Ross Garnaut has recommended that Australia adopt a carbon emissions reduction target of minus 17 per cent by 2020.  With the Climate Change Authority currently deliberating on the Caps and Targets Review, Garnaut’s weight behind a -17 per cent target could be a significant factor in priming the debate.

Garnaut (author of the seminal Garnaut Climate Change Review in 2008 and an update in 2011) and Anthea Harris (the CEO of the Climate Change Authority) spoke at a series of events last week, hosted by the Grattan Institute and the CCA  They discussed the critical issues that will need to be considered in the Caps and Targets Review, launched recently by the CCA with the release of an Issues Paper.  This review will provide recommendations to Government on the carbon targets that should be adopted by Australia.

The recommendations of the Authority remain critical even if the existing carbon pricing scheme is repealed following the next election.  Regardless of the mechanism that is adopted, Australia will be under substantial international pressure to commit to a level of ambition, and to implement credible policies to achieve it.

At the seminar, Garnaut (also former senior economic addvisor to the Australian Government and former Australian Ambassador to China) provided a summary of the reasons for his recommendation of a -17% by 2020 carbon target for Australia.

Discussion focused around the substantial action that is being taken in other major economies around the world, and the necessity for Australia to “do our fair share”, in line with those international actions.  In particular, Garnaut emphasised that the USA, Canada and Australia stand out as three developed nations with similarly high emissions and high population growth, and that we should therefore aim to reduce our emissions in line with the USA and Canada.  Canada has already stated that they will match the USA, and Garnaut proposes that it is hard to argue why Australia should not similarly follow the USA’s lead.  Not only should we adopt the same target as the USA, we should also commit to go further if they go further.

So, then, what is the USA doing?

At the Cancun United Nations negotiations in 2010, President Obama committed the USA to an emissions reduction target of -17% by 2020 (below 2005 levels).  This has been somewhat ignored in Australia’s carbon targets debate, because policy to implement a national carbon pricing scheme to achieve this target was filibustered by the US Senate.

However, the USA remains committed to this target, both in spirit, and in writing with the UNFCCC.  Garnaut recounts his long personal discussions with Steven Chu, the Nobel laureate US Secretary for Energy.  Chu said that he was disappointed that their emissions trading scheme didn’t make it through the Senate, because they saw that as the cheapest and most efficient way to achieve their emissions reduction target.

However, failing that, they will still achieve their target but will simply need to attack it in a more expensive and less efficient way, using a proliferation of regulatory measures.  The USA is implementing a wide range of measures which have successfully put the USA on track to achieve their -17% commitment.  The USA, originally intending to aim for emissions peaking in 2025 has actually seen emissions peak in 2007, and is already at a 12% reduction (from 2005 levels).

Garnaut didn’t clarify whether he is proposing that Australia adopt the same reference year as the USA (2005), or whether he is proposing that Australia should aim for a 17% reduction from 2000 levels (the reference year adopted previously by the Australian Government when discussing targets).

If Australia were to adopt a -17% target from 2005 levels, this would equate to around a ‑11% target from 2000 levels (varying somewhat depending upon assumptions around the inclusion of land use and so on).  Garnaut does indicate that his assessment is that the conditions laid down by the Government for moving to a -15% by 2020 target (from 2000 levels) have been broadly met, which suggests that the -17% target he is recommending is referenced against the 2000 year.

In either case, the target Garnaut is recommending is substantially more ambitious than the -5% by 2020 target that the Australian Government has previously committed to as a minimum (with bipartisan support).

Garnaut also points out the ambitious -30% target offered by the European Union (EU), if the rest of the world commits to a similar level of ambition.  Garnaut’s analysis suggests that the low prices in the EU carbon market at present are only partially due to a slowdown in economic activity.

He proposes that a large part of it is due to the fact that the EU has found it much easier to meet their targets than originally anticipated.  Many EU nations have implemented additional interventionist policies, including high carbon taxes (in addition to the EU-wide price), feed-in tariffs for low carbon energy, and other forms of regulatory intervention.  The combination of these factors has meant that the EU carbon pricing scheme hasn’t had to do too much work to achieve their targets, which provides the opportunity for more ambition.

This appears to be a common theme – Garnaut states that wherever carbon targets have been set and a nation has made a concerted effort to meet them, they have achieved those goals more easily than anticipated.  This reflects the fact that economies will always find more abatement than is modelled, allowing the opportunity to tighten targets for a better global outcome at less than the originally anticipated cost.

Finally, Garnaut points out that the biggest change of all is coming from China, in terms of quantity of emissions reduction from business as usual.  They have set truly ambitious targets, and are meeting them through a wide range of activities, including substantial structural change in the Chinese economy.  These actions are driven by a wide range of objectives, including environmental drivers, desire for expansion of the role of services in the economy, and desire for more equitable income distribution.

Garnaut cautioned against assuming that the present low carbon prices in the EU scheme will continue (which would lead to low carbon prices in Australia, due to the linking of our schemes).  There is genuine uncertainty over whether the EU may decide to tighten targets, pushing prices to levels much higher than today, and taking effect as early as 2015.  This is a powerful factor influencing long term investment decisions.  Those businesses that choose to invest in carbon‑intensive activities are therefore assuming substantial risk, even if carbon prices at that time are low.

At the seminar, Anthea Harris also provided a concise summary of the Caps and Targets issues paper, outlining the role of the Climate Change Authority, and the scope and approach that will be applied to this review.  She emphasised the diverse range of factors that will need to be taken into account, including climate science, assessments of Australia’s “fair share”, international actions, and the economic and social implications of various target ranges.

Anyone interested in a thoughtful summary of the challenging process that Anthea Harris will be navigating over the coming months should watch the full seminar video here.

Dr Jenny Riesz is a research fellow with the Centre for Energy and Environmental Markets at the University of NSW.