, the states need to ask themselves one simple question:  why should we listen to these clowns?

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Carbon emissions tax will choke economy

Greenhouse issues are dominating the economic debate.

Most people want to protect the environment and have been told that the tax from the Emissions Trading Scheme will only have minor consequences.

In fact, the ETS tax designed to choke-off carbon emissions will have a devastating effect on the economy, especially here in Victoria.

The average household's electricity bill, according to Climate Change Minister Penny Wong, will rise by only $75 in the first year when the ETS tax is set at $10 per tonne of CO₂.

On Treasury's tax estimate of $40 a tonne, it will have risen to $300 per household by the end of this decade.

The Government says it will compensate poorer households out of these revenues.

But the costs it predicts are only the tip of the iceberg.

For a start they don't recognise the existing hidden taxes on carbon fuels.  Including new requirements to use renewable energy and subsidies to expensive renewables, these amount to more than $2.8 billion a year and add a further one-third to users' costs.

In addition, the Government's cost estimates grossly understate the tax level necessary to force the carbon emissions reductions they seek.  Nor do they recognise the business costs and their knock-on effects to households.

All of this is in the context of an Australian ETS tax that will be ineffective in reducing global emissions of carbon dioxide which the Government says is causing the world's climate to warm.

That's because key overseas competitors will not implement carbon taxes and even if they did the climatic effect would be negligible.

So, the Australian tax will raise considerable revenues for the Government to spend on vote-buying, while firms that pay this tax lose their competitiveness and start closing down.

Some say the effects of the carbon tax can be overstated.  They would argue that even though Australia is dependent on carboniferous fuels, energy is only 5 per cent of national spending.  How can a tax directed at such a small share of spending have such serious consequences?

But much the same can be raised with regard to food.  This comprises only 12 per cent of GDP and most of that share is in distribution and value-added features rather than nutrition.

Yet everybody agrees that a tax introduced to stop us using most food products would have a calamitous effect.

The Prime Minister says the ETS is vital to "our children's fate -- and our grandchildren's fate".

He is surely right but this is because the ETS tax would slowly strangle the economy and dramatically reduce future living standards and opportunities for productive employment.

Many proponents of the ETS tax consider its effects would be softened by new owners taking over bankrupted coal-fired power stations and tax concessions to specific new gas generation facilities.

There are proposals to extend regulatory controls over gas pipelines, which may foreshadow such approaches.

But it is impossible to meet the Government's goals without closing the Latrobe Valley power stations.

And micro-managing the energy industry and new regulations over supply means unwinding the reforms and privatisations which in Victoria created a world-beating electricity industry.

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Reform lost in the rhetoric

Prime Minister Kevin Rudd likes to talk about the tough decisions he's making and the reforms he's pushing through.  And the Prime Minister is promising more tough decisions and more reform in areas like tax, corporate governance and financial regulation.  But what we've discovered this week is that under the Rudd government the reality of reform doesn't quite match the rhetoric.

On Wednesday the government announced two decisions.  The first was to block the building of a new dam in Queensland;  the second was to maintain the ban on the importation of cheap books from overseas.

None of this bodes well for future reform efforts.  At the first sight of political difficulty (or in this case, unhappy greenies and grumpy authors) the government caves in.

The stimulus package was about spending a great deal of money, quickly, but it wasn't reform.  Building school halls is not a revolution.  Re-regulating the economy by abolishing WorkChoices and imposing an emissions trading scheme is not reform.  And if you're a Telstra shareholder, you wouldn't call it reform if the government cut your company in half.

The decision on books was especially bad.  If ever there was a clear-cut case for the benefits of competition, books was it.  Less expensive books are a good thing:  Australians shouldn't be forced to subsidise the income of local writers whose works they don't read.

This was the logic of the Productivity Commission and Craig Emerson, the Minister for Competition Policy.  Emerson lost, but as one of the few people in the ministry who genuinely believes in the benefits of competition, he deserves credit for fighting to the bitter end.

In opposition and then in the first few months of being in office, Labor ministers made many fine speeches about reform.  In April last year for example, the Minister for Finance and Deregulation, Lindsay Tanner, spoke eloquently about the evils of what he labelled "producerism".  His words deserve to be quoted at some length:  "Producerism exists wherever the state implements regulatory and ownership arrangements that favour or protect particular groups at the expense of society as a whole.  Tariffs, monopolies and other distorting regulatory regimes are the most obvious examples of the producerist philosophy at work ... But producerism is more than just economic protectionism.  Producerism is a hallmark of a closed society ... Every regulation needlessly protecting business from competition is a regulation driving up prices and hitting those with the least capacity to pay."

A year on, this soaring rhetoric can be compared with actual results.  A few weeks ago, Tanner provided a handy checklist of what he described as the government's "significant reforms".  These included:  the introduction of new product disclosure statements for financial products;  the effective corporatisation of Medibank Private;  streamlining the approval of property purchases by foreigners;  the removal of the restriction on the number of collection centres pathology providers can operate;  and the abolition of the wheat single desk.  Only the last one could properly be described as significant, and it was the only measure that faced any sort of substantial opposition.

Treasury secretary Ken Henry recently tried to claim "there is, domestically, a strong appetite for further policy change".  Unfortunately Henry is wrong and nothing could be further from the truth.  As Rudd and Henry urge Australians to confront the challenges of an ever-expanding population, the government seems intent on ensuring that future generations don't get to have the sort of quality of life enjoyed by the current generation.

In the past two decades, the population of south-east Queensland has grown by more than 1 million people without any corresponding increase in available water.  The country's fastest-growing region now faces the possibility of running out of water.  Just last month Rudd was talking about how "we must prepare for fresh water supplies coming under increasing pressure".

Queensland will now probably end up having to pay for desalinated water, which is more expensive and arguably more damaging to the environment than a dam would have been.  And when its state budget goes further into deficit from building desalination plants, it will be federal politicians who will be the first to complain at the profligacy of state governments.

So far the government has done lots of things -- but not many of them can be called "reform".

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Not the Voice to Sell Our Values

In last Thursday's Bruce Allen Memorial Lecture, ABC managing director Mark Scott called for a significant expansion of the ABC as a global media provider, including a phased roll-out of international television, radio and online content, first to the Asia-Pacific region and then the rest of the world.

But before the government allows the ABC to expand its international activities it should assess whether it is consistent with the ABC's charter and whether they're fulfilling their existing obligations.

At present the ABC delivers international radio through Radio Australia to meet its obligation to "transmit to countries outside Australia broadcasting ... that will encourage awareness of Australia and an international understanding of Australian attitudes on world affairs".

In addition the ABC is contracted by the Department of Foreign Affairs and Trade to deliver international television through the Australia Network as part of Australia's soft power, public diplomacy program.

The government's 2007 foreign affairs and trade white paper, In the National Interest, described public diplomacy as "a diplomacy which operates in that area of intersection between the soft realm of image and the hard edge of a country's economic and political interests".

Yet in arguing for the ABC to be charged with expanding Australia's public diplomacy program, Scott rebuffed the very essence of public diplomacy, extolling Radio Australia's past when it "stubbornly insisted that the service could not exist as a mouthpiece of government ... [and] that tradition endures".

But for public diplomacy a broadcaster cannot be "independent" and ignore the demands of government who are responsible for setting Australia's foreign policy and the objectives of a "country's economic and political interests".

Instead Scott is simply arguing that the federal government should hand over large swags of taxpayer money to the ABC to go global with a "trust us" promise that they'll promote Australian values.  And it is questionable that they can be trusted with such an important job.

For a 2007 Senate inquiry into Australia's public diplomacy program, I completed a content analysis of the Australia Network's broadcasting of supportive, neutral or negative content against the Australian values of a liberal democracy, human rights and free markets.

Of the current affairs programs broadcast, the ABC sent out positive messages on the importance of liberal democracy, and either supported or was value-neutral on human rights.  But there wasn't a single positive message in favour of free markets.  Instead the ABC promoted a value-neutral or hostile free markets message.

But a public diplomacy broadcaster cannot be value-neutral.

In a recent interview with The Weekend Australian Magazine, Sky News chief executive Angelo Frangopoulos didn't show the same neutrality, arguing for Sky's right to bid and win the Australia Network from the ABC because "the taxpayer is always best served by the free market of competition".  In all likelihood Frangopoulos's declaration to snare the Australia Network contract from the ABC has driven Scott's speech.

Faced with the looming competition of Sky News to bid for the $20 million contract, Scott had to show more vision for the network than the current rebroadcasting of largely existing ABC content.

But true to the ABC's current monopoly model, Scott argued that Radio Australia and the Australia Network should be integrated with new online content delivery.  No other bidder could provide all three services so the ABC's successful tender would be a fait accompli.

Scott's global ABC plans align closely with Kevin Rudd's vision for Australia as a major international player that bends and shapes global policy and attitudes.  But the ABC cannot do so without compromising its charter of independence from government and the values-laden obligations of public diplomacy.

Australia's support for liberal democracy, human rights and free markets is essential for a prosperous world, and the least we could do is practise them in tendering out the job to broadcast them to the world.

Instead of granting the ABC Australia's public diplomacy responsibilities, Australia should have an open tender process, and include in the selection criteria the obligation to prove a strong track record of promoting Australian values.

At least then, if the ABC fails in its bid, they'll only have themselves to blame.

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Stabilising World CO2 Emissions: a Bridge Too Far?

ABSTRACT

Proposals to reduce greenhouse gas emissions by 20 to 50 % of prevailing levels have been made to address concerns about climate change.  These goals would require emissions to be reduced to 3.4 and 2 tonnes of carbon dioxide equivalent per capita, respectively.  US emissions are currently 20 tonnes per capita and the OECD as a whole is at 11.5 tonnes;  China already exceeds 3.4 tonnes per capita.  Even in those developed economies which are not predominantly reliant on fossil fuel for electricity generation, emissions far exceed the targets under discussion.  If emission reduction targets are to be met alongside higher living standards this will require immense ingenuity.

INTRODUCTION

Contrary to many assertions, including those of the Stern report on the Economics of Climate Change, ⁽¹⁾ the costs of reducing emissions of carbon dioxide and other greenhouse gases will be considerable.

Though urging greater reductions in emissions, many countries have lowered their own emission reduction bars -- Australia, for example, counts reductions in land clearing as contributing to its goal.  Almost all OECD countries, however, have incurred considerable costs in subsidies to renewables and other measures involving regulating use of energy and energy using goods.  In spite of this and notwithstanding that the first level of cuts is likely to be the easiest, few signatories to the Kyoto convention will meet the obligations they agreed to.  The OECD group as a whole in 2005 had increased its emissions by 20 per cent over their 1990 levels.

Far more draconian emission reductions are required than agreed to at Kyoto for the period to 2012 if the world is to see a reduction in the concentration of carbon dioxide and other gases said to be responsible for global warming.  This would require vigorous action by all countries, including developing countries, the emissions of which have now surpassed those of the developed world.  Developing countries on average presently have only one quarter of developed countries' per capita emissions.

Developed countries have been reducing their emissions relative to their GDP levels partly by increasingly outsourcing energy intensive manufactured goods to developing countries, including oil and gas rich countries.  This relocation of production, which the IPCC claims has only had a minor effect, does not, of course, bring a global reduction.

At Bali in 2007, the lowest figure discussed for a reduction in emission levels was 20 pei cent.  This means bringing global emissions down to their 2004 levels of 29 Gigatonnes (Gt) of CO₂ equivalent to 23 Gt.  Under a business-as-usual scenario, emissions in 2030 would grow to 43 Gt.  The July 2008 G8 summit agreed a target of 50% reduction in global emissions by 2050 but specified neither a base date nor any intermediate targets.

In per capita terms, adjusted for population growth, 23 Gt translates to some 2.7 tonnes down from the present 4 tonnes. ⁽²⁾  Presently the US is around 20 tonnes and even China is now approaching 4 tonnes.

Countries are likely to seek modifications of a starting point of equal amounts per capita even if agreement is reached on the necessity for action.  Developed countries might argue for emissions to be set reflecting units of GDP.  Many will claim special circumstances as Australia did in negotiating a higher target in the Kyoto Convention.

Developing countries might argue for higher allocations than developed countries based on their historically lower cumulative emission levels. ⁽³⁾

Some detailed, though perhaps fanciful, emission reductions have been "scenarioed" by the IPCC, which has estimated global savings of 9-17 Gt of CO₂ equivalent from a tax of $US 20 per tonne and 12-26 Gt from a $US 50 tax.  Savings of such magnitudes have certainly not emerged from the measures already in place in the EU and elsewhere, as UNDP data illustrates in Table 1.

Table 1:  Per capita emissions of selected countries, 1990 and 2004
(t CO₂)

	1990	2004
High-income OECD     France     Spain     UK     Italy     Sweden     Switzerland     Japan     US     Canada	12.0 6.4 5.5 10.0 6.9 5.8 6.2 8.7 19.3 15.0	13.2 6.0 7.6 9.8 7.8 5.9 5.4 9.9 20.6 20.0

Source:  UNDP Human Development Report, 2007.

Moreover, even if approached, the possible savings need to be weighed against business-as-usual emissions of 43 Gt in 2030.

All forecasts such as those of the IPCC incorporate unproven technological breakthroughs to reduce costs of non-fossil fuels and often include a radical substitution of energy for other goods and services.  There is no reliable information on which to base the forecast outcomes of measures that force a markedly lower use of fossil fuel based energy -- hence the IPCC's use of the term "storylines and scenarios".  Improved energy efficiencies have been a permanent feature of economic growth and such efficiencies will doubtless continue to emerge.  Indeed, if energy prices increase relative to those of goods and services in general we are likely to see lower energy to GDP ratios.  However, even with a universal adoption of nuclear energy for baseload power or breakthroughs such as cheap carbon capture and storage, it would require unprecedented technology developments and/or much increased fossil fuel prices to bring about lower levels ol emissions of the magnitudes sought, while retaining current living standards. ⁽⁴⁾

1 MAGNITUDE OF THE TASK

1.1 THE STERN REPORT

The Stern Report sought reductions in global emissions of carbon dioxide by 80 per cent of current levels by 2050.  Stern argued that the economic cost will be a total of one pei cent of world GDP, "which poses little threat to standards of living given that the economic output in the OECD countries is likely to rise by over 200 per cent and in developing countries by more than 400 per cent" during this period (P.239).

Stern's forecasts have attracted wide-ranging opinions.  Dasgupta, ⁽⁵⁾ on the assumption oi a constant-population, and no technological change has written, "Suppose the social rate of return on investment is 4% a year.  It is an easy calculation to show that the currem generation in that model economy ought to save a full 97.5% of its aggregate output for tht future^' Nordhaus, ⁽⁶⁾ who believes action should be taken to mitigate global warming nevertheless, also argues Stern's discount rates are too high, and says, "The Review's unambiguous conclusions about the need for extreme immediate action will not survive the substitution of assumptions that are consistent with today's marketplace real interest rates and savings rates." On the other hand Kenneth Arrow ⁽⁷⁾ is broadly supportive as are reviews of the Stern Report by economists including Robert Solow, Amartya Sen and Joseph Stiglitz. ⁽⁸⁾

Among the assessments that have been highly critical of his findings has been that ol Australia's Productivity Commission (PC). ⁽⁹⁾  The PC noted Stern assumes higher temperature increases than the IPCC as a result of carbon dioxide and other emissions.  The PC also noted that the Stern report has no adaptation assumptions, lengthy and spurious suggestions about the cost of health, and in general "draws heavily on studies that have a more pessimistic view on climate change and its impacts and gives little attention to more optimistic views".  The PC was also critical of the low discount rate Stern uses (1.4%) which allows it to come to far higher costs than any other study and argued that Stern, "erred in its failure to present a range of results for different discount rates"

The real economic task involved is demonstrated by the modest outcomes of changed energy policies that Stern cites.  Among these is the relatively minor emission reductions achieved in the EU under its Kyoto commitments.  This is in spite of regulations on energy use and subsidies to renewables as well as a carbon use restraint program based on cap and trade.  The capped emission trade has a tax equivalent that has ranged between €32 and €0.08 per tonne of CO₂ and was around €19 per tonne in November 2008.  This, incidentally, would be enough to increase the Australian wholesale price ol electricity by almost two thirds.  Australian carbon credits in the absence of a full set ol guidelines were trading below the EU price.

Recognising that any CO₂ reduction would need to address the use of fossil fuels, Stern's report saw a form of carbon tax as the key feature of any policy to limit greenhouse gas emission.  He estimated a tax would be required at an initial level of US$100 per tonnt of CO₂ -- which would increase Australian wholesale electricity prices two and a half fold -- and envisaged new technologies cutting in by 2030.  These new technologies, Stern envisaged would drive down the required tax level to around $US35 per tonne.

In addition to these tax effects, the Stern estimates also include other measures like a continuation of existing energy efficiency taxes and programs.  They also incorporate a considerable emphasis on energy saving at the production end.  Moreover, they arc posited on a major contribution from voluntary energy savings, partly stimulated by education programs, drawing upon what the economist Lionel Robbins famously referred to as "that very scarce commodity, human love". ⁽¹⁰⁾

1.2 SOURCES OF CARBON EMISSIONS

IPCC data ⁽¹¹⁾ has sought to identify the share of the various emission sources.  CO₂ in fuel is responsible for over half with methane and deforestation comprising most of the rest.  Figure 1 illustrates the data.

Figure 1:  Global Share of Gases in CO₂ Equivalents

Source:  Technical Summary, WG3 IPCC, Fourth Assessment Report, 2007, p28

Within the energy sector, coal and natural gas comprise 46 per cent with only nuclear and solar etc., at less than 13 per cent, genuinely free of emissions.  Biomass is potentially largely free of emissions and is renewable but presently it mostly comprises obsolete energy supplies like animal dung.

As a share oi 2005 energy use, the United Nations Development Programme (UNDP) estimates are as shown in Table 2.

Table 2:  Primary Energy Supply 2005

	Total primary energy supply (Mt of oil equivalent)	Oil (%)	Coal (%)	Natural Gas (%)	Hydro, solar, wind and geothermal (%)	Biomass and waste (%)	Nuclear (%)
World	11,433.90	25.3	35	20.7	2.6	10	6.3

UNDP, Human Development Report 2007

Emissions themselves are mainly derived from industrial and consumer uses, with about 30 per cent coming from agriculture and forestry.  Figure 2 shows the source of emissions by usage.

Figure 2:  Sources of Emissions

Source:  Technical Summary, WG3 IPCC, Fourth Assessment Report, 2007

There are myriad combinations of ways to reduce emissions.  The measure that presents the easiest to envisage with current technologies involves a shift to nuclear of all the coal and 80 per cent of the gas plant used for energy production.  With those inputs supplying about 75 per cent of CO₂ from fossil use, that would mean a reduction oi some 40 per cent of CO₂ emissions compared to the present supply profile.

As discussed in the following sections, stabilisation of emissions would require the high income OECD countries to reduce their per capita emissions by about 70 per cent and the rest of the world to show no increase.  Hence even far reaching changes as envisaged in a nuclear substitution scenario -- and a renewables substitution would be similar -- would still be insufficient to allow emission stabilisation with current energy usage levels. ⁽¹²⁾

Shifting electricity generation from coal to nuclear power would have a significant but estimatable price tag representing the premium cost of nuclear power over fossil fuelled plant.  While major technological breakthroughs cannot, of course, be ruled out a series of minor breakthroughs is more likely.  Among the latter, one that has attracted considerable attention involves sequestering CO₂ in cement, which the US EPA classes as the third largest source of greenhouse gas pollution. ⁽¹³⁾  Major possible breakthroughs include work by Atlantic Richfield's ArcTech into using termites to convert coal into methane and humic acid, thereby largely eliminating its CO₂. ⁽¹⁴⁾

1.3 THE INITIAL STEPS TAKEN BY THE DEVELOPED COUNTRIES

All developed countries have incurred considerable costs in subsidizing and regulating in favour of high cost energy sources with low emissions.  In spite of this, and the fact that the early gains are likely to be the easiest because they tap into the fabled "low hanging fruit", most major signatories will fail to meet their Kyoto obligations.

Although individual European Union countries will meet their targets -- Germany because of unification, and the United Kingdom because of the shift from coal powered electricity generation to gas -- the EU as a whole is presently falling short and this is likely to be amplified in the 2008-12 period over which commitment results are measured.

Canada, which has often been in the vanguard of countries urging increased action, is among those falling furthest from the goal to which it agreed. ⁽¹⁵⁾

Australia, which claimed to be only 4.5 per cent above 1990 levels in 2005 will, if the economy continues to grow, be some 14 per cent above 1990 levels for the Kyoto yardstick average of 2008-12.  Compared to its highly generous Kyoto target of 108 pel cent of 1990 levels, Australia would be over 30 per cent above its 1990 levels were it not to measure its emissions on the basis of the creative 'Australia clause' in Article 3.7.  Thai clause permits countries for which land-use change and forestry are a net source oi greenhouse gas emissions to count changes to these as part of their measures of nei emissions.  Norway has also benefited from this inclusion of clearing credits and, as a result, will meet its target.

Table 3 is drawn from the latest United Nations Framework Convention report and indicates levels of achievement compared to the 2008-12 targets expressed as the emissions in excess of or below the!990 base level.  The latest data is for 2005 and the levels are expressed on two bases:  with and without counting land use changes as a result of policy towards clearing land for cultivation.  Only the EU taken as a whole is close tc the targets in the form they were originally agreed.

Table 3:  Kyoto Commitments and Achievements over 1990 Baselines

	2008-12	2005 actual
	Target	Inc. clearing	Exc. clearing
Australia	8%	4.5%	25.6%
Canada	-6%	54.2%	25.3%
EU	-8%	-4.0%	-1.5%
Japan	-6%	7.1%	6.9%
NZ	0%	22.7%	24.7%
Norway	1%	-23.1%	8.8%
US	-7%	16.3%	16.3%

Source:  UNFCC, 2007

2 ACHIEVING GLOBAL EMISSION REDUCTIONS

2.1 THE GLOBAL SETTING FOR AN EMISSIONS REDUCTION SCHEME

Difficulties that developed countries have experienced thus far in reducing GHG emission levels are likely to be amplified for many developing countries should they agree to join a post-Kyoto covenant.  And if they do not agree to make reductions in theii emission levels, it is very difficult to see carbon stabilisation occurring without a series oi breakthroughs in non fossil fuel technologies or carbon capture and storage.  At the G8 summit in July 08, developing countries including China, India, South Africa, and Brazil rejected the notion of joining 50% reduction by 2050, indicating the developed world should reduce emission far higher if they were to agree to any reductions of their own.

Fast growing developing countries currently have relatively low per capita levels of carbon emissions.  However, their economic growth is highly dependent on consumption oi fossil fuels and this presents seemingly insuperable obstacles to stabilizing world carbon dioxide emissions.

In 2004, global greenhouse gas emissions (in CO₂ equivalents) were 28,790 million tonnes.  Just over 10 per cent of these were from the former Soviet bloc with the rest split fairly evenly between the OECD countries and the developing world.  Emissions from OECD countries grew at 1.3 per cent per annum between 1990 and 2004.  Those of the developing countries, however, saw annual growth at 5.7 per cent during the same period while the former Soviet bloc's emissions fell by 1.7 per cent per annum.

By 2008, developing countries' emissions exceeded those of the OECD countries.  The faster growth in emissions within developing countries will increasingly dilute any actions taken by the developed OECD nations, ⁽¹⁶⁾ the only group seriously considering abatement measures at the present.  The dilution is further amplified if abatement in the OECD is achieved by the established trend of smelting and other energy intensive activities being re-located to developing countries.  The IPCC report tended to downplay this leakage issue arguing, "Estimates of carbon leakage rates for action under Kyoto range from 5 to 20% as a result of a loss of price competitiveness, but they remain very uncertain." ⁽¹⁷⁾  Given the globalised nature of production and the incentives and necessities of businesses to relocate to venues where even modest cost savings are available, the IPCC's range foi carbon leakage may be too modest.

Table 4 shows the output of aluminium production, probably-the most energy intensive of the main industrial products, by major country.

Table 4: World Aluminium Production

	World	33,410,000
1	People's Republic of China	5,896,000
2	Russia	4,102,000
3	United States	3,493,000
4	Canada	3,117,000
5	Australia	1,945,000
6	Brazil	1,674,000
7	Norway	1,384,000
8	India	1,183,000
9	Bahrain	872,000
10	United Arab Emirates	861,000
11	South Africa	855,000
12	Iceland	721,000
13	Germany	679,000
14	Venezuela	640,000
15	Mozambique	530,000
16	Tajikistan	520,000
17	Spain	399,000
18	France	394,000
19	United Kingdom	366,000
20	New Zealand	330,000
21	Netherlands	313,000
22	Argentina	272,000
23	Romania	270,000
24	Egypt	245,000
25	Iran	240,000
26	Indonesia	225,000
27	Ghana	200,000
28	Italy	198,000
29	Nigeria	193,000
30	Greece	165,000
31	Slovakia	158,000
32	Montenegro	120,000
33	Slovenia	117,000
34	Ukraine	113,000
35	Bosnia and Herzegovina	107,000
36	Sweden	102,000
37	Cameroon	96,000
38	Mexico	75,000
39	Turkey	65,000
40	Poland	50,000
41	Switzerland	44,000
42	Azerbaijan	35,000
43	Hungary	28,000
43	Japan	18,000

Source:  Wikipedia from http://www.altech.is/index.php/id/1802

A summary of the recent trends in emissions is shown in Table 5.

Table 5:  Growth of CO₂ equivalent emissions by region (m tonnes)

	1990	2004	Annual Increase
OECD	11205	13319	1.3%
Former Soviet bloc	4182	3168	-1.7%
Developing Countries	6833	12303	5.7%
Total	22220	28790	2.1%

Source:  Human Development Report 2007/2008, UNDP

The UN Human Development Report illustrates considerable diversity between countries' emission levels per unit of Purchasing Power Parity adjusted GDP (in terms oi kt of CO₂ per million dollars).  In 2004, the poorest countries, such as Angola and Congo, emitted less than 100 tonnes of CO₂ per million dollars of GDP.  Oil rich countries had far higher emission levels (e.g., Kuwait was 1,810;  the UAR 1,570 and Iran 930).  Similarly many former Soviet bloc countries had high emission levels (e.g., Kazakhstan 2,070;  Uzbekistan 3,070;  Russia 1,170).

India and China have different progressions to their current emission levels, perhaps reflecting their different development paths, with China focussed on manufacturing and Indian development more closely associated with the service industries.  Both countries carbon intensity to GDP dropped between 1990 and 2004, India's from 480 tonnes pei million dollars to 440 and China's from 1,300 to 700. ⁽¹⁸⁾

In spite of the rapid growth in developing country emissions, their per capita CO₂ emissions remain considerably below those of the OECD countries.  In 2004, OECD emissions averaged 11.5 tonnes, the US and Canada were at 20 with Australia, the UK and France at 16, 10 and 6 tonnes respectively.  Per capita emissions in developing countries averaged 2.4 tonnes.  Table 6 summarises the position of selected countries and country groupings in 2004.

Table 6:  Carbon Intensity of Energy Emissions, selected countries

	CO2 emissions
	Per capita	Per unit of GDP (kt of CO2 per million 2000 PPP US$)
Selected Countries     Angola     D.R. Congo     Kuwait     UAR     Iran     Uzbekistan     Kazakhstan     India     China     Australia     United States     Canada     UK     France	0.7 - 37.1 34.1 6.4 5.3 13.3 1.2 3.8 16.2 20.6 20.0 9.8 6.0	0.29 0.06 1.81 1.57 0.93 3.07 2.07 0.44 0.70 0.58 0.56 0.69 0.34 0.23
Aggregate Areas     Least developed countries     East Asia & Pacific     Former Soviet bloc     High-income OECD     World	0.02 3.5 7.9 13.2 4.5	0.017 0.63 0.97 0.45 0.55

Source:  UNDP Human Development Report 2007/8

There have been suggestions that the developing countries should be brought into an emission reduction scheme by granting them tradable emission rights.  This offers ostensibly attractive outcomes of all round wins.  Developing countries would be giver rights that would be surplus to their requirements, rather like when post-communisl countries in the former Soviet bloc were brought within the system.  Those countries adoption of capitalist production and pricing methods had encouraged conservation ol resources and meant their previous emission levels were far higher than their reformed economies required.  Granting them their existing levels of emissions and allowing them to trade the surplus amounts handed them windfall gains.

The treatment of the former Soviet bloc countries in this way was crucial to getting theii agreement to the Kyoto Convention and in turn to the Convention receiving the global suDDort necessarv for it to come into force as an international treatv.  But at the same time this vastly expanded me quantities ot permitted emissions oy activating sleeper emission rights.  In this way it somewhat undermined the basic intent of the protocol.

The far greater magnitude of developing country emissions, their less wasteful use of energy and their future need for much higher levels of energy use makes it impossible to adopt a similar approach.  This would be even more difficult if developing countries claimed that they should receive credits for their previously low level of emissions.  Figure 3 illustrates the overwhelming importance of the developed world in past levels of emissions.

Figure 3:  Contributions to atmospheric concentrations of greenhouse gases, 1850-2002

Notes:  This figure shows the relative contribution of developed and developing countries to increases in concentrations from CCte emissions from fossil fuels and cement maaafacrrjrt over the period 1850-2002,

Source:  Carbon Pollution Reduction Scheme, Australian Green Paper July 2008, derived from Kevin Baumert, Timothy Herzog, Jonathan Pershing 2005, 'Navigating the numbers greenhouse gas data and international climate policy', World Resources Institute.

An alternative approach to the carrot of incentives to developing country participation is the stick of penalties for non-participation.  For example, Australia's Garnaut Report cites, with apparent approval, the suggestion of the economist Joseph Stiglitz that a tariff be placed on goods for recalcitrant countries which are not playing the game.  Garnaut also notes that the head of the WTO, Pascal Lamy supports such penalties as a "distant second best solution". ⁽¹⁹⁾

While measures like WTO tariffs on carbon contents of goods may be a background threat to be used to encourage a "voluntary" solution, should this not emerge, such countervailing duty measures would prove extremely difficult to devise.  They would entail a careful estimate of the fossil fuel content of every good and service, an estimate that would clearly be highly variable between products and over time.  In the face of sharp disagreements, it is not difficult to see an attempt to require such compliance as bringing about tne ena or rne present rules unaer wnicn me giooai tracing system operates.

Set against the case for developing countries to receive more generous credits Posner and Sunstein ⁽²⁰⁾ argue that developed countries' previous growth also brought benefits to developing countries.  Posner and Sunstein also point to further difficulties that might emerge in determining a fair allocation of costs.  These include the different levels ol benefits said to accrue from taking action;  Russia for example would be likely to obtain gains from warming and China, the US and Japan are forecast to incur relatively low losses.

Further practical issues in administrating carbon dioxide reduction programs can be seen by examining measures that are already in place to allow signatories' obligations to be acquitted in developing countries through the Clean Development Mechanism (CDM).  There has been a rapid increase in applications to use this approach.  Wara and Victor ⁽²¹⁾ identify at least three problems with CDM-type schemes:

• Many offsets have made use of the refrigerant HCF-23 and created perverse incentives whereby the manufacture of the gas becomes a sideline to the credits it can earn;
• Many offsets are claimed for projects that would have proceeded anyway;  and
• Verification of projects' emission savings is unreliable.

These matters aside, it would require the adoption of as yet unknown fundamental technological developments to achieve stabilisation at 2004 levels of 28,790 million tonnes under any practicable or fair apportionment of the emission levels.  If the trajectory were global, stabilisation by 2030 with OECD countries reducing theii emission levels by 20 per cent and the former Soviet bloc holding their emissions constant, then this would require developing countries to limit their increases in emissions to 15 GT (by 22 per cent) as illustrated in Table 7.

Table 7:  Emission Stabilisation Scenario
(million tonnes of CO₂ equivalent)

	2004	2030	2030 bau (22)
OECD	13319	10655	18350
Former Soviet bloc	3168	3168	3168
Developing Countries	12303	14967	36671
Total	28790	28790	58188

Source:  Derived from Human Development Report 2007/2008, UNDP

While superficially generous to the developing countries, the 22 per cent increase is a massive reduction compared with business-as-usual growth levels.  Compared with the 15 billion tonnes of carbon dioxide equivalent projected under this scenario, business-as-usual levels -- based on previous growth rates -- would see developing countries emitting over 37 billion tonnes in 2030.

Moreover, because of their population growth, limiting developing countries' emission levels to 15 billion tonnes of carbon dioxide equivalent would result in their emissions per head actually falling.  Developing countries in 2030 are estimated to have a population at 7.2 billion, ⁽²³⁾ and under the scenario in Table 7 their per capita emissions would fall from 2.4 tonnes to 2.3 tonnes.  This is one fifth of the OECD 2004 per capita average of 11.5 tonnes and only a quarter of the OECD average in 2030 (7.9 tonnes) once a 20 per cent reduction and population growth is incorporated.

Many other scenarios can be examined.  At one extreme, if developing countries were tc maintain their 1990-2004 levels of increase and the former Soviet bloc's emission levels remained constant, this would leave virtually no emissions for the OECD group in 2030.  Even under that scenario the developing countries' 2030 per capita emissions would be less than one third the current OECD level.

Perhaps the most readily supported basis of allocating emissions would be on an equal per capita basis for all countries. ⁽²⁴⁾  With a 20 per cent reduction, this would require emissions per capita to be limited to 3.4 tonnes.  Such a task would be Herculean foi those countries presently in the over 15 tonne per capita category.  Chancellor Merkel's proposal of halving present global emission levels would further magnify the difficulties involved.

OECD countries' current per capita emissions and the percentage reduction necessary tc bring these to a world average of 3.4 tonnes are illustrated in Figure 4.  The 3.4 tonnes per capita level is equivalent to an average overall 20 per cent reduction on 2004 levels.  The 2004 emissions are shown by the bars measured against the left hand axis.  The reductions for the selected countries are illustrated by the blue line measured on the right hand scale.

Figure 4:  OECD Countries' Per Capita Emission Reduction Requirements
(with Aggregate Emissions 20 per cent Below 2004 Levels)

Source:  Derived from Human Development Report 2007/2008, UNDP

Ominously for those seeking lower emissions, China's per capita emission levels have already been noted as indicative of the magnitude of a stabilisation task.  At 3.8 tonnes ol CO₂ equivalent per capita in 2004, China already exceeded the 3.4 tonne global average target, in spite of massive reductions in its energy intensity.

Any debate over emission reductions in practice is likely to follow the negotiated course that characterised the Kyoto Protocol's agreement.  Countries, at least those intending tc abide by obligations they agree to, will seek to point to special circumstances that make them unable to follow a general standard, the most obvious of which is equal emissions per capita.  Many countries will argue that they are producing goods entailing high carbon emissions for consumption in other countries;  others will argue that theii geography requires intrinsically higher emission levels, that special features of theii location or their agricultural profile means they require higher than average emission credits or that they are natural sinks for CO₂ and should obtain some recognition for this, and so on.

The developed countries are likely to call for a weighting to be given to emission levels per dollar of GDP, which rewards them for their higher levels of carbon "efficiency" in producing each unit of GDP.

Against this, developed countries are likely to require above average quotas in recognition of their previously low levels of emissions, which were summarised in Figure 3.  Figure 5 illustrates this in greater detail, showing that by 2030, OECD countries with about 15 per cent of the world's population will cumulatively have produced 54 per cent of the world's emissions since 1990, while developing countries with 85 per cent or the population will have accounted for under 20 per cent.

Figure 5

Source:  IMF "World Economic Outlook".  2008 Chapter 4 Climate Change and the Global Economy

2.2 PATHS TO EMISSION REDUCTIONS

Barring some presently unforeseen technology breakthroughs, if developing countries were somehow forced to hold their emissions at their present levels, they would be unable to close the gap with the developed world's living standards.  If developed countries were required to reduce their emissions to the current world average of around 4 tonnes pei capita, this could only be possible with (1) a fundamental shift to low-carbon economies.  (2) a markedly reduced living standards or (3) a drastically different lifestyle.

As previously discussed, a radical nuclearization of electricity generation would produce less than a 40 per cent reduction in carbon dioxide equivalents.  It would also be a 'one-shot' reduction requiring additional emission reductions or substitutions out of energy ii living standards were to be allowed to increase.  Even a massive conversion to nucleai would come at considerable cost in the abandonment of wealth in such assets as coal and in the diversion of capital from more productive venues.

There is, of course, the prospect of new technologies emerging.  Draconian cuts in emission levels would require taxes or prices on emission levels that would certainl) stimulate the discovery of these as well as energy use economies.  But the necessary technological breakthroughs are, as yet, commercially unproven.

Those promoting actions are more sanguine.  The IPCC and others have modelled man) scenarios, which purport to show the task, one version of which Table 8 exemplifies.

Table 8:  Areas of Estimated Emission Reductions

Chapter of report	Estimate	Sector-based ("bottom-up") potential by 2030 (GtCO2-eq/yr)				Economy-wide model ("top-down") snapshot of mitigation by 2030 (GtCO2-eq/yr)
		Downstream (indirect allocation of electricity savings to end-use sectors		Point-of-emissions allocation (emission savings from end-use electricity savings allocated to energy supply sector)
		Low	High	Low	High	Low	High
		"Low cost" emission reductions:  carbon price <20 US$/tCO2-eq
4	Energy supply	1.2	2.4	4.4	6.4	3.9	9.7
5	Transport	1.3	2.1	1.3	2.1	0.1	1.6
6	Buildings	4.8	6.1	1.9	2.3	0.3	1.1
7	Industry	0.7	1.5	0.5	1.3	1.2	3.2
8	Agriculture	0.3	2.4	0.3	2.4	0.6	1.2
9	Forestry	0.6	1.5	0.6	1.9	0.2	0.8
10	Waste	0.3	0.8	0.3	0.8	0.7	0.9
11	Total	9.3	17.1	9.1	17.9	8.7	17.9
		"Medium cost" emission reductions:  carbon price <50 US$/tCO2-eq
4	Energy supply	2.2	4.2	5.6	8.4	6.7	12.4
5	Transport	1.5	2.3	1.5	2.3	0.5	1.9
6	Buildings	4.9	6.1	1.9	2.3	0.4	1.3
7	Industry	2.2	4.7	1.6	4.6	2.2	4.3
8	Agriculture	1.4	3.9	1.4	3.9	0.8	1.4
9	Forestry	1.0	3.2	1.0	3.2	0.2	0.8
10	Waste	0.4	1.0	0.4	1.0	0.8	1.0
11	Total	13.9	25.7	13.2	25.8	13.7	22.6
		"Medium cost" emission reductions:  carbon price <100 US$/tCO2-eq
4	Energy supply	2.4	4.7	6.3	9.3	8.7	14.5
5	Transport	1.6	2.5	1.6	2.5	0.8	2.5
6	Buildings	5.4	6.7	2.3	2.9	O.6	1.5
7	Industry	2.5	5.5	1.7	4.7	3.0	5.0
8	Agriculture	2.3	6.4	2.3	6.4	0.9	1.5
9	Forestry	1.3	4.2	1.3	4.2	0.2	0.8
10	Waste	0.4	1.0	0.4	1.0	0.9	1.1
11	Total	15.8	31.1	15.8	31.1	16.8	26.2

Source:  WG3 IPCC, Fourth Assessment Report, 2007, p.636

Many individual country estimates go into great detail in specifying the areas where energy savings are to be made -- a recent Australian study not only made such estimates for domestic appliances but also identified projected new developments in such considerable detail that it included water beds. ⁽²⁵⁾

Table 9, also reproduced from the IPCC, estimates the sort of reductions expected from different effective tax rates.  It illustrates two of the 40 "storylines and scenarios" suggesting that even with no tax 5-14 per cent reduction in emissions will take place, that a tax of $50 per tonne of CO₂ would increase that to 13-52 per cent and a tax of $100 would increase it to 16-63 per cent.

Table 9:  Global economic mitigation potential
in 2030 estimated from bottom-up studies ⁽²⁶⁾

Carbon price (US$/tCO2-eq)	Economic potential (GtCO2-eq/yr)	Reduction relative to SRES A1 B (68 GtCO2-eq/yr} (%)	Reduction relative to SRES B2 (49 GtCO2-eq/yr) (%)
0	5-7	7-10	10-14
20	9-17	14-25	19-35
50	13-26	20-35	27-52
100	16-31	23-46	32-63

Source:  Technical Summary, WG3 IPCC, Fourth Assessment Report, 2007, p77

Though some quite extraordinary detail about the expected reductions is offered in Tables 8 and 9, the numbers should not be interpreted as providing anything beyond conjecture.  We have not got the information to be able to model behaviour in response to price (or regulation) with the level of detail offered by the IPCC work.  Historical price data that is available to allow estimates to be made is of two sorts.  The first is associated with relatively small changes in price.  The second relates to infrequent large changes that have previously occurred in the context of readily available alternative supply sources;  for example with dramatic oil price increases where fossil fuel substitution was possible and where energy intensive activities could shift to locations where energy prices remained low.  Neither of these experiences offer sound bases for forecasting the kind of outcomes required to reduce CO₂ emissions by the quantities sought.

3 CONCLUDING COMMENTS

ADDRESSING THE ISSUES

There have been many suggested targets for emission reductions.  The Stern Report sought an 80 per cent reduction from present levels and Professor Stern has reiterated such calls. ⁽²⁷⁾  Others have called for stabilisation at 2004 levels.

Any of the targets would require sweeping technological innovations, to allow the substitution from fossil fuels or living standards which, at least on a global scale, would be vastly lower than those that are being anticipated.

It is not difficult to reduce consumption of goods and services for which alternatives are available.  Thus the world's steel industry adjusted to the oil price hikes in the 1970s by almost eliminating its use of petroleum products and substituting coal.  It is even easiei to envisage economising on other products like beef when substitutes are available.

It would be far less easy to envisage reducing consumption of broadly defined goods like food or housing to a degree approaching 80 per cent.  In the case of both products such economising would be possible (for food by reducing the consumption of grain-fed animals and other low efficiency calorie converters).  But meeting the proposed GHG targets is likely to cause a considerable loss of consumer satisfaction and a sacrifice in living standards.

Presumably those calling for radical reductions in carbon emissions, especially when they are also largely rejecting nuclear power, consider reductions in carbon emissions have penalties akin to reducing a sub-component of a major demand category like food 01 shelter.  They consider that man's ingenuity, given adequate incentives, will discover low cost alternatives and means of satisfying demand in ways that use a different mix ol inputs and outputs.

Such notions appear to be highly optimistic.  Already we have seen prices of low carbon emitting fuels increase markedly -- before falling at the end of 2008, gas prices more than trebled over recent years -- in response to an aversion to coal use in Europe and North America.

Using the food analogy, if we were told that the consumption of fish would need to be reduced by 80 per cent, this would require a very large tax on fish but the availability of substitutes is such that the aggregate loss of economic welfare would be small.  Contrast that with the outcome if the reduction were to be food in general.  At issue is whether carbon emissions are so pervasive in the production of energy that taxing them so that they are reduced by 80 per cent would have an effect closer to the analogy of food or fish.

Even for targets involving less than an 80 per cent reduction in emissions, considerable restructuring and costs would be required.  For stabilisation at 2004 levels, a wholesale replacement of coal and gas by nuclear for electricity generation would be capable ol achieving some but by no means all of the required reductions.

Some indication of the practicality of emission levels that are achievable from this approach is illustrated by low carbon economies such as France, Switzerland and Sweden.  In all three cases nuclear power dominates, with hydro playing important roles in Sweden and Switzerland, and all three produce less than 6 tonnes of carbon dioxide equivalent per capita.  Even so, this remains a far cry from the 2-3.4 tonnes of CO₂ equivalent per capita that is necessary with stabilisation at 2004 levels.

Adoption of nuclear power presents the only lowish cost option to move the world substantially towards stabilising emissions, however, many of those pressing most strongly for emission reductions are also tenaciously opposed to this form of electricity generation -- astonishingly the first Australian Garnaut report ⁽²⁸⁾ did not even mention it. ⁽²⁹⁾

While more attainable than some approaches, even an extensive replacement of fossil fuels with nuclear power is a task of considerable magnitude.  For many countries resource rich in fossil fuels, the journey will mean a huge sacrifice of living standards compared to those that would otherwise prevail.  Some would see levels of wealth loss that would be difficult to compensate.

The ubiquity of carbon in our lives offers the medium by which controls can be all-encompassing.  This was strikingly observed at the "2020 Summit" called by Australia's Prime Minister, Kevin Rudd, in April 2008, just a few months after his election.  The Prime Minister told that summit of 1,000 of Australia's selected leaders and thinkers that climate change "overarches all".  And the leader of the environment panel at the Summit called for "robust institutions to support" a climate change agenda encompassing "government expenditure, tax, regulation and investment".

Even so, Australia demonstrates considerable policy confusion, not least because measures to suppress domestic CO₂ emissions are accompanied by continued enthusiasm for coal exports, which comprise 23 per cent of the country's total exports.

The task of bringing a stabilisation of world emission is difficult to understate.  Australia, since the April 2008 Summit, has issued two reports by Professor Garnaut, modelling exercises and a Green and White Paper mapping out its agenda for a comprehensive "Carbon Pollution Reduction Program" involving a tradeable rights system, largely based on auctions, and additional regulatory measures.  The objective, a reduction of emissions by 60 per cent by 2050, would still leave Australia at double the level required roi stabilisation at a uniform per capita emission level.

Garnaut's Draft Report, Targets and Trajectories ⁽³⁰⁾ argued that Australia would suffer an eight per cent loss of GDP by 2100 under business-as-usual (four times the global costs posited by Stern) and recommended a tax of $20 per tonne of CO₂-e in 2010 rising to $30 in 2020.  This was projected to bring a 10 per cent reduction in emissions by 2020, rather less than the amount inferred by the Government's Green Paper issued in July 2008. ⁽³¹⁾  The Garnaut report also contemplated halving the Australian 2020 reduction il China and other major emitters failed to participate, a response which begs serious questions since it would surely be an empty gesture for Australia to impose upon itseli emission reduction costs if the world at large did not do so.

The modelling by the Australian Treasury, ⁽³²⁾ which was issued separately but also formed the basis of the modelling results of Garnaut, used a price of $A20 per tonne of CO₂ (2005 dollars) escalating over time and estimated the cost to the economy of stabilisation would be only two years loss of growth by 2050 or 4.7 per cent of GDP.

Global stabilisation is modelled at 550 parts per million of CO₂-e and is on the basis that all nations phase in targets (China, for example, by 2015).

Although Garnaut suggested that force, international sanctions and perhaps a new international trading regime might be necessary to ensure countries reduced theii emissions, Treasury has taken a controversial, almost unworldly, view that, "Where emission pricing is gradually introduced across the world, countries that defer action face higher long-term costs, because global investment is redirected to countries that act early.  Australia therefore benefits from being an early mover in a multi-stage world."

The modelling forecasts a great deal of trading.  It has Australia, in the central Treasury scenario (called Garnaut 10), buying 293 MT CO₂e, 40 per cent of its needs in 2050 at $US 91 per tonne (in 2005 prices) or over $US 26 billion per annum.  Such numbers are largely determined by assumptions on how cheap it is for countries to mitigate emission relative to each other.  The US and China are said to find easy opportunities to do this while countries like Australia, the EU and the OPEC countries are in the world market buying the permits -the former Soviet bloc is spending over $200 billion a year buying credits.

As with all modelling, that of the Australian Treasury is dependent on the assumptions employed.  Critical in this respect are the following:

• Responsiveness of energy demand to higher prices;
• Substitution of energy for other goods and services due to higher prices;  and
• Technological developments of non-carbon energy sources and the abilities to sequester carbon cheaply.

And irrespective of the richness of the inputted data and the complexity of the interrelationships assembled, the answers are driven by assumptions on these matters which, for the period involved and the magnitude of changes required, are little more than educated guesses.  In this respect it is useful to consider how forecast scenarios might have coped with imagining a world fifty years hence in 1960.  They would have had to envisage the Internet, mass air travel, mobile phones, the collapse of communism and the rise of India and China.  No forecasts could have picked these changes.

CONCLUSIONS

• The sort of GHG reduction target that the scientists believe is necessary to avert climate change involve stabilisation of CO₂-e emissions at their present level ol around 550 parts per million (ppm).  Many argue that a trajectory to 450 ppm is necessary.  Politicians in developed countries have in general endorsed the need for emphatic action to address emissions.
• Under a business-as-usual scenario, emissions are likely to be more than double 2004 levels by 2030 and to continue rising thereafter.  In July 2008 the G8 called for a reduction in emissions by 50 per cent by 2050.  Meeting such targets in the time frames proposed is challenging, requiring significant resources and resourcefulness.
• The following chapters of this book examine the difficulties and explore ways in which the emission reduction targets might be approached.

---

ENDNOTES

1.  Stern Review, "Economics of Climate Change", 2006.

2.  As Fawcett, Hvelplund and Meyer point out in their chapter, German chancellor Angela Merkel was calling for a halving of global emission levels to two tonnes per capita, though the global financial crisis has shifted her priorities towards industry assistance.

3.  In this respect, a spokesman for the Bangladesh high commission in London said in response to the news that UK aid for climate change was to be in the form of loans, "The climate situation has not been created by us.  The money should come spontaneously from rich countries and not be a loan." http://www.guardian.co.uk/environment/2008/may/16/clinriatechange.internationalaidanddevelopment.  China in its October 2008 White Paper "China's Policies and Actions for Addressing Climate Change" argued that cumulative emission levels were the appropriate measure.

4.  The nuclear issues are further addressed in the chapter by Rothwell & Graber;  clean coal is examined in the chapter by Lackner et al.

5.  Sir Partha Dasgupta Comments on the Stern Review's Economics of Climate Change University of Cambridge, November 11, 2006.

6.  William Nordhaus, The Stern Review on the Economics of Climate Change, May 2007.

7.  K.J. Arrow (2007), Global Climate Change:  A Challenge to Policy, Economist's Voice, 4 (3).

8.  http://www.cambridge.org/catalogue/catalogue.asp?isbn=9780521700801

9.  The Stern Review:  as assessment of its methodology, Staff Working Paper, Productivity Commission, January 2008

10.  The University of Aston's Professor Julia King has argued for a plan to 'educate' children so that they can help shape parents purchases of cars etc to be 'green.' Professor King was appointed by the Chancellor of the Exchequer, Gordon Brown, to lead the 'King Review' to examine the vehicle and fuel technologies to help to reduce carbon emissions from road transport.  The interim analytical report (Part 1) was published on 9th October 2007.  Personal communication, Paul Biggs Birmingham University.

11.  IPCC Fourth Assessment Report, Working Group III Report "Mitigation of Climate Change.

12.  See nuclear chapter in this volume for further details

13.  Carbon sequestering in cities, Calera cement, and maybe Vinod Khosla first trillionaire in 2020.

14.  Lisa Margonelli, Gut Reactions

15.  As described elsewhere in this volume, the orovince of Ontario clans to chase out its coal by 2014

16.  For a discussion of the role of China, refer to chapter by Lewis et al in this volume.

17.  WG3 IPCC, Fourth Assessment Report, 2007, p622

18.  The chapter by Lewis et al. discusses the trends for China.

19.  Garnaut Draft Climate Change Review, p.324, July 2008.  Border tariffs on carbon intensive products from countries that fail to take action comparable to the US also feature in the Waxman-Markey Bill.

20.  Posner A.E. and Sunstein C.R., Global Warming and Social Justice, Regulation, Spring 2008.

21.  Wara, M.W., and Victor D.G., A Realistic Policy on International Carbon Credits, Working Paper 74, Program on energy and Sustainable Development, Stanford University, April 2008.

22.  Based on projecting emissions per head forward at the compound average rates 1990-2004 for OECD (1.24%) and DCs [4.29%) with the former Soviet bloc constant

23.  Derived from Population Reference Bureau

24.  Refer to chapter by Fawcett et al in this volume

25.  Government of Victoria, Department of Premier and Cabinet, Understanding the Potential to Reduce Victoria's Greenhouse Gas Emissions, Prepared by the NOUS Groups and SKM, December 2007.

26.  The estimates refer to SRES A1 B:  a high economic growth scenario with a median forecast of technology development introducing reduced emissions;  and SRES B2 with lower economic growth and diminished material intensity of the GDP and a relatively rapid innovation and take-up of resource efficient technologies.  The 2030 CO₂ equivalent of compounding the 1990-2004 growth rates of the OECD and developing countries (with the former Soviet bloc constant at 2004 levels) is 58 Gt.

27.  http://www.theaustralian.news.com.au/story/0,25197,23627804-11949.00.html

28.  Garnaut Climate Change Review, lnterim Report - Feb 08

29.  The final Garnaut Report (September 2008) does discuss nuclear but dismisses it as a possiblesourceof energy for Australia because of capital cost increases, better possibilities that Garnaut speculates will become available in carbon capture and storage and because of public opinion.

30.  Garnaut Climate Change Review, Targets and Trajectories, Draft Report September 2008

31.  Carbon Pollution Reduction Scheme, Green Paper, Department of Climate Change, July 2008

32.  Australia's Low Pollution Future